Centralized vs Decentralized Platforms

10 min readMar 16, 2023

Centralized | Decentralized | Data Transfer | Decision-Making | DAO

Let’s start from the beginning. When we invented computers, digital documents were stored locally. We then were able to transfer a copy of data to another computer through external hardware, via CDs or memory sticks. In the next phase, we connected to the internet and were able to communicate instantly. We then moved file storage and other applications to the cloud, which allows network-based access to communication tools. These include emails, calendars, productivity software, teamwork working simultaneously, and data stored in service providers' hardware, from whatsapp messages to legal documents, artwork, payment systems, etc. -commonly from centralized entities. Now we are exploring opportunities for decentralization.

Have you ever wondered why such a concept is gaining traction in various fields, from technology to governance?

Decentralization covers many aspects, for instance, the way we store data or how decision-making power is taken away from a central authority and is transferred to a group of individuals or communities.

Decentralization also occurs at different levels and sectors within the organization. Vitalik Buterin, the founder of the Ethereum blockchain, describes Three types of Decentralization :

Architectural (de)centralization — how many physical computers is a system made up of? How many of those computers can it tolerate breaking down at any single time?
Political (de)centralization — how many individuals or organizations ultimately control the computers that the system is made up of?
Logical (de)centralization — does the interface and data structures that the system presents and maintains look more like a single monolithic object, or an amorphous swarm? One simple heuristic is: if you cut the system in half, including both providers and users, will both halves continue to fully operate as independent units?

What is Decentralization when it comes to Data Storage?

Decentralized data storage eliminates a single point of failure. Data is stored across many participants of a network. This form of data storage is more resilient than centralized approaches. It is possible to store and download a file from many locations that aren’t managed by one organization. An example would be the Interplanetary File Service (IPFS)

What does Decentralization mean in the NFT space?

In the case of digital assets, when we buy and sell, we often transfer data ownership but not the asset itself. One thing we need to distinguish is the differences between privately owned, public, and hybrid blockchains. Marketplaces often do not offer a direct minting process where the asset itself is recorded on the public blockchain. We mint simply the right to own a specific asset, therefore, NFT proves the ownership of an asset that is stored in local, centralized, or decentralized cloud storage. We get a pointer to the URL address pointing at a destination of such an asset, like an artwork with access granted to the seller’s cloud storage. But what if the artwork has been altered or removed after the purchase? What if the organization goes out of business, if it gets corrupted for the benefit of a few, or gets hacked? This is the reason why it is important to challenge the credibility of the platform you choose, to learn about the infrastructure, sources, founders, artists, and assets you are investing in. Moreover, deepen your knowledge on how to protect your assets, and truly own them.

Tip | when purchasing valuable digital assets, save them in a decentralized file storage like IPFS.

UNDERSTANDING DECENTRALIZED-APPS (dAPP) in the NFT Space

The basics from Data Transfer → to → Decision-Making.

CENTRALIZED marketplaces or platforms are owned or operated by a single centralized server, private entities, or organizations similar to web2 enterprises like Amazon, Twitter, Whatsapp, and Banks, which control the assets traded on it.
→ They often offer a more user-friendly interface helping them visualize their assets in a more appealing way. Due to fees they also offer a higher level of customer support, and passwords are easily recoverable.
→ They tend to have a wider variety of assets connected to fiat currencies, making it easier to buy and sell assets.
→ They are more established due to large investments, known brand partnerships, and influencers.
→ Their objectives are clearly focused on profit and they move faster.
→ Users’ privacy is based on KYC, (Know Your Customer), therefore, users must provide personal information.
→ They are also much more susceptible to hacks and data breaches since hackers only need to bypass the company’s security to access all users’ data and assets.
→ Due to their regulated nature, people trust them more, but when it comes to decision-making, users must follow rules, they are hardly involved and their assets are privately stored.
→ There are also risks like going out of business as well as fraudulent/duplicated transactions, price manipulations, speculations, and false or misleading signals benefiting just a few while causing a big loss to the rest of the people trusting them.
→ What can go wrong? Some examples of central authority are for instance: Instagram, which mistakenly blocked my account, therefore my photos, messages, etc. Going wider, in our recent pandemic time, some banks limited the amount of daily ATM withdrawals from their clients. In the worst-case scenario, the money may not be there at all, like in the case of FTX, or at a government level, the case of Alibaba in China, as the founder Ma openly criticized his country's regime and had to give up his company.

