Decentralization and Centralization
These are two important and common terms in the cryptocurrency space. A good knowledge and understanding of both systems will be a stepping stone to making profitable crypto investments. In defining the term decentralization relative to cryptocurrency, I would say that it is a setup where the governance and/or control of a blockchain/ cryptocurrency platform or exchange is not being centred on an individual.

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Instead, in a decentralized system or platform, governance and decision making is being done collectively by all stakeholders of the said blockchain project. Simply put, decentralization entails the reduction of the power/ authority of a governing body by distributing that authority among several bodies.

On the other hand, a system or platform is said to be centralized if the control and/or governance of the system is being centred on just one entity. In most cases, that one entity is usually the project founder. In a centralized setup, decision making and governance is being carried out by the higher authority only. Thus, the major difference between a decentralized platform and a centralized platform is in the governance of the platform. In comparison, both aim at delivering a particular service and people adopt them depending on how much understanding they have about any of these systems.

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Merits and Demerits of Decentralized and Centralized Systems

Both of these systems have their own unique advantages and disadvantages. One of the greatest advantage of a decentralized system such as a cryptocurrency exchange or a blockchain-based social media platform is that there is maximum security for users. Whereas it is not so for some centralized systems.

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Take for instance a cryptocurrency exchange, we have both the centralized cryptocurrency exchanges and the decentralized ones but it is not always safe to leave your funds on a centralized exchange being that security of your assets is not being guaranteed; centralized exchanges will always tell users that. So, while decentralized platforms have maximum security as an advantage, centralized platforms have low security as a disadvantage.

Secondly, decentralized platforms have 'privacy' as an advantage over centralized platforms. How do I mean? Privacy is one thing people are concerned about; no one wants his confidential information or data to go public or be accessed just by anyone. We love privacy and we want privacy. Howbeit, there is no guarantee of privacy on centralized platforms whereas there's a high privacy for users on decentralized platforms.

Thirdly, decentralized platforms have the disadvantage of being complex for a layman whereas centralized platforms like Facebook are not complex. Even a child can play around on centralized platforms but to full take hold of the potentials in a decentralized platforms, you have to have a deep knowledge of the platform. In other words, decentralized platforms are a bit complex for a layman while centralized platforms are simple.

On Centralized platforms, there is often the issue of censorship and limits to freedom of speech whereas on decentralized systems, there is absolute freedom of speech and no censorship issues. Censorship means that a user could be silenced if he/ she voices out things the founder seem not to like by taking down such user's content without permission. This cannot happened on decentralized systems because there are blockchain-based meaning that there's no mutability of data; once data/ content is being published, the block cannot be changed or altered.

The Better Option
Like I said earlier, the option of which system to stick with is dependent on how well a person understands these two systems. However, for trading, both can be used to purchase assets but it is safer to store assets in wallets than leave them on a centralized exchange. The tendency if hacking a centralized exchange is on a high side compared to that of a decentralized exchange. Also, there could be issues of manipulations and undue influence of prices on a DEX.

To spot a decentralized platform as well as a centralized platform, all you need do is carry a research and in-depth study of such platform. There'll be features that would tell if it is centralized or decentralized. Such feature include the governance policies of the platform. If governance is centred on the founder alone then it is centralized but if users of the platform have a role to play in the governance then it is decentralized. This is just one of the ways.

cc: @yousafharoonkhan