Decentralized vs centralized systems: advantages and applications

by Cristina Cannata
Jul. 16, 2019
5 minutes

Blockchain technology has attracted the attention of many companies, investors and people since its inception, especially due to all the solutions and possibility it brought up.

The Bitcoin main idea and, more widely, the idea of a digital decentralized  peer-to-peer system was such a breakthrough that has exposed all the benefits from decentralized system, especially in contrast with the established centralized systems.

The rise of blockchain brought the discussion on another level, focusing on what decentralization truly means – a clear definition- , what it entails, which are the benefits and the winning points.

It is difficult to find a unique and commonly agreed definition for what decentralization actually is. Most commonly, a decentralized system is defined as opposed to a centralized system.

A centralized system requires all the information enter into and leave through a central single point. So, information can’t be sent or received without it going through that single point.

On the contrary

A decentralized system does not require information to go through a single point. Instead there are many points connecting in each other creating a peer-to-peer network.

Centralized and decentralized systems are both types of networks that currently exist and are adopted.

Another difference to underline is between a decentralized system and a distributed system. These two kinds of networks are commonly confused with one another. The difference relates to the place:

distributed network means not all the processesing of transactions is done in the same place“.

Scheme of the difference between centralized, decentralized and distributed networks

In order to better define what decentralization entails, we are going to refer to Vitalik Buterin (The Meaning of Decentralization) writing and to the three aspects he underlined:

  • Architectural de/centralization – how many physical computers are creating a system? How many of them can it tolerate breaking down at any single time?
  • Political de/centralization – how many individuals/organizations/parties ultimately control the computers that are composing the system?
  • Logical de/centralization – does the interface and data structure that the system presents and maintains look more like a single monolithic object or an amorphous swarm? What happen if the system is split into two parts? Can the interface and data structure work independently?

Scheme of the difference between logically centralized and logically decentralized infrastructures

It’s clear that blockchain are politically decentralized, architecturally decentralized and logically centralized (since there is a common agreed state -consensus- and the whole system behaves as one). To better explore that argument, we refer to Buterin article.

These three types of decentralization define three characteristics. The architectural decentralization defines how distributed a network is; the political decentralization determines how many people control the network and the trust within the network; the logical decentralization establishes what is the common agreed state, the consensus in the network.

Those elements lead the discussion on another level. What do decentralized systems entail? Why are decentralized systems useful?

  1. Fault Tolerance – since decentralized systems are composed by different separate constituents, they are less likely to fail accidentally. Lots of computers are less likely to fail all in the same time than a single one computer.
  2. Attack Resistance – as decentralized systems miss central single points, they are harder and more expensive to attack or manipulate.
  3. Collusion Resistance – it is hard for the network’s participants to collude acting in ways that benefit themselves.

The more decentralized the network is, the more fault tolerance attack resistance and collusion resistance is achieved.

The advantages aside, there is also some downsides to be underlined:

  1. Lack of Focus – on the opposite of central systems -where a single identity takes care about the rest of the network- generally, a decentralized network is more complex because when many people come with decision making there could be more ambiguity regarding the ultimate goals and objectives. This results in missing the focus and the importance of the goals, and in slowdowns in decision making process.
  2. Duplication of Work – since a decentralized network is composed by several parts it is secure by nature. The larger the system, the more security is assured. On the other end, each of those part have to do exactly the same task than others. This increase the amount of costs and the energy required.
  3. Speed of Action – in decentralized systems is expected a loss of speed, since reaching the consensus takes long time.

This is always true referring all decentralized entities, especially for companies and medium-to-large sized enterprises. The latter takes in consideration other benefits, of course, such as innovation, diversification of activities, boosting personal responsibility and so on.

Also centralized systems got their pros and cons related to coordination and communication efficiency, track information, improved coordination within the system, lower administrative costs, and other.

Focusing on blockchain matter, it is not easy to talk precisely about centralized and decentralized networks. Other elements must be introduced in the discussion, such as private and public and permissioned and permissionless.

First and foremost, decentralization is a fundamental trait of blockchain technology, whether public or private it is.  Blockchain are decentralized by design and distributed peer-to-peer systems; each computer composing the network has a copy of the ledger.

In addition to decentralization there are other traits that must be pointed out:

  • Validation – all the transaction on the network must be validated from who is participating it. So there must be an agreed state – consensus;
  • Immutability – once registered and validated on the ledger data are immutable, they cannot be modified or deleted.

Both public and private blockchains are adopted in several fields and with different scopes. In fact -even though putting together the words “blockchain” and “private” could be a paradox from the purists- private blockchains are existing and they are becoming increasingly popular, promoted especially by companies and governments which want to benefit from decentralized ledger power. Basically, a private blockchain identifies a distributed ledger technology.

Lastly, to better distinguish a public blockchain from a private one is it necessary to focus on reading permissions. On the other hand, mirror-like, writing permissions hint the notions of permissioned and permissionless.

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