The nature of web3 is decentralisation, and web3 is built upon the blockchain. That leads a lot of people to think all blockchain projects are decentralised, which isn’t the case at all. Not sure what any of this means? You’re about to find out.

Decentralised vs Centralised. Is one better than the other? It probably won’t shock you to hear that it’s not quite as straightforward as that. We’re breaking down the differences between the two, and the purposes both of them serve.

The two concepts we’re looking at today aren’t exclusive to blockchain technology, however they are incredibly prominent within it. Whether something is centralised or decentralised determines how it is run, by whom, and for what purpose. Before we can delve into the details, let’s clear up what both terms actually mean.

Table of Contents

Centralised
Advantages of Centralisation
Disadvantages of Centralisation
Decentralised
Advantages of Decentralisation
Disadvantages of Decentralisation
Decentralised vc Centralised in Blockchain

Centralised

When we say “centralised”, we refer to the central location (be it physical or virtual) of an authority or governing body. This central authority is responsible for all the decision-making, planning, and action making activities. In terms of a company or organisation, the power is all in the hands of whoever is at the centre (or rather, at the top).

This way of working and running things is not at all uncommon. The majority of businesses function in this manner, and pretty much all major banks you could think of do as well.

Having all the power in the hands of one authority might immediately sound like a negative thing. A bit too much like a dictatorship or autocracy. But, it’s important to look at the ways in which centralised entities can be used, before deciding whether this is bad or not.

Advantages of Centralisation

You can’t have a full understanding around decentralised vs centralised organisations without examining the pros and cons of each. First off, let’s break down the pros of a centralised entity.

Communication

If done properly, a centralised organisation will have a clearer chain of communication. There are various levels of authority within the chain of command, and everyone knows who to report to. A simple example would be CEOs, managers, assistant managers, supervisors, and so on.

Clearer communication comes as a great advantage when businesses need to make decisions quickly and implement changes fast.

Clear Vision & Policies

Because decisions come from one source, it’s easier to implement a vision and policies across the whole organisation. The upper level of command may share its goals and vision with a company, whilst guiding them towards achieving them. Clear communication assists in managing this, making implementation of procedures in order to hit goals more straightforward.

Fast Decision-Making

As touched on previously, a clear chain of communication aids decision-making. Centralised organisations are able to act quickly and make decisions without having to put them to the rest of the company first. This is advantageous in a variety of settings and situations.

In terms of business, quick decision-making can reduce disruption and minimise the risk of incurring extra costs.

Regulated

In terms of blockchain (don’t worry – we’ll go into this more later), centralisation equals regulation. But, rules are boring, right?

Well, if you’re tying up a large amount of money, you might feel comforted to know that there are rules and regulations in place to protect you. Whilst taking a gamble in the crypto wild west might sound exciting, and could pay off, lots of people prefer to use a blockchain that does things by the book. That way, there is accountability and some level of insurance should things go awry.

Disadvantages of Centralisation

As with anything, centralisation has its drawbacks. For every benefit, there is a flip side which can be looked upon unfavourably.

Bureaucracy

Who doesn’t love paperwork, convoluted procedures, and waiting around for ages? Not me. That’s why I hang around in the passport office every Saturday afternoon.

We’re not actually talking about bureaucracy in that sense, though. In this case, we’re talking about the kind of bureaucracy that looks a little bit like totalitarianism. Remember the dictatorship point we made earlier? That one authority at the top of the chain of command in a centralised organisation can result in problems for those below.

When decisions are being made, the wants and needs of everyone else may not be a priority. In real-world terms, this can look like unfair workplace policies, or new procedures that impact employees negatively.

Hands-Off

From the perspective of a CEO or executive, the fact that they rely on department heads and the like to implement their policies and rules can lead to difficulties. If the people below the executives don’t believe in the policies, they may not be implemented properly.

This hands-off approach also means that higher levels of authority don’t see first-hand what’s happening at ground level. Without clear knowledge of this, appropriate changes can’t be made to improve the experience of both employees and customers or clients.

Employee Dissatisfaction

As the above point indicates, a lack of consideration for the experience of employees by the higher-ups can lead to widespread dissatisfaction across the workforce.

And, even if employees are taken into consideration, the fact that all the decisions rest with one authority can be highly demotivating. If there is no scope to take on more personal responsibility in your work, why strive for better at all?

Decentralised

Now you know what a centralised entity is, you can pretty much figure out what a decentralised one is. Simply flip the characteristics of the above concept around, et voilà!

A decentralised entity doesn’t have one person or authority at the centre of everything, making the decisions and having the final say. Instead, all of its shareholders are involved in the decision-making. People at multiple levels have a certain level of control, rather than none at all.

If you find your Robin Hood morals kicking in, you probably already like the sound of decentralisation. But, again, it’s a little more complex than first glance might suggest. Just like its counterpart, it has its advantages and disadvantages.

Advantages of Decentralisation

If centralised doesn’t sound like the right fit for you so far, then take a look at how things run when they’re decentralised. Here are the pros of such an organisation (we’ll go into blockchain and crypto next).

Even Decision-Making

Decisions aren’t down to one authority when something is decentralised. They’re made by people with a stake in the organisation, meaning people that will be affected by decisions get to make them. This results in action that could better benefit people like employees, customers, and users.

When a larger group get a fair say in how things work, there’s generally more satisfaction and motivation within the organisation.

Fast Response Times

Rather than having decisions made or actions changed, and then waiting for the impact to slowly trickle down, things can be implemented much faster.

Better Training

Because there is a flatter hierarchy, people at multiple levels have the opportunity to be involved in a wider range of tasks and utilise their skills. This is perfect for training up newer managers or team members, giving them new insights and knowledge.

Disadvantages of Decentralisation

Decentralised isn’t the answer for everything, and it does has negative points that can detract from that attractive sheen it might have at first glance.

Coordination Difficulties

With multiple people having input, it can be more complicated aligning visions and coordinating change. In terms of a business or organisation, this causes confusion around every department is working towards the same common goal.

Division

If authority is passed down to separate divisions, rather than coming straight from the top, it can cause fractured aims. Rather than working towards a broader purpose, divisions within an organisation can become too focussed on their own targets and goals.

Decentralised vs Centralised in Blockchain

What we’re all here for.

We’ve been through the concept of centralisation and decentralisation in organisations, and the pros and cons of each, but how does this apply to blockchain technology? The general concepts translate into how blockchain companies and projects function.

We’ve written an article on the differences between centralised and decentralised crypto exchanges. Relating to blockchain and cryptocurrency, decentralised vs centralised can be a huge factor in what currency or company you go with.

Centralised cryptocurrencies offer more protection, thanks to the regulated nature of them. Whils this is a comfort to some, it can be a roadblock for others, who may want to carry out more radical transactions.

Blockchains that are centralised are ideal for logistics and things like supply chain or retail. This is because one authority decides what the main goals and functions are, and every part of the blockchain works towards that.

For anyone looking to get involved in platforms which they can be a part of, and know all the inner workings, a decntralised blockchain is a better choice. Fractis aims for decentralisation, providing a web3 NFT marketplace where its users are in control of their own investments.

To learn more about Fractis, check out our informative article.