This website uses cookies to ensure you get the best experience. By using the site, you agree to our privacy policy and Terms of use.
why decentralization matters

Why Decentralization Matters?

Published On: November 16, 2022
*Note: this article is published after the fallout of FTX

You might have heard what happened with FTX recently, where their customers did a massive bank-run on the exchange. The fallout of FTX has caused a huge impact on the crypto market, with many other big companies predicted to fall next.

If you don’t know what happened, you can check our news page about FTX here.

You know, cryptocurrencies and blockchain technology are supposed to solve centralization issues. They are supposed to help people do transactions peer-to-peer without the need to trust a centralized party. In the case of FTX, their team mismanaged user funds, and they got away with it due to their centralization system. 

We can only hope that with what has already happened, eventually crypto users will learn to take care of their own crypto assets in non-custodial wallets.

It is super important to never put your crypto funds with centralized exchanges (CEX-es), you should only use them to trade from one crypto to another, and pull out as soon as you have completed the trade. Even when it comes to crypto trades, you should prioritize using a DEX (decentralized exchange). Only if you cannot find enough liquidity on DEX-es, you should try to use CEX.

Imagine if everybody is hodl-ing his crypto assets in his own Metamask or Ledger or Trezor wallet, none of this would have happened. It’s super important to never trust centralized parties with your funds. Not your keys, not your crypto.

To start learning, you can check our how to use Metamask tutorial. Hopefully this will allow you to stop being dependent on CEX-es.

Decentralization Is Not Only About Ideology

To understand the importance of decentralization over centralization, let's learn the basics. Blockchain is built upon the decentralization principles but adds several layers of complexity. The basic idea behind blockchain is simple enough; each node within a network holds a copy of the ledger.

Each time a transaction occurs, a new block is added to the chain. These blocks contain records of all transactions made since the beginning of the chain. Because they're linked together chronologically, any change made at one point affects all subsequent points along the line. 

That means no single user controls access to the system, and there's no central server that could be hacked into. All users share equal rights to view the contents of the ledger. And because everyone knows exactly what happened, nobody needs to rely on someone else to verify the validity of anything. 

Distributed ledger applications provide transparency into ownership and control over these assets. They do this through the use of cryptography to ensure immutability and authenticity of records. These allow users to share information directly with each other rather than relying upon any central authority. This is important because all the records related to those decentralized applications are immutable.

Why the Need to Decentralize?

Decentralization is important because centralization causes independence to central authorities. Blockchain enables users to transact directly without going through intermediaries due to its decentralization that requires consensus to reach an agreement between participants. 

No one needs permission to access the records in the blockchain; they simply exist within everyone’s device. Any changes made to those records would immediately become visible across the whole network.

Decentralization Enables Data Reconciliation

Data silos exist everywhere today. They house everything from financial records to patient health histories. And they're notoriously difficult to share across organizations. That means companies must send sensitive data through multiple channels before reaching its final destination. 

At any point along the way, there's a chance something could happen to the data. Data storage becomes fragmented over time, leading to lost files, corrupted databases, and inaccurate results. To avoid these problems, businesses should move toward a decentralized solution. 

Decentralized networks also allow users to take control over their own data and privacy. They do this by operating independently rather than relying entirely on centralized servers. Centralization has its benefits, but it also creates weaknesses that can result in system failures. 

For example, centralization means having only a few large companies running the majority of web traffic. That leaves smaller businesses at risk of being shut down or blocked altogether during times of political unrest.

Decentralization Distributes Resources Efficiently

Decentralized networks allow users to access applications directly through their own computers rather than having to rely upon centralized servers. These networks provide a number of benefits including increased privacy, lower latency, enhanced scalability, and greater reliability.

Decentralized vs. Centralized Computing Systems

Decentralized applications should be used over centralized alternatives because they remove the dependency on a central authority. 

Blockchain networks offer several advantages compared to traditional databases and centralized servers. Because they're decentralized, there's no single point of failure; instead, multiple computers work together to maintain a shared copy of the ledger. That means network downtime won't result in lost records. 

Always remember when it comes to centralized exchanges, they actually use centralized and traditional databases, and they don't live directly on blockchain networks.

We have a more in-depth understanding between centralized vs. decentralized networks. Check it out and let us know what you think.
Did you like this article?