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Crypto Terms:  Letter D

What is Decentralization?

Decentralization - a system where control is given to all network nodes instead of one central authority.
2 minutes

Let's find out Decentralization meaning, definition in crypto, what is Decentralization, and all other detailed facts.

In the crypto sphere, decentralization is one of the core principles. It is a system comprising network nodes that all hold an equal share of control, and there is no defined central authority.

Decentralized organizations function based on this model without a central authority that enforces regulations. Multiple decision-makers are granted equal authority to manage the system and work toward a common goal. Decentralized organizations are one of the two major types of organizational structures, along with centralized organizations.

Companies that create franchises for expansion can be seen as decentralized in traditional business organizations. Individuals are able to buy the franchise, open new branches, and make independent decisions regarding the infrastructure and management of the company.

Decentralized digital systems, like blockchain-based cryptocurrencies, run thanks to independent nodes that maintain the entire blockchain network.

Cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) run on networks while the nodes run consensus algorithms, like Proof-of-Work (PoW) and Proof-of-Stake (PoS) to record all transaction data, verify it, and add new blocks to the blockchain.

Decentralized organizations may be more stable, democratic, and transparent than their centralized counterparts. If the central authority malfunctions, it immediately negatively impacts the whole organization. However, if one or several nodes of a decentralized system experience failure, the rest of the network can still continue operations.

Decentralized systems may struggle due to a lack of a singular unified vision. Furthermore, the equal distribution of power may lead to responsibilities not being clearly defined. This can have negative effects on network efficiency.

An example of inefficiency can be the energy consumption required to keep blockchain networks running. In 2021, Bitcoin required more than 90 terawatt-hours of electricity, which is comparable to Pakistan's energy consumption, while processing speeds were at four to seven transactions per second.