What Does Decentralized Mean in Crypto?

By Julia Cook
Published Jun 22, 2022 and updated Oct 14th, 2022

Decentralization is when the decision-making processes and activities of on organization are distributed across various locations instead of just being conducted in a single, central location.

In blockchain technology, decentralization means that data and transactions are processed, approved and stored across many nodes in the online network instead of in a central database. This makes the data much more secure, as it is far more difficult for malicious players, known as ‘adversaries’ in crypto jargon to hack into the system or to perform scam or spam attacks on the nodes in the network.

All decisions made on the blockchain, even person-to-person transfers, are done through consensus. This means that at least 51% of nodes need to agree to the transfer (or any data storage, alterations or validations, etc.) in order for it to be approved, processed and hashed onto the blockchain.

Furthermore, although all of the data stored and data transfers on the network are visible to all members of the blockchain network, the identities of the nodes and e-wallet holders attached to the network are completely anonymous. This gives participants to trade and transfer funds freely, without having to fear personal attacks or threats.

The Difference Between Centralized and Decentralized Data Storage

Traditional digital ledgers store data in a central location, such as when an individual stores their data on their computer or a business on a cloud-storage platform. But if the individual’s computer is damaged, infected with a virus or hacked, then the data is permanently lost.

So too cloud storage platforms usually store the user’s data in a remote database that is centralized. This means that even though their stored data is backed up on their servers, it could still get lost or become corrupted if there should be a system failure or if a malicious actor attacks the system. It is also possible for network errors to fail to record transactions.

For blockchain ledgers, a centralized network would be a private blockchain where the identity of all member nodes are known and connected to a specific corporation. No outside parties will be allowed access to the blockchain, nor will all member nodes be able to freely view the stored data or transact or store data on the blockchain without the consent of authority nodes. Therefore, the difference between decentralized and centralized ledgers lies in the number of nodes connected to the blockchains, the extent of the access that participating nodes have to the blockchain’s data, as well as the type of consensus protocol that is implemented on the blockchain.