What is Decentralization in Blockchain?

Created on 05 Apr 2022

Wraps up in 5 Min

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Updated on 17 Aug 2022

Decentralization is a term we all have heard of very early in our life. Little did we know the meaning of it back then. Today, decentralisation is a concept that works the complete Web 3.0 technology like the blockchain.

There is this fuss about Bitcoin, Ethereum, and Elon Musk famed crypto, the Dogecoin. These cryptocurrencies operate on a technology called the blockchain and blockchain is governed by decentralization. Too many long, confusing words, right? Let’s simplify this. 

What is Decentralization? 

Decentralising simply means distributing the power so there is less likely to be a single point of failure.

To understand decentralisation, we must first understand what is blockchain technology. So, a blockchain is a series of linked blocks that contains information of the current transaction and the ones before that, which have ever been done across several computers in a decentralized manner. 

These transactions cannot be altered. It keeps the identity of the owner anonymous. People from any corner of the world with internet access can use and trade using blockchain. 

Advantages of Decentralization

Now, what are the advantages of blockchain technology being decentralized?

  • It creates a transparent environment

  • Improves data reconciliation

  • Reduces points of failure

  • Optimizes distribution of resources

Let us now understand how this is achieved with two elaborated examples.

 1. Let’s look at an example from the past first. 

You must have heard of the hyperinflation crisis of Zimbabwe in around 2007. And if not, you are in for an interesting ride.
Due to a number of political reasons, inflation increased so much that a loaf of bread cost 30 billion Zimbabwean dollars. The government stopped reporting numbers after 10000 percent inflation. People stopped going to work as their annual salary wouldn't even pay for their bus ride home. 

To keep up, the central bank kept printing bigger and bigger banknotes- a million dollars, one hundred billion, and even one hundred trillion. They finally printed a denomination of one hundred trillion which was worth just 40 US cents. 

The government had full control of printing money and therefore kept printing more and more to get out of the debt until the money lost its value. This is the extent of havoc that a centralized institution such as the government or banks can wreck. 

2. Here is another example to help you understand the benefit better. 

Your teacher handed you your scorecard today and boy, you failed in three subjects. Now, you cannot show this to your parents, or you are surely getting kicked out of the house. To save yourself from the engulfing rage of your father, you edit the document and hand over another scorecard in which you pass with flying colors. 

Four of your other friends did the same and no one ever finds out. Except maybe, when your parents meet your teacher in a supermarket and end up having a striking conversation about your academics. No possible damage control could get you out of this.  

Enter decentralized blockchain. Suppose, instead of handing the scorecard personally over to every student, your teacher uploaded it to the blockchain to which you as well as all the students and all the parents of students of the whole school have access. 

Each with a unique id can access their own scorecard. Now, suppose you try your old trick and segue from the original scorecard to a new shimmery one. Only this time, it will show that the current block has been altered and all the blocks following it will show the same. So anyone could very easily find out the origin and your little trick will fail.  

This, might sound disadvantageous when used with the analogy of scorecards for a student, however it is actually a very effective and efficient way of sending, receiving, or storing data with timestamps that cannot be tampered with.

How does it work?

There are essentially three parts of a block in a blockchain- the data, its hash, and the hash of the previous block. 

First, Data- contains the ‘To: , From: , and Amount- information of the current block. Then, Hash is the unique id mentioned in the above example, which is like a fingerprint whose encrypted output is of fixed length and one which cannot be reversed. 

Finally, each of these blocks stores the hash of the block before it. Anyone can view and verify using the Public Ledger. 

What about Privacy?

Now you might think that if everyone has access to the complete blockchain, about your privacy? 

Every information ever added to a blockchain is secure and privacy protected. How? Just like you need an email id (shareable) and a password (confidential) to log in to your email, similarly, you also have a ‘public address’ and a ‘private key’ for blockchain technology. This public address is a combination of random numbers and letters. Others on the network can view this public address but not your name or any detail.

Applications of the Decentralization

You must be wondering what are the practical applications of this oh-so-great idea. 

Well, to begin with, voting could be decentralized using this. In India, the Election Commission is the governing body that facilitates free and fair elections. But the cases we hear of the EVMs being stolen or tampered with are just too many and there is nothing anybody could do about it.

Taking this online could actually ensure ‘free and fair elections'. In this, the voter logs in to the interface to cast a vote. The identity verifier receives information and verifies that the id is unique. The voter is then authorized to cast a vote. 

Each voter would keep adding a block to the chain and in the end, everyone can agree on the final count of the vote based on the consensus. Because they can count the votes on their own and because of the blockchain audit trail, they can easily verify that no votes were changed or tampered with, and no dishonest votes were added. 

I believe it is anyone’s natural inclination to find out more about a topic that they have recently learnt and want to learn more. Blockchain and cryptocurrencies are few of those fascinating topics. We have an in-depth course explaining the intricacies of it if you are interested. Never hesitate to learn. 

Parting words

Let’s ponder upon this one thought that if the whole world is shifting towards transparency, be it in any form, isn’t it about time that we demand and accept the decentralisation of power? Why should one entity possess it all? 

What do you think? Also, if you know of any other instances like that of the hyperinflation of Zimbabwe, do comment down below. We love to learn as much as educate. 

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Rishika Mukherjee

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Mukherjee is an avid reader and loves to write as much as read. She is the youngest of all but handles chores like a 50-year-old woman. She takes a lot on her plate and somehow, eerily manages to get the job done. As Hazel Grace stated, she could read a good author's grocery list, and so would Miss Mukherjee. 

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