The control of individuals by third parties has been a persistent practice, even in a population that is increasingly aware of the dangers it represents. However, a glimmer of hope has emerged through decentralised technology powered by distributed systems.
Since Satoshi Nakamoto published the Bitcoin whitepaper in 2008, the term “decentralization” has become a key concept in the realm of cryptocurrencies driven by blockchain technology.
Let’s explore what decentralisation truly means, why people should become familiar with it, and the benefits that decentralised solutions offer to individuals across various industries, such as finance.
Is decentralization the same as blockchain?
There has been a lot of noise around the word “decentralization” since cryptocurrencies became popular, and on some occasions, there’s the mistake of tacitly assuming that blockchain means decentralization.
For those newer to the industry, it can be complex to understand that both terms complement each other and are not necessarily synonyms. It’s important to point out that decentralization is a fundamental principle of blockchain technology, but they are not the same.
In simple terms, decentralization is about transferring control and decision-making to a distributed network. In blockchain, decentralization means that the attributes of decentralization are transferred from a centralized entity to a distributed network, which can be either public or private.
In this way, cryptocurrencies like Bitcoin are strengthened due to the presence of distributed nodes that function within a public, permissionless, decentralized peer-to-peer system, allowing for the transfer of assets without the control of third parties or centralized entities, as it is the Bitcoin network, under a consensus mechanism (PoW), that makes decisions regarding the security and governance of the network itself.
Eliminating the need for a single authority and intermediaries is part of the advantages offered by decentralization in blockchain, which in turn provides robustness and security to the network by reducing dependence on a single entity for operations.
In the case of decentralized platforms, such as cryptocurrency exchanges (DEXs), decentralization gives individuals the ability to have full control and custody of their funds when executing on-chain transactions, a huge step toward financial independence for individuals that had never been seen before the arrival of Bitcoin.
But why is decentralization so important today? To answer this question, it’s necessary to understand the issues inherent to its counterpart: traditional centralized systems.
Centralization: Why it’s disadvantageous to leave your funds in third-party custody
One of the major concerns that crypto aims to address since its inception is the single points of failure commonly associated with Web2, and to some extent, with certain Web3 entities that are vulnerable to technical failures, cyberattacks, or internal manipulations, especially when it comes to the custody of user funds.
Contrary to what many users consider to be decentralized, there are cryptocurrency exchanges that, while operating with on-chain transactions and allowing interaction with …
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