The concept of centralization refers to the distribution of power and authority in an organization or network. When a system is centralized, it means that the planning and decision-making mechanisms are concentrated in one point detail of the system.
A mechanism of governance, of regulation, is needed in any system. Without this, decisions cannot be made that give direction to the rest of the network. The level of governance can range from the definition of fundamental rules to the micro-management of each function of the system.
In a centralized system, a central point of power authorizes and enforces decisions, which then passed to the lower levels of power.
The opposite of a centralized system is a system decentralized, where decisions are made in a distributed way without the coordination of a central authority.
The key question in the debate between centralization and decentralization is whether the specifics of decision making should take place at a central point of the network, or be delegated away from any central authority.
There may be several advantages of centralization:
- The long-term strategy can be tightly controlled
- Responsibilities are well defined within the system
- Decision making is quick and clear
- Central power has an interest in the prosperity of the entire network
Some of the disadvantages of centralization they can be:
- Miscommunication and discrepancies between the center and other places
- High possibility of corruption
- Need to keep power at the higher level
- Exclusion of local actors with specific knowledge or skills
Before the birth of Bitcoin it was a common belief that it was impossible to design a decentralized network in which consensus was reached without significant drawbacks.
However, with the introduction of Bitcoin, a decentralized network has become a viable alternative to centralized ones. This made the debate between centralized and decentralized more elaborate and provided a potential alternative to existing power structures.