There is little doubt that blockchain has been one of the preeminent drivers of decentralization and disintermediation in the past few years, though many are unaware of how or why this came to be. Blockchain was created to be the backbone of bitcoin, the original cryptocurrency, and later was adopted as the infrastructure for many of the alt coins that have come joined the market in the near decade since.
Even so, for most consumers, blockchain is little more than a buzzword. Despite its vital importance to the burgeoning crypto ecosystem, many traders and participants still ignore why blockchain is critical to cryptocurrency. More importantly, however, is an understanding why the concept of decentralization is so important to cryptocurrencies.
Unlike their fiat counterparts, decentralization is a defining characteristic of the crypto world, and one that just two decades ago may have been nearly impossible to dream up.
How Centralized Systems Are Entrenched
The internet was originally created as a decentralizing force, taking information from isolated corners of the world and sharing them to anyone who could connect to the network. Over time, and as the number of users on the web exploded, it became clear that centralization was the only real way to create something that would approximate the original vision of a global network.
It is more convenient for companies like Google and massive internet service providers to act as major hubs for users worldwide to access services. This is due to the relative costs of handling all these tools—email, communication, and more—individually being high enough to prevent any real innovation. Instead, Google can centralize its services and extract profits before reinvesting in better technology.
The system works to a degree, but the returns of innovation become slimmer as centralization becomes entrenched. Moreover, it comes as a trade-off for consumers—promoting convenience instead of privacy and security. Centralized internet companies also become de facto gatekeepers of information, leading to real concerns about manipulation, influence, and invasions of user privacy.
The Push Towards Decentralization
This increasingly intrusive model has led to different models and attempts at decentralized versions of the internet. The Onion Router, or TOR, for instance, created a system of decentralized nodes that were vital in supporting the dark web, a fully decentralized and deregulated foil to the internet.
Similarly, this trend to centralization has led to a sort of awakening about the benefits of decentralizing information. This is where the idea of blockchain originated, as the backbone to bitcoin. Satoshi Nakamoto’s goal was to create a fully decentralized structure—albeit for cashless payments—and blockchain offered a much closer vision than the existing centralized paradigm.
Blockchain itself is built on a previous decentralized architecture, one that offers significant improvements to centralized networks and can support scaling at a rapid rate. One of the biggest benefits advocates of blockchain tout is the distributed ledger, the key behind cryptocurrencies’ ability for trustless peer-to-peer transactions.
It is important to note that blockchain is a type of distributed ledger, which gives it many of its significant advantages. Distributed ledgers were originally devised as a solution for more rapidly communicating transactional information to a network. Speed is vital, as delays in communication can lead to verification issues and potential double-recording (or ‘double-spending’). On centralized networks, data must always travel to at least two points to be verified, which can lead to inefficiencies on a larger scale.
However, distributed ledgers offer a significantly simpler, yet elegant solution. When data is added, every node must reach consensus on which version is the correct one, leading to a single, unified record of verified transactions. This decentralization of power and authority means that peer-to-peer communication is significantly faster and more secure.
Most crucially, perhaps, distributed ledgers offer a way to share information almost instantaneously across large, decentralized networks. This is vital for cryptocurrencies, which need to verify transactions across a network without a central authority or bank. It is also imperative for tools like smart contracts and can enjoy applications across a variety of fields including logistics, communications, retail, and even furthering scientific research.
Disrupting With Decentralization
Blockchain is built on the theories and successes of recent innovations. By building it on a distributed ledger based on decentralization, Nakamoto created a system that, far beyond cryptocurrency, offers the first real answer to the current centralized model. Most importantly, the technology is proving that the dichotomy that built the centralized internet—convenience for control—is not just outdated, but completely unnecessary.