Centralization vs Decentralization¶
Usually, in complex system, decentralization is not all-or-nothing (e.g. the email protocol is decentralized but there are private email providers).
Aspects of decentralization in cryptocurrencies¶
- Who maintains the ledger?
- Who has authority over transactions validity?
- Who creates new coins?
- Who determines how the rules of the system change?
- How does the currency acquire exchange value?
Note that the cryptocurrencies protocols usually are decentralized but services built around them may be centralized (e.g. exchanges).
Aspects of decentralization in Bitcoin¶
- Bitcoin is based on a p2p network: anybody is allowed to join the network. Also, the barrier to entry is really low.
- Mining: anyone is allowed to mine Bitcoins, but in this case the power concentrates in few entities in the network.
- Software updates: Bitcoin core developers are trusted by the whole community and thus they have a centralized power over the network.