Crypto Academy Season 3 Beginners' course - Homework Post for Task 2 [Blockchain, Decentralization, Block explorer]

Thank you Professor @yousafharoonkhan for this amazing lecture.

1. Define decentralization. Describe the advantages and disadvantages of a decentralized system. In what areas of life can a decentralized blockchain be helpful? (write in own words)

Source

We cannot exactly talk about decentralization without mentioning blockchain.

Blockchain is simply a decentralized system that is safe and secure without an intermediary but operates using a peer-to-peer system. This system has the ability to store any kind of information which can be viewed and verified by different nodes in various places of the world.

DECENTRALIZATION

Decentralization is simply the process of dispersing power away from a central point. It spreads power and information across multiple points.

Decentralized networks are composed of computers known as nodes that interact directly on a peer-to-peer basis with the need for intermediaries or third parties. It can also distribute data so that a piece of information can be checked and validated without the information being transferred to a third party.

The data is validated using an agreed consensus mechanism. Each participating node is independent of the others, connect using common rules but maintain their own privacy. One place where decentralization