DECENTRALIZED | dApps are decentralized applications or programs on a public blockchain network or the Web3 space through smart contracts or self-executing contracts, which automatically execute, control, or document events.
→ Although traditional DApps are typically open-source, there are closed-source and partially closed-source. As of 2019, only 15.7% of DApps are fully open-source while 25% of DApps are closed-source. It has been said that open-source DApps have generally higher transaction volume.
→ They are not as popular as those privately invested, users are usually more tech-savvy, and passwords may be lost forever. Due to the collaboration of a large group of people, their interests may differ slowing down the growth and there is also room for wash trading and opportunistic behaviors.
→ However, by not being subject to a central authority controlling the platform or the assets traded on it, the risk of censorship or asset seizure is reduced and they are not subject to the same rules and regulations as traditional apps, online marketplaces, or platforms.
→ Users can trade assets directly with one another, providing verifiable records and eliminating dependency from an intermediary or a third party known as P2P (peer-to-peer) network, therefore it often operates at a lower cost.
→ The security is based on a globally distributed network and the assets and attributes are both recorded directly on the public blockchain.
→ This also makes it difficult for fraudulent activities to take place. Often the fraud targets are the users, not the technology itself. The same scammers who had ever targeted email users, find a new way to scam NFT users, but they can’t break into the technology. More → #2 | NFT101 Scams Explained.
→ They provide immutable ownership through the implementation of smart contracts. Due to the Timestamp append-only log, a blockchain protocol allows input data only, -once entered can’t be edited giving no room to fraud. More → #1 | NFT101 Core Explained.
→ Through a clear and transparent governance system/tokenization, users make the final decisions based on votes, although participants do need a level of understanding to productively participate in governance decisions.

DAO | Decentralized Autonomous Organization

A DAO is an emerging form of legal structure that has no central governing body and whose members share a common goal to act in the best interest of the entity. DAOs are used to make decisions in a bottom-up management approach.
They are not controlled by a single institution like a government or central bank, but instead are divided among a variety of computers, networks, and nodes.

To illustrate the voting system of a decentralized platform, below is a screenshot of Tally.xyz, a platform for on-chain decentralized organizations where, for example, Sudoswap DAO where users’ voting takes place.

Sample of Sudoswap DAO community voting system as of 24.02.23 — https://www.tally.xyz/gov/sudoswap | voting system sample taken 24.02.23

When it comes to investments, it is hard to tell if decentralized organizations are better than centralized organizations. The key is to get very familiar with them before taking action and always take the risk you know you can afford to lose. Due to regulations based on jurisdictions, founders of centralized exchange/investment such as banks may be accountable for their wrongdoings up to a certain amount or percentage based on fractional reserve banking. However, that doesn’t mean you will always get your money back. In the case of FTX, the entity was fully centralized and licensed by the CFTC, which has failed miserably at supervising it, therefore, leading to multiple failures including multiple reports of mixing funds, illegal conduct, mismanagement, and conflicts of interest.

As a UX|UI designer, I find the following decentralized case interesting:

The Case for a Decentralized Internet

TedTalk | Tamas Kocsis, founder of ZeroNet [Open, free and uncensorable websites, using Bitcoin cryptography and BitTorrent network]

Everything is moving to the cloud, where the data is hosted by giant corporations. This move creates much, much more powerful middlemen.…but I found this trend to be very dangerous, …unlimited control over the hosting services. And it’s very easy to abuse this power. For example, last year, a CEO of a company that acts as a gatekeeper for nine million websites decided, after some public pressure, that one of the sites it manages, a far right page, should be blocked. He then sent an internal email to his coworkers. “This was an arbitrary decision. I woke up this morning in a bad mood and decided to kick them off the Internet.” Even he admits, “No one should have this power.” As a response, one of the employees asked him, “Is this the day the Internet dies?”
The European Parliament has… a new copyright protection law (Article 13)… requires every big website to implement a filter that automatically blocks content based on rules controlled by big corporations… But these filters do make mistakes. They’re removing everything from documentation of human rights abuses, lectures about copyrights and search results that point to criticism of this new Article 13… and many other things.

Overall, decentralization is a complex and evolving concept with both potential benefits and challenges.

As society continues to face issues of power, governance, and resource allocation, more likely the role of decentralization will continue to be a topic of debate and exploration. However, innovation benefits from networking and growing community, the more people learn about and engage, the more influence “the people” will have on the outcome. At this point, opting for centralized organizations is a matter of choice for short-term convenience. However, it might be very costly in the long run while watching deglobalization going strong again. As inflation and crisis rise, more countries tend to go far right including about 49+ nations so far. It is important that people show interest and take the time to learn more about the beauty of emerging technologies to catch up with the concepts. This way, the benefits can grow faster and be used to the advantage of the majority.

EXPLORING FURTHER

→ UniSwap Exchange, peer-to-peer market
→ Sudoswap The decentralized NFT marketplace (no royalty fees)
→ IPFS [InterPlanetary File System] decentralized cloud storage making it possible to efficiently distribute high volumes of data without duplication, and cryptographically hashed with a unique identifier.
→ Bitcoin ( BTC | ₿) Electronic Cash or Store of Value, a purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.

More Decentralized Platforms, Data & Transfer: (Source → IPFS)

BitTorrent | Storj | Arweave | Filecoin | Hypercore | Holo | Swarm
Ethereum — A decentralized blockchain platform that enables the creation and execution of smart contracts and decentralized applications (dApps).
Golem — A decentralized marketplace for computing power, allowing users to buy and sell unused computing power.
IOTA — Internet of Things (IoT) that uses a unique consensus mechanism called the Tangle.
MaidSafe — For storing and sharing data, using a unique consensus mechanism called Proof-of-Resource.
Steem — A decentralized social media platform that rewards users for creating and curating content.
ZeroNet — A decentralized peer-to-peer network that allows users to create and host websites without relying on a central server.
Braintrust — a marketplace for talent services.
Minds — a social network