Decentralization
Whenever we talk of decentralization, the first thing that comes to mind is that power and decision making are given to the people in the network or system and there is no single authority or single decision maker. A typical example of a decentralized system is a decentralized blockchain network where everyone has access to information, data and participate in the decision making in the network, and also anyone can run a node that runs the blockchain network, making it secure and decentralized.
Centralization
When we talk of centralization, the first thing that comes to mind is that all the decision making is made by a single entity. Centralization is simply the opposite of decentralization. In a centralized system, the power and control is held by the single entity or institution. Also, all the information and data goes through a central hub and is handled by the single institution or entity. A typical example of a centralized system is the current financial system where all the decisions, rules and changes are carried out by the financial institution. The centralized financial institution has all the power and control to make any decision in the system.
Difference
| Decentralized | Centralized |
|---|---|
| Users have full control of their data and information. Here, data and information cannot be sold | User data and information can be sold to third parties. |
| There is transparency in a decentralized system and users can have access to any information | There is little or no transparency in a centralized system and users cannot have access to information that is in control of the central authority |
| In a decentralized system like decentralized blockchain wallet, users have full control of their funds and keys | In a centralized system, users do not have full control of their funds and keys. |
| There is increase security in a decentralized system because of the number of users that control the network and cannot be hacked. For example, the bitcoin or ethereum blockchain network | There is less security in a centralized system because of the high risk of hacks |
| In a decentralized system, decisions and the rules are made by the people in the system or network | In a centralized system, the decisions and rules are made by the single authority or institution or entity. |
| In a decentralized system, power and control is given to the users in the network | In a centralized system, the single entity or authority has all the power and control in the system or network. |
| Multiple users or individuals run nodes or operations in a decentralized system | A single institution or entity or authority run the operations in a centralized system. |
Advantages and Disadvantages of Decentralized
| Advantages | Disadvantages |
|---|---|
| Decision making is made by the people in the system | Slow decision making process because of the number of people that have to come to an agreement |
| There is transparency and users can have access to any data and information | There is little or no privacy as data and information is public and can be accessible by anyone |
| In a decentralized system like decentralized blockchain wallet, users have full control of their funds and keys | Lost funds and keys cannot be recovered |
| There is higher security because of the number of users that control the network and cannot be hacked. For example, the bitcoin or ethereum blockchain network | Malicious activities cannot be traced |
| Decisions and the rules are made by the people in the system or network | The system can be disorganized and also there is no guarantee that decision made by the majority (people) is a good decision |
Advantages and Disadvantages of Centralized
| Advantages | Disadvantages |
|---|---|
| Have full control of data or information which can help trace frauds or malicious actions | Data and information can be hacked or stolen. |
| Higher level of privacy of user data and information from anyone | User information and data can be altered, changed or sold |
| User Funds and accounts can be recovered | Users do not have full control of their funds and accounts. |
| Quick decisions making which can facilitate operations and growth | Selfish decisions can be made for their own benefits |
| There are rules that govern the system to ensure sanity and organization | The rules can be unfavorable to the people or users |
Which System is Better for trading?
In my opinion, both systems have their own benefits depending on how it is used. However, as a user, I would go with the decentralized system because I have full control of my activities, assets and funds when trading. While centralized exchanges offer seamless experience and user friendly interfaces and experience, the users do not have full control of their funds which is one of the main benefits of decentralized exchanges because user funds are safe in users control. Also, there is nothing like delisting of assets, it means that users can trade with full confidence.
When comparing both the centralised system and the Decentralised system, I will prefer the Decentralised system much more
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