From a global blockchain gaming platform [ winf.com ] , the terms of decentralized and centralized cryptocurrencies have been perfectly covered in this brief but informative article.
What are the differences between decentralized and centralized cryptocurrencies?
Before we dive into both terms, to understand the exact meaning of centralization, you need to think about some of the daily platforms that you use in your every day life.
This can be Facebook, NETFLIX, Twitter, Google Search , Bing Maps or even your bank account, or practically anything else that you use — these are all controlled by a centralized authority.
This means that for a data transaction to be verified, a third-party intermediary must do this on your behalf. Let me explain this further by using the example of Yahoo…
Imagine that you want to send your friend a private email containing some funny pictures from a party. You sign in to your Yahoo account, type up the email, upload the pictures, and then send it to your friend. At this moment in time, think about what information Yahoo has on you.
When you first registered an account with Yahoo, you had to provide your personal information, such as your full name, nationality, and date of birth. After that, every single email that you send is stored internally on the Yahoo centralized servers.
This means that you must trust that Yahoo will keep all of your data private. Furthermore, you also need to trust that they won’t use this data for their benefit, such as selling it on to advertising companies.
Now to clarify,we have identified three main issues with a centralized system.
- You have to trust that the centralized organization are going to keep your data safe
- They have full control over the system and your data
- If the main servers are compromised, data is at risk
These issues are not just related to Yahoo, but almost every single system that you ever use. So, now that you know what centralization is, the next part of our Centralized vs Decentralized guide is going to define decentralization.
What does Decentralization Really Mean?
Before I give you some real-world examples of a decentralization definition, I thought I would explain some of its main features. Firstly, decentralization was first made possible using blockchain technology.
The first-ever blockchain was the Bitcoin client, which was created in 2009. When somebody sends Bitcoin to somebody else, transactions are not verified by a centralized authority.
Instead, anybody can hook up their computer to the Bitcoin system to help verify a movement of funds. Each device that is connected to the system is called a “node”, and in total there are thousands of independent nodes all helping to operate the network.
However, the important thing to remember is that decentralization isn’t just for financial transactions. As I will explain further down, decentralized systems can be used in almost every industry in the world!
The second thing to remember is that people don’t need to identify themselves to interact with a decentralized system. They simply use a private and public key, meaning they can remain anonymous.
Thirdly, a decentralized system that operates on the blockchain is controlled by no single authority, nor is it backed by any centralized government or nation-state. Instead, control is distributed fairly to anyone that wants to use the system. This makes society fairer as it takes control away from powerful corporations. Overall, these benefits would have made it near impossible for the Yahoo servers to be hacked in 2015.
So, now that you know what decentralization is, in the next part of my Centralized vs Decentralized guide I am going to give you some real-world examples of how decentralized systems could make the world a better place.