What is decentralization?This term has become synonymous with security, reliability, user protection… and today we would like to unpack what decentralization stands for!
In order to understand what decentralization is, let’s first look at how centralized systems work. There, you always have a central authority that decides on the rules of the system, usually in the form of a bank or government. Decentralized structures eliminate the very need of a centralized authority: all rules of operation have already been set using smart contracts. The system can function with virtually no human input whatsoever.
Decentralized protocols and apps (DApps) are characterized by their high level of security and the fact that they are built on the blockchain. They work through consensus mechanisms, and can be, in some ways, similar to smart contracts, but more featureful.
DApps always meet certain criteria, such as employing cryptography, distributed storage solutions and deploying their own currencies that fuel their operation. All data in such apps are stored on the distributed, decentralized blockchain that is available to everyone, they are open source more often than not, and are capable of running autonomously. Updating the app requires consensus among token holders.
The technology behind decentralization in Bitcoin and most other cryptocurrencies is called blockchain, and it gives every user the ability to serve as a node that checks the validity of transactions.
The first cryptocurrency that was developed was Bitcoin, which was also first to properly utilise Blockchain. After Satoshi Nakamoto had devised the very first Blockchain database, Bitcoin was set-up as a network. The Bitcoin network relies on mining, which is the process of validating transactions and minting new BTC. Transactions on the BTC network follow the peer-to-peer structure, which means funds are sent directly from one user to another, involving no middlemen or authority, such as banks, regulators, governments, etc.
What do users get from decentralization?Here are a few key advantages that users get from decentralized systems:
Free from third party’s, safe from hacking
Less censorship. Governments often restrict their citizens’ access to various websites and social media. Censoring traffic in a peer-to-peer network is much more difficult, because every package can be sent to every other node on the network, and they will relay this data further.
Most of the applications on the network are open source. Anyone can create their own applications with it. The more decentralized products come out, the more advantages and opportunities open up for the network users.
Proper economic incentives. Users who support the network get rewarded for it financially. The more support they provide, the more they are rewarded.
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