1. Decentralized V.
Centralized

Core message: In a decentralized system, trust is spread across the network of system participants, so the possibility of censorship is lower and there is no single point of failure. In a centralized system, trust is placed with the system owner, so the possibility of censorship is higher and there is a single point of failure.

Our 2-Cents: The main goal of decentralization is to implement properties that allow users to interact with each other effectively and reliably in a situation where they don’t trust (or don’t have to trust) a central owner or intermediary.

Let's break it down...

Information systems are designed to collect, organise, store, and process information.

The required components:

a database
users
technical tools with the necessary software

The goal for any information system is to achieve the optimal combination of required properties, such as:

security
privacy
integrity
accessibility
resilience
trustworthiness
performance

Decentralized V. Centralized

So, how do you differentiate between a decentralized and a centralized information system? (Or how do you choose which type of system to develop?)

System Components
In a decentralized system, all of the components (i.e., database, users, technical tools and necessary software) must be decentralized.

(In a centralized system, this is not the case.)
Operation and Governance (Peer-to-Peer)
In a decentralized system, the operational processes (such as asset management, communication, decision-making, storage and processing of information, validation, and audit) can be executed separately and simultaneously by many participants. Any changes to the system, and/or rules on which the network functions, require consensus amongst the network of participants.

(In a centralized system, operation and governance are conducted on a hierarchical basis and often with very little transparency.)

This second point is the essence of decentralization in information systems: the level of autonomy available to the users (within the rules of the network) in the operation of the system and their level of participation/oversight in governance of the system.

System

1. Components

2. Operation & Governance

Decentralized No Single Point of Failure Censorship/Corruption Resistant

Centralized Single Point of Failure Censorship/Corruption Easier

Decentralized Systems

The main goal of decentralization is to implement properties that allow users to interact with each other effectively and reliably in a situation where they don’t trust (or need to trust) some central party or intermediary.

The degree to which a system is decentralized is not always easily measurable but, as we see above, it is important to establish because it has important implications for the security and integrity of the system. We will examine this throughout the tour.

Challenges with decentralized systems:

can be slow and inefficient compared to centralized systems
higher individual responsibility
resistant to change because of the consensus governance
they are new so there is a steeper learning curve
potentially higher entry and running costs
harder to monetise

The benefits of decentralization:

greatly reduces the possibility of censorship
solves the problem of having a single point of failure
removes the need to trust an owner of a system - trust is decentralized

Centralized Systems

A centralized system has a number of very useful properties:

it is easier to manage
easier to modify
usually operated by a known, responsible entity
clear hierarchical structure
decisions are generally made and implemented more quickly
easier to build and monetise business models
often lower start-up and running costs
often more convenient for end users

Challenges with centralized systems:

Control over the system is in the hands of very few people (maybe even one person)
Integrity of the information within the system is hard to measure
Single point of failure
Censorship of information and users is at the discretion of the owners
Misuse of personal data is all too common and has prompted the introduction of data protection legislation such as GDPR

In a Nutshell

The differences between centralized and decentralized systems are not purely technical, they are also ideological: this requires a mindset shift from a hierarchical to a consensus approach where participants can act autonomously within the set rules of the system.

A centralized system requires trust in the system owner which brings with it a higher possibility of censorship and a single point of failure.

A decentralised system allows users to interact with each other effectively and reliably in a situation where they don’t trust, or need to trust, a central owner or intermediary. Trust is decentralized across many system participants which brings with it censorship resistance and the absence of a single point of failure.