While blockchain is considered one of the top emerging technologies today for its potential to accord decentralization to any system or process, decentralization as a standalone concept itself is highly misunderstood. What people have gathered as an idea for decentralization is a very narrow definition.
There are three 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 fro this centralized entity. In a decentralized system, however, each node 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; the network operates and grows when nodes reach a consensus. 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 not only eliminates the need for a central authority but also disallows the need for an intermediary. Transactions happen on a blockchain in a peer-to-peer fashion, i.e., directly between two parties/nodes. In this way, no individual or group of nodes can undermine the security of the network or abuse their power which may impact the network’s functionality.
What are the 6 Types of Decentralization in Blockchain
1. Business Decentralization
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
Physical decentralization involves the geographical dispersion of runtime blockchain servers across the globe. 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
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 the above, decentralization can also be differentiated based on the motive behind the distribution of nodes.
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 the blockchain 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 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.
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 depending on the use to which it is put. It’s pertinent that we learn enough about decentralization as it will form the crux of the internet infrastructure.
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Last Updated on August 23, 2023