Decentralization, which has found its place in various fields, has become a concept that we frequently encounter due to its importance in the web3 ecosystem. We will take this concept under a magnifying glass and examine it from different perspectives.
What Does Decentralization Mean?
Decentralization, in simple terms, is the expansion of delegation at the organizational level; It can be expressed as an organizational structure in which the decision-making responsibilities and actions taken by the top management on behalf of daily operations are transferred to middle and lower subordinates. Wikipedia also defines this word as the process by which an organization’s activities, especially those related to planning and decision-making, are distributed or delegated from a central, authoritative place or group. This concept is applied in private businesses and organizations, political science, law, economics, technology and management science. For example, blockchain technologies are one of these areas.
What is Decentralization in Blockchain?
The concept of decentralization in blockchain means transferring control and decision-making from a centralized entity — which could be an individual, a company, or a group of people — to a distributed network.
Every blockchain protocol, Decentralized Application, Decentralized Autonomous Organization (DAO), or other blockchain-related solution has varying levels of decentralization. Many DAOs have various components at different stages of decentralization. For example, third-party services (oracles) that provide smart contracts with external information can be partially decentralized; While smart contracts can be fully centralized, the governance process for setting parameters can be community-driven and decentralized. On a broader scale, decentralized blockchain solutions are being explored and adopted by organizations of all types, sizes and industries.
The story of Contura Energy can be given as a real-life example. Working with Amazon Web Services Cloud Platform, they use a decentralized blockchain base to digitize and automate letter of credit processes, providing a more efficient, cost-saving and less risky system for managing international trade payments.
Consensus Mechanisms
The concept of decentralization within Blockchain is based on the decision-making authority being taken from individual managers and distributed to groups. In blockchain, “consensus mechanisms” that undertake decisions such as approving new transactions come into play.
Consensus mechanisms can be defined as decision mechanisms that include protocols, algorithms or other computer systems that enable the operation of cryptocurrencies and meet the necessary conditions for making decisions within the group and adding a new block to the blockchain.
“Proof of Work“, which is the first distributed consensus mechanism, is a mechanism used in blockchain and based on mining. Users called ‘Miners’ contribute to the functioning of the network by solving a mathematical puzzle called “Hash” and are rewarded with Bitcoin in return.
Another mechanism is “Proof of Value“, which has gained popularity in recent years under the name ” Proof of Stake “. “Validators” in this architecture do the job of adding blocks. The selected person adds the new block to the network and receives his reward. At this point, the amount of coins owned is important. In other words, the more coins in hand, the higher the chance of being eligible to add a new block to the chain.
Benefits of Decentralization
In a decentralized blockchain system, you don’t need to know anyone individually. Each member of the network has a copy of the data or the exact same information as a distributed record. If any member’s record is altered or tarnished in any way, they are rejected by most in the network. It can also reduce vulnerabilities in systems where certain actors must be trusted. We can give examples of sensitive issues such as failure to provide promised services, system deficiencies, inefficiencies due to resource depletion, and even fraud. In addition to providing promised services with better performance and consistency, it also optimizes resource allocation to reduce the likelihood of unsuccessful scenarios within the system.
Three Different Concepts of Decentralization Can Be Mentioned
Vitalik Buterin, the founder of Ethereum, pointed out the frequent use of decentralization in the field of cryptoeconomics and mentioned that it can be seen as the reason for the existence of blockchains; In his Medium article on the meaning of decentralization, he points out that there is confusion about what this concept means. He says that when talking about decentralization, there are three separate axes that can be talked about and that they can generally be independent of each other. The headings are architectural decentralization , administrative decentralization and logical decentralization , respectively . He explains these topics through blockchain as follows:
”Blockchains are politically decentralized because no one controls them. It is architecturally decentralized because there is no infrastructural central point of failure—a part of a system that, if it fails, would stop the entire system from functioning. But they are logically centralized because the system behaves like a single computer.”
Buterin continues by listing his arguments on the benefits of decentralization. He underlines that the arguments that decentralized systems are less likely to fail because they are based on many separate components, that they are more expensive to destroy because they do not have sensitive central points that can be attacked, and that secret agreements will be very difficult to make are valid and important. He also lists different views and provides a deeper analysis. offers. As a further reading, see the article ‘The Meaning of Decentralization’. You can reach the article from here.
Decentralized Social Networks 🤳
In Web2, which is considered to have started in 2004, internet users can produce content and upload it to social networking services, blogs and various sites, meaning users contribute to information sharing. However, these sharings are possible with central services provided by companies such as Google, Facebook and Amazon. At its most basic level, Web3 refers to a decentralized online ecosystem based on blockchain . Platforms and applications built on Web3 do not belong to a central person or organization, but to users who gain ownership shares by helping to develop and maintain services. ReFi Turkey’s journey to the web in the second newsletter. You can take a look here.
Decentralized social networks run on independently run servers rather than a central server owned by a business. Blockchain technology allows data entries to be stored on servers anywhere in the world, increasing transparency as data can be viewed in near real-time by anyone on a network.
Decentralized social networks give users more control. A person can set up their own social network and determine how it works and what users can say. Instead of content being monitored by a company, the founder or founders of a unified social network can collaborate with other users.
Activities that you can do on any social media platform, such as commenting and using hashtags, can also be carried out within these social networks. But their decentralization makes them unique. In addition to the doubts and inadequate information users have about data privacy on current social media platforms, decentralized social networks provide privacy to users. A few available alternatives are listed as follows:
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Facebook -Diaspora, MeWe
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YouTube — Minds, PeerTube
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Twitter — Mastodon
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Instagram — Karma
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WhatsApp — Sinyal
Decentralized Management Models
Another area where the concept of decentralization is frequently seen is the business world. A decentralized organizational structure is shaped by delegating issues that are considered specific to senior management, especially decision-making responsibilities, to department heads, project managers and sometimes team members. Organizations with a decentralized structure allow senior management to focus on strategic planning and growth opportunities rather than tasks that can be delegated.
Such a structure contrasts with a centralized structure in which major decisions and operations begin with senior executives and gradually descend down a chain of command. In decentralized companies, the decision-making power to carry out daily operations is shared by everyone and does not depend on a center.
As an example of a decentralized organization, let’s take a look at Johnson and Johnson. As the company grew, it transitioned to a decentralized organizational structure that gave its managers and employees greater freedom and autonomy through various functional and divisional groups. Former CEO William Weldon says it was difficult for the company to give up control, but they trusted their managers to run the business. He summarizes the reason behind their move to a decentralized organization with these sentences:
“The men and women who run our businesses around the world are often people who grew up in these markets, understand these markets and developed themselves in these markets. They can better relate to the customer’s needs, no matter who the customer is.”
ReFi Türkiye Podcast 🎧️
🌱 The 9th episode of our podcast series, which we conducted with the pioneers who think and build on Web3, within the scope of the ReFi Turkey program, is online ! In this section, our topic is decentralization and DAOs.
You can listen to the episodes about the intersection of web technologies and the impact ecosystem on Spotify, Apple Podcasts, Soundcloud and Spreaker. You can also buy NFTs that we prepared specifically for podcast episodes with the code you will hear in the episodes! 👀
In the 9th episode of the ReFi Turkey Podcast series, we are with Turan Sert, known for his research, articles and publications on blockchain-based decentralized technologies. You can listen from here.