Centralized or Decentralized; Which is Better? Pros and Cons


In brief, what does it mean when something is either centralized or decentralized and what are the benefits and downfalls of each?

Blockchain and Decentralization

Bitcoin, the popular digital currency, brought to light the benefits of blockchain technology and its decentralized nature. However, for most, this is still a very novel concept and few people really understand its capacity and full potential.

In essence, a blockchain is an immutable ledger with multiple copies maintained by a network of distributed nodes, rather than on a single server (to prevent tampering). This allows for a more reliable method of record-keeping.

In order to better understand the extent of the solutions this new technology can provide, we need to allow more time for existing projects to develop. As with anything, learning begins with clarification of key terminology. In this respect, we should first ask, “what is the difference between a centralized and a decentralized system?”

Centralized

A centralized structure is the classic hierarchy of the majority of existing organizations. Companies, governments, and armies (to name a few) are all based on pyramid-style hierarchies whereby one or a few people hold the majority of the power at the top.

When referring more specifically to a technology setting, this can be seen in the way in which servers are set up. A centralized server structure would, similarly, house one or a few servers in the same location, responsible for maintaining all of the company’s data.

Benefits

This system has been the default for a few obvious reasons: It’s much easier to maintain control if decisions come from the CEO and Board of Directors rather than every employee agreeing. It creates a standardization of work by which each employee understands their hierarchical role in the company and to whom they answer. It cuts down on work being duplicated unnecessarily.

In short, centralized system structures allow for:

  • Control of the entire system
  • Easy to delegate rules or commands
  • Clear in ways for changing the system, structure or processes
  • Solid and simple structure outline
  • Easy to setup
  • Every unit has clearly defined responsibilities

Downfalls

Admittedly, as with any ‘absolute-power’ hierarchy that places more power in the hands of a few, the wrong administration could run the company into the ground.

Oftentimes, a top-down company structure can indirectly encourage dictatorship or at the very least require a relative excess in bureaucracy for management. Even if the administration never let their power become an issue, this system still breeds dependency. Meaning, if a leader were to fall ill or be in any way indisposed for work, there could be significant damage or delays to the chain of command.

Another clear flaw, referring to computing and servers, is that it creates vulnerabilities. A centralized server opens up the possibility of a physical or cyber attack on servers and can lead to the compromising of crucially stored data.

Unfortunate side effects of a centralized system structure can cause:

  • Unhealthy disparities in power distribution
  • An a priori requirement of rules
  • A lack of potential checks and balances
  • A requirement of a bureaucracy to enforce rules
  • Additional workforce and process systems to maintain order and oversight
  • Uneven work distribution which can cause bottlenecks in progress when problems are faced

Decentralized

The core distinction between a centralized system and a decentralized system is that the latter distributes the control, operations, and power. Rather than having one central authority, this power in decision-making is distributed throughout the organization.

Benefits

This system allows for greater communication within the organization and leaves less vulnerabilities. This can aid the organization in growing well overall and in maintaining accountability and transparency in procedures and work structures.

Using the same examples as we did in centralization, this system of hierarchy eliminates the possibility of a leader falling ill or being otherwise indisposed and unable to do their job and leaving the organization at a standstill.

In fact, on a similar note, this type of system actually encourages more leaders as there is more opportunity for people to showcase their leadership talents when the anchored authority is replaced by a helpful community.

Some businesses have decentralized employee structures which have more units. Units are horizontal in a hierarchical structure and therefore act independently of one another. An example of a useful case for a decentralized setup could be in a sales intensive company. This company may have many disparate sales teams distributed throughout many cities and regions.

Similarly, by decentralizing server structures, like with a blockchain, these are distributed to prevent a single point of entry by which hackers or other malicious attackers can compromise the system. If the data in one server, or node, is altered or tampered with, the majority of the nodes will become aware of the inconsistency and deny the request for a change.

Benefits of a Decentralized System:

  • Like a grid or series of interconnected nodes, hierarchy and power is distributed throughout those nodes
  • If nodes or units are disabled, output of the system should not decrease much or at all
  • If nodes or units are compromised, they can be taken offline without damage to the system as a whole
  • Authority is more evenly or perfectly distributed among all the nodes
  • Each node or unit can have its own function and serve as a redundant backup simultaneously
  • Nodes and units run more autonomously without as much, or any, bureaucratic oversight
  • Flexible; nodes and units and be added and removed for greater efficiency

Downfalls

Nevertheless, no system is without its flaws, even a seemingly advantageous system like a decentralized one. This system, for example, is not always ideal for new organizations.

When a new organization begins operations, there must be a person or system in place to guide the team when certain factors are still unclear. A decentralized structure works much better in an environment that has already been polished with years of experience and where there is a general understanding of the tasks that must be accomplished.

Similarly, decentralization breeds duplicate work and competition among colleagues, as the leadership is open-ended. Additionally, it’s difficult to mold the company’s culture in a decentralized organization because the nature of it doesn’t allow for big changes without it first being agreed upon by the entire community. This can lead to slower change.

However to get units within a company or nodes within tech systems to operate in perfect synchronicity, a greater amount of work must be employed. These systems are necessarily more complex to design and to cater to the specific needs of the organization or network as a whole.

Scalability poses several risks to decentralized structures. While more flexible in general, certain scale sizes may be difficult to achieve or manage. Also, catastrophic collapse of a decentralized system can occur if enough nodes or units are disabled, overwhelmed or removed which overload the system as a whole.

Some downsides to Decentralized Systems:

  • Intrinsically more complex
  • Not as easy or fast to set-up in a manageable way
  • May reduce internal competition which can breed development and reform
  • More difficult to enforce changes or updates if some units or nodes were to disagree
  • Scalability may pose certain complexities which can be difficult to overcome
  • Possible to suffer catastrophic collapse if enough problems happened in a short timeframe

Make an Informed Decision

Though many people popularly advocating decentralized systems claims that it is necessarily the future. it’s still a concept that requires further experimentation and polishing up. There are still, undoubtedly, numerous advantages and issues with both centralized and decentralized hierarchies.

It is also possible to have a hybridized structure which has components of decentralization and centralization working in sync with one another.

The answer to which is better depends entirely on analysis of the organization or network itself. Regardless of the pros and cons of each, you’re now better qualified to decide which is the better fit for you.

As the old saying goes, “knowledge is power,” and the best knowledge doesn’t come from generalizing ideas but from specific models and practice. Therefore, our only advice is that you try working in both environments and make a decision based on which you believe to be the better fit.

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