Decentralization, in blockchain, refers to the transfer of control and decision-making power from a centralized entity (individual or institution) to a distributed network.
The essence of decentralization is to markedly minimize the extent of trust that must exist among the users and significantly reduce the level of control or authority they have over themselves in ways that harms the functionality of the network.
Bitcoin as a decentralized system
Bitcoin is a decentralized digital currency that records transactions in a distributed ledger known as a Blockchain. Bitcoin is the most successful out of several attempts to produce virtual money through cryptography. Bitcoin has inspired the advent of other forms of cryptocurrencies. It remains, for the entirety of the past decade, the largest cryptocurrency by market capitalization. Now, how does Bitcoin decentralization work?
How does decentralization work on Bitcoin?
The decentralization of Bitcoin is dependent on some of the features in the system. The integrity of transactions is upheld through very secure encryption. When miners verify transactions and add them to the Bitcoin Blockchain, they are rewarded with a newly-created Bitcoin. This, consequently, implies that the processing of transactions is not centralized. Rather, individuals compete for the right to verify and add transactions on the Blockchain – They do so through “proof of work”. This ensures the accuracy of the Blockchain.
The miner who successfully solves the complicated math problems – which often requires tremendous computing power – is the one who eventually “wins” the right to add the block (a new transaction) to the Blockchain. The miner could be anyone across the globe. To further illustrate Bitcoin decentralization, if a miner fails or chooses not to add a verified transaction to the Blockchain, he is swiftly replaced by a willing member (or user).
Benefits of decentralization
When designing a new technology solution, there are certain basic network architectures that are considered: centralized and decentralized.
Decentralization is important to correct the concentration of authority in a system and should be adopted by all aspects of any blockchain application. This spread of power among members ensures that fairer and better services are delivered. Even though decentralization has a major downside of lower transaction throughput, these tradeoffs are worth the levels of service and enhanced stability they offer. Decentralization is one of the key contributors to the security of trading on bitcoin. This can be experienced by adopting several trading tools, including Bitcoin formula. Some other benefits decentralization provides are discussed below:
Decentralization provides a trustless environment
Members of a decentralized blockchain network are not required to trust or know one another. They have a copy of similar data in the form of a distributed ledger, which records all transactions. If a user’s ledger is corrupted in any way, it is disproved and rejected by the entire network.
It enhances data reconciliation
It is not a strange fact that companies exchange data with their trusted partners. In turn, this data is improved and appropriately stored, only to be used when it is needed to be shared downstream. Whenever the data is transformed, there is always a chance for data loss or error to creep into the workstream. A decentralized system enables every member to have full access to a real-time view of the data.
Reduces points of weakness
Decentralization in blockchain technology ensures that significant points of weakness are exposed and worked on. These points could result in overall system failure. By tackling them, the number of weak points in the network is significantly reduced, encouraging better service and the general improvement of the system.
It enables resource distribution
Decentralization can also ensure that the distribution of resources is carried out optimally so that promised services are offered with greater performance and consistency, alongside a reduced likelihood of general failure.
Decentralization is what makes Bitcoin such a reliable network. It ensures that every member of the network works hand-in-hand with the others. It also ensures that the system is efficiently improved and maintained by collective action.