Methods of Decentralization in Blockchain
Decentralization refers to the removal of central authorities or intermediaries from a system, allowing peer-to-peer interaction. In blockchain, two primary methods are used to achieve decentralization:
1. Disintermediation
Definition:
Disintermediation means removing intermediaries (like banks, brokers, or institutions) from a system and enabling direct peer-to-peer interactions.
Example:
If you want to send money abroad:
- In traditional systems: You go through a bank.
- In blockchain: You can directly send cryptocurrency to your friend using their blockchain address without any bank.
Use Case:
- Financial transfers
- Health sector (patients control their own records)
- Identity verification systems
Benefits:
- Cost reduction
- Transparency
- Speed
- User empowerment
2. Contest-Driven Decentralization (Decentralization by Competition)
Definition:
This method involves multiple service providers competing to offer the best service. Users or systems (like smart contracts) select providers based on reputation, trust score, or performance.
Example in Blockchain:
- Oracles in smart contracts can choose between multiple data providers.
- Validators compete in networks like Proof of Stake (PoS) or Delegated Proof of Stake (DPoS).
Outcome:
- Achieves partial decentralization (not fully trustless).
- Encourages competition and quality service.
Key Idea:
While intermediaries still exist, their monopoly is reduced.
