Decentralization: A Buzzword Worth Understanding

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Decentralized Network

Decentralization isn’t just a buzzword thrown around to argue whose blockchain network is better. It’s a key concept because some of the most important advantages crypto can offer stem from having a decentralized network.

But decentralization doesn’t have one set meaning, and when a person or company claims that a particular network is “decentralized”, it’s important to ask questions to understand the context behind their claim.

The ideas here are heavily influenced by Vitalik Buterin’s article, “The Meaning of Decentralization”, which goes into much greater detail on these concepts. I present simplified ideas geared towards beginners, but if you want a deeper dive, I recommend reading his article.

To get a better idea for what it means to have a decentralized blockchain network, let’s boil down a public blockchain, such as Bitcoin, to the most relevant information, and then examine:

The Bitcoin network is made up of a network of nodes (computers) around the world.

Each node stores a copy of the entire blockchain.

These nodes are controlled by a diverse group of people who are free to participate in the network and set up their own node.

All nodes are all following the same protocol (programmed rules) to maintain and secure a single database.

Protocol can only be updated if a majority of the people running nodes decides to run the updated protocol.

The Bitcoin Network Has Decentralized Authority

The network does not have a central authority to make decisions. Instead, its users control it. These users can propose network changes and they essentially vote for any change in the network by choosing to upgrade their software or not.

Major Significance: Democratization of the network. A blockchain network with decentralized authority cannot be controlled by one entity. Network changes will only be adopted if a majority of users approve of such changes, meaning all changes to the network must benefit the majority of the community.

The Bitcoin Network Has Decentralized Infrastructure

Computers that run and maintain the Bitcoin network are located across the world.

Major Significance: There is no single point of failure and the network will continue on even if one (or many) of these computers is shut down or taken offline. Furthermore, because the entire blockchain is distributed amongst all nodes (stored by every node around the world), each node can independently verify that all new transactions are valid, without having to trust anyone else.

The Bitcoin Network Has Centralized Governing Principles

Each node follows the same protocol to maintain and update the blockchain, which allows every node to store an identical copy of the Bitcoin blockchain.

Major Significance: As Vitalik says, “the system behaves like a single computer.” The entire network is unified because, by following the same rules, all nodes in the network are able to agree upon the transactions that have occurred on the Bitcoin blockchain.

Always Understand Context

Most public blockchains have both decentralized authority and infrastructure, but private or permissioned blockchains only use decentralized infrastructure; this is where we often encounter the need for context.

Some critics of the popular cryptocurrency XRP (Ripple) claim that its network isn’t decentralized, yet the Ripple company advertises that XRP runs on a decentralized network. Without context, neither the critics nor Ripple are wrong: XRP runs on a network with

decentralized infrastructure – the XRP network has nodes located around the world

but centralized authority – the Ripple company controls the network and approves of each entity that runs these nodes.

If you think about it, this isn’t so different from how many large corporations run their networks: Google and Amazon use centralized authority but decentralized infrastructure. This is why some critics believe that many private blockchain “use cases” may not actually require the use of blockchain technology at all.

Decentralization can certainly be a positive trait for a blockchain network; that being said, it is usually more important to understand in what ways a network is centralized or decentralized, and why it is designed that way. For example, while Bitcoin is designed to separate money from the control of any central authority, Ripple’s target customer for XRP is the banking system, which may feel more comfortable adopting technology that is more centrally controlled.

Don’t just listen for buzzwords. Whether you’re listening to an argument or an advertisement, make sure to get the full picture.