Blockchain and Decentralization

3 min read


As blockchain has increasingly discussed by many investors, small businesses, entrepreneurs, and bankers, it is no longer possible to turn a blind eye to the gamut of this profound new technology’s impact on our daily lives. For a while blockchain technology has been mostly viewed as a challenge to the obsolete mechanisms of the current economic and financial system at the edge of a new digital revolution. Naturally, as changes occured in the financial ecosystem with the adoption of this new technology by commercial banks and financial institutions, it led to a range of “thorny” questions that needed to be carefully scrutinized. To eliminate any type of confusion related to the blockchain space, first thing is to look at would be the underlying implications of this rapidly expanding technology.

A completely decentralized system based on a peer-to-peer network, cryptographic algorithms, distributed data storage, blockchain technology has the potential to reduce the role of economic and regulatory actors such as traditional banks and governments on the transactional activities of any value and data in a society.

So, how does this happen?

More precisely, we can say that each node in the blockchain network maintains a copy of the ledger that is composed of multiple blocks for preventing a single point of failure. Each block in the network contains two parts. While the first of which represents the transaction of any data and value, the second one -generally known as the header- includes various information related to its blocks such as timestamp, the hash of transaction e.g. Such a linked and ordered structure of existing blocks enables all copies to be updated and validated simultaneously on the network, which in turn contributes to the creation and management of distributed database without any human intervention through the various mechanisms such as Proof of Work (PoW) and the Proof of Stake (PoS).

Therefore, it would not be inaccurate to state that blockchain technology has the potential to transform the traditional notions of payment systems, and market structure by introducing the new governance systems with decentralized (autonomous) organizations. These new software-based organizations can own, exchange, or trade resources or interact with other humans or machines as much as serving, albeit rather contradictory relationship, for the centralized systems such as Facebook, Amazon, and Google that directly control the flow of information from a single center. In opposition to these mainstream services, blockchain technology is mainly characterized by the idea of “decentralized consensus.”

At this point, after trying to answer the question of how blockchain brings decentralization, now let’s look at some specific areas where we can observe the impacts of this technology’s decentralized nature:

Decentralized Data

As the information-based economy is rapidly expanding all around the world through the ubiquitous robotics and automation technology, data has become the primary form of value and assets. Naturally, data privacy and security has increasingly become the focus of public concern in the digital age. At this point, it is necessary to make a clear distinction between these two terms. While data privacy is related to the process of collection, usage, and sharing of the data, the second of which is accompanied by the elimination of the risks of external attacks to the users’ data, as it also can be understood from their technical definitions, data privacy and security are not mutually exclusive issues since we cannot mention the data privacy without data protection.

Until the arrival of blockchain, the mainstream services that can be referred to as “BigTechs” such as Google, Facebook and Amazon have had a monopoly over users’ data, and for a long time, it was assumed that they would not misuse and sell our data to their partners without users’ consent or knowledge. Similarly, people have mostly thought that these tech companies would’ve enabled to ensure the security of their data after seeing the last series of high profile data breaches. However, as BigTechs have been harnessing the cloud computing that contributes to the storage of data in a highly centralized manner, hackers were found to be easily and quickly reaching users’ data from those central points.

The proposed solution to protect data privacy and security, the decentralization of data through blockchain technology has increasingly become prominent since people on the network obtain an opportunity to copy the blockchain and store it through the wallets composed by their private keys, letting no other individual the opportunity alter, breach or exploit it.

Decentralized Identity

Through above-mentioned private keys, every individual now can have a digital identity on the blockchain infrastructure. Until this time, we have mentioned OpenID protocol as one of the most successful attempts to consolidate the identity on the Internet over the past years. OpenID can be defined as a decentralized identity protocol that harnesses some web protocols like HTTP, SSL, and URI to carry users’ identities around the multiple providers. The main logic is as follows; identity is fragmented across the web already, and by using the OpenID protocol, users can transform existing URIs into an account which can be used at any OpenID-supported sites.

However, it’s not a robust system to secure the authentication of users’ identities online. Since the scope of online identities cannot be restricted by the national boundaries, digital identity authentication system appears as an intractable problem without an overseeing global entity. At this point, blockchain technology can enable a secure solution without the need for a trusted, central authority. Through the blockchain-based identity management system, people can have greater control over their online ID than who has their personal information and how they access it today. By combining the decentralized blockchain principle with identity verification, a digital ID can also be a solution for organizations to check the identity on every transaction in real-time, which in turn can contribute to the elimination of fraud on a large scale.











Leave a Reply

Your email address will not be published. Required fields are marked *






© 2018 Colendi - All rights reserved.