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While blockchain is considered one of the top emerging technologies today for its potential to promote decentralization within any system or process, decentralization as a standalone concept is a bit misunderstood. We’re confident this blog will guide you through the various types of decentralization, and when integrated, will maximize its potential. Even if you consciously choose to use only one or few of the types, it’s fine as long as you are aware of the other types so you are empowered to make peruse them when required. And we’ll look at how this plays out in the context of blockchain technology because it is one that more or less mainstreamed decentralization to a certain extent today.

There are six distinct definitions of decentralization prevalent in the blockchain space today. And each one is equally relevant, for each represents the types of decentralization in blockchain.

We have been surrounded by centralized infrastructure and are pretty aware of how such systems function. Every node/branch/participant in the system/network is under a central command, and the outflow/inflow of data takes place to and from this centralized entity. In a decentralized system, however, each node or a server is an equal participant in the network and collectively manages the network. In other words, there is no central command these nodes need to report to; the network operates and grows based on protocols established through consensus reached between them. Let’s learn what decentralization is before we discuss what are the types of decentralization.

What is Decentralization?

The basic idea of decentralization is the same for all types of decentralization in blockchain, i.e., the absence of a central entity and the transfer of authority and decision-making to a distributed network of computers.

By making the decision-making process decentralized, meaning the network participants collectively take decisions via a consensus mechanism, blockchains reduce the amount of trust needed between members. This trustless environment so created eliminates the need for a central authority or middlemen. Transactions happen on a blockchain in a peer-to-peer fashion, i.e., directly between two parties/nodes. In this way, it is highly unlikely that an individual or group of nodes can undermine the security of the network or abuse their power impacting the network’s integrity.

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6 Types of Decentralization in Blockchain

1. Business Decentralization

Source: Kaleido

Business decentralization involves removing centralized single-party processors and having the transacting parties directly transact with each other via a smart contract. The centralized authority would no longer hold all the assets and data, which would now exist as a shared database accessible to both organizations.

2. Physical Decentralization

Source: Blocktac

Physical decentralization involves the geographical dispersion of runtime blockchain servers across the globe with sufficient redundancy. The idea of this type of decentralization is to have as many parties as possible on the network and have a global tech infrastructure that no single party or entity owns.

‍3. Transactional Decentralization

Source: Kaleido

This type of decentralization in blockchain allows greater transparency, efficiency, and security in B2B networks. B2B blockchains are a vital part of many organizations today and perform the task of setting up value chains and ecosystems involving complex and multi-sided business relationships. Besides that, this type of decentralization can also be differentiated based on the motive behind the distribution of nodes. Some of the motives could be enhanced security (to prevent single points of failure), geographical spread (to be close to certain user bases), economic reasons (like offering incentives for certain nodes, political or regulatory reasons (nodes in jurisdictions with friendly regulations).

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Blog Highlights

1. Business: Removes central authority, letting transacting parties deal directly via smart contracts.

2. Physical: Spreads blockchain servers across the globe for redundancy and global reach.

3. Transactional: Increases transparency, efficiency, and security in B2B networks.

4. Architectural: Measured by the number of nodes/systems in a network. More nodes means more decentralization.

5.Political: Focuses on how many entities control the systems running the network.

6. Logical: Refers to how a blockchain system is represented by interfaces and data structures.

4. Architectural Decentralization

This type of decentralization in blockchain is more about the number of systems involved in a blockchain network. The greater the number of nodes/systems, the greater a blockchain network is decentralized. Even if one or more systems crash, the network goes on perpetually.

5. Political Decentralization

Political decentralization is more concerned about the number of people or groups which run the systems in the network. For instance, a blockchain may run on multiple servers, but only one organization or person might be controlling it. In such a case, there is zero political decentralization involved. Bitcoin and other top layer 1 blockchain projects is a good example of a politically decentralized network.

6. Logical Decentralization

This kind of decentralization refers to the representation of a blockchain system in terms of the number of interfaces and data structures. For instance, Bitcoin cannot be called logically decentralized because it exists as a single network. Even if a blockchain might be architecturally decentralized (spread across many computers) and politically decentralized (not controlled by a single entity), it can still operate as a single logical entity or “network.” Bitcoin network is not logically decentralized because it operates as a single cohesive network. If there were different Bitcoin networks that didn’t recognize each other but operated under the same principle, it would be logically decentralized.

Conclusion

Decentralization brings a host of benefits to businesses and systems, including efficiency, immutability, transparency, and traceability. Decentralization will be a vital part of the future of the internet – Web3. There are different types of decentralization in blockchain, and each one serves a purpose. It’s pertinent that we learn enough about decentralization as it will form the crux of the internet infrastructure going forward.