Why Decentralization Matters ?
Decentralization is a hot topic in the world of technology, and it’s easy to see why. With so many companies moving towards decentralization, it’s no wonder that people are interested in this model of governance and commerce. But what exactly is decentralization?
Decentralization refers to a transfer in the control and decision-making power from a centralized entity (individual, organization, or group thereof) to a distributed network. Decentralized networks reduce the level of trust that people must place in one another, and deter their ability to exert authority or control over one another in ways that degrade the functionality of the network.
In simpler terms, think back to your school days when a teacher would mark your exam. In this situation, only a particular teacher would have control over your grades. However, if decentralized, more than one teacher would have access to look at and change your grades.
Similarly, when it comes to organizations and companies in the real world, a shift to decentralized processes allows them to digitize and automate their work. Contrary to a centralized system, this solution allows them to also increase efficiency and transparency, whilst giving all parties real-time visibility into the data and documentation.
In this article, we’ll break down the differences between centralization and decentralization, compare web 2 organizations to DAOs, Web 2 games and Web 3 games, Web 2 Apps and DApps, as well as look at some ways that decentralized organizations can be structured. We’ll also understand why decentralization is needed, what changes it has brought and what we can expect to see in the future!
Decentralization: Why Does it Matter and What Does it Change?
Although it may seem like it, decentralization is actually not a new concept. When building a technology solution, three primary network architectures are usually considered: centralized, distributed, and decentralized. Whilst blockchain technologies often make use of decentralized networks, a blockchain application itself cannot simply be said as being decentralized or not.
Thus, we can say that decentralization is like a sliding scale that should be applied to all aspects of a blockchain application. Through decentralizing, the management of, and access to resources in an application, along with greater and fairer service can be achieved. Decentralization typically has some tradeoffs such as lower transaction output, however, these tradeoffs are worth it because of the improved stability and service levels they bring.
Centralization vs Decentralization
( this section will require some parts to be cut and likely require some additions to it as well, so comment away)
Now, let’s understand how decentralization differs from centralization. In contrast to decentralization, centralization involves the concentration of power at one level rather than another. In practice, this means that there is greater influence over policy-making by one body than would otherwise exist if decisions were made by several bodies (or even just one). A common example would be a CEO or a Board of Directors in a company or corporation.
Corporations are usually centralized, but this doesn’t mean that it’s good for you or your business. Many successful companies, in an effort to stay competitive in today’s market, are decentralizing their operations as much as possible because it allows fairer and more inclusive decision-making and better communication between staff members at all levels within the organization.
Centralized organizations often tend to be inefficient because they don’t allow any room for mistakes or change — which means there’s no incentive for employees who have nothing left to lose if they make bad decisions due to lackadaisical leadership (or perhaps just laziness). On the other hand, decentralization allows people within these organizations to make better decisions based on what evidence appears before them rather than having someone else tell them how things should go down.
An illustrative analogy can be the rivalry between Wikipedia and its centralized competitors like Encarta in the 200s. If compared, Encarta was a far better product, with better topic coverage and much higher accuracy. However, Wikipedia improved at a much faster rate because it had an active community of volunteers and contributors who became part of its decentralized, community-governed ethos. Thus, by 2005, Wikipedia was the most popular reference site on the internet whilst Encarta was shut down in 2009.
Let’s take a look at some more examples, to help us make a comparative analysis between centralization and decentralization.
Web2 Apps vs DApps
A decentralized application (DApp) is a program that runs on a decentralized network of computers rather than on a single machine, as is the case with Web 2.0 apps. On the contrary, Web 2.0 applications are not decentralized: they rely on centralized servers or cloud storage to run their code, so users don’t have control over those services’ infrastructure or data storage.
The most notable difference between DApps and Web 2.0 applications is that DApps are open source, allowing any user to view the code and make modifications to it. This means that anyone can build a DApp on top of another DApp’s protocol; for example, you could build a new blockchain-based social media platform using Ethereum as its underlying technology.
Web 2.0 applications are run and operated by the creator that built them, like Twitter or Facebook, while dApps are open-source and can have their code built upon or changed by anyone. Regular apps also go through an iteration process to work out bugs, whereas DApps must be perfected before release. Some of the most popular DApps include PancakeSwap, Compound, OpenSea, and Splinterlands.
Web 2 games vs Web3 Games
Web3 games are defined by having in-game means that are owned( held in wallets) by players in the form of Non-Fungible Tokens or NFTs. The use of this invention allows player assets that are tangibly owned, and liquid markets to exist so that assets can be sold or traded just like physical goods.
In traditional gaming, in-game content or digital assets can be purchased with fiat currency or can be claimed as rewards, yet, game developers still reserve the copyrights to the in-game content. In simple words, players do not own their own in-game digital assets. Rather, they only possess a license for engaging with the aspects of the game.
Investment in the blockchain gaming sector surpassed $5 billion in the first half of 2022, surpassing the $4.2 billion across the whole of 2021. Games like Decentraland, DraftKings, The Sandbox, Skyweaver, and Axie Infinity are some of the most popular titles in the world of Web 3 games.
With no middlemen involved (like Apple or Google), you don’t have to pay to win in web 3 games. Rather, you play to earn! An additional bonus is that there will be no ads clogging up your screen or slowing down performance either!
Other Examples and Takeaways
Even Contura Energy, a leading U.S.-based coal supplier, has shifted from depending on an outdated letter of credit system to manage its international trade payments. Now, they are working with AWS on a decentralized, blockchain-based innovation that provides a more efficient, cost-saving, and less risky system to manage international trade payments. This decentralized solution also increases transparency, giving all parties real-time visibility into the data and documentation.
With increased personal privacy created by Web3 technologies, targeted marketing from the likes of Facebook, Instagram, and Google Ads in the future will have difficulty accessing third-party data needed to understand their customers and run targeting campaigns. Thus, marketing will now focus more on community and relationship building and people can expect to see better products and service quality take over baseless promotions.
As NFTs continue to gain acceptance, brands are starting to use them more often as limited-edition items or rewards for loyal customers. Top brands like Nike, Coca-Cola, Gucci, and others have created NFTs to engage their audiences, and more brands are expected to follow suit.
Venture capitalists, recognizing the potential of Web3, have begun investing in Web3 companies. Investments in Web3 exceeded $18 billion in the first half of 2022, remaining on track to top the full-year total capital investments of $32.4 billion in 2021. As the pressure to curb the powers of big tech companies grows, it won’t be long before the internet becomes highly decentralized and Web3 fully emerges.
Conclusion
The benefits of decentralization are numerous. It can help us make decisions in a more democratic way, and it helps us to be transparent about our operations. Decentralization provides a trustless environment (incorruptible), improves data reconciliation ( curbs data loss or incorrect data), reduces points of weakness (prevents bottlenecks), and optimizes resource distribution ( sustainable performance and consistency)
Decentralization is a trend that will continue to grow, and it will change how we live, work, and the way we govern ourselves in a way that is more democratic and inclusive than ever before. It will also allow more people to participate in the economy and create a fairer marketplace where everyone has an opportunity to succeed.
Another reason why we want to move to decentralized platforms has to do with privacy. By having our own blockchain-based infrastructure instead of relying on a third party like Facebook/Google/Apple etc., we can secure users’ information better than ever before, although this is still an area that requires work.
In conclusion, decentralization is an important part of the blockchain ecosystem that will continue to grow in importance as more people become aware of its benefits — from increased security to increased efficiency and transparency. Hopefully, this post has served as a good introduction for anyone who may be unfamiliar with this concept
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