And how does this relate to Private vs. Public blockchains?
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The terms ‘decentralized’ and ‘distributed’ are often used when talking about blockchains — and often confused, for the difference is not always obvious.
Bitcoin’s blockchain protocol, for instance, is a decentralized system for exchanging digital cash — but it’s also an example of distributed ledger technology. What’s going on?
- Centralization and decentralization refer to levels of control.
In a centralized system, control is exerted by just one entity (a person or an enterprise, for example). In a decentralized system, there is no single controlling entity. Instead, control is shared among several independent entities.
- Distribution refers to differences of location.
In a non-distributed (or co-located) system, all the parts of the system are in the same physical location. In a distributed system, parts of the system exist in separate locations.
Allow me to clarify using examples.
Imagine you are writing a document using the Microsoft Word application on a PC running the Microsoft Windows operating system. This setup is both centralized and non-distributed. One entity, Microsoft, controls your application and operating system (centralized). Both the application and the operating system are located on your PC, i.e. in one physical location (non-distributed).
Now, suppose you run an open source operating system like Linux on your PC with open source word-processing software. Different people and organizations contribute to the evolution of both items (the setup is now decentralized). On the other hand, you are still using one physical PC to run all the software (it’s still non-distributed).
A distributed, but centralized system may sound contradictory, but if we use the definitions above based on control and location, we’ll see how this works. Consider a cloud service provider offering a data storage service. Physically, your data could be shared and replicated on different machines according to resource availability and resiliency(distributed). However, wherever the machines and data storage facilities happen to be, the cloud service provider still controls them all (centralized).
That leaves one last case, which is the decentralized and distributed system. We’ll use Bitcoin as our example. Bitcoin is a blockchain system that cannot be altered by any one entity (decentralized). It also runs as a peer-to-peer network of independent computers spread across the globe (distributed).
We can now make more sense out of discussions about how much certain blockchains are truly decentralized or distributed.
Whereas public blockchains tend to be decentralized, private blockchains are typically controlled by one entity like an enterprise. Some people then suggest that private blockchains should not be called blockchains, for this reason (i.e., they are centralized).
Decentralized blockchains using a mining consensus system like proof of work may lose their decentralization if one miner (or group of miners) becomes more powerful than all the others, leading to the threat of a 51% attack.
Cryptocurrency exchanges serving users of otherwise decentralized blockchains may introduce centralization and risk. Consider the Mt. Gox exchange, once the largest online exchange for users to buy and sell Bitcoins. It was controlled by one entity, lacked security, and was hacked several times before it finally shut down.
Even the ‘decentralized-by-design’ blockchains of Bitcoin and Ethereum have been rated as ‘not particularly decentralized’ in a study conducted at Cornell University. The study found that power was concentrated among relatively few miners or mining pools. It also considered these blockchains to be less distributed than one might think, with many blockchain nodes physically located in just a few large data centers .
To conclude, there are degrees of decentralization and distribution, rather than hard divisions. How much decentralization or distribution is desirable then depends on your objectives. Hopefully with the definitions given here, you’ll be able to have a meaningful discussion on the matter and a constructive exchange of points of view.
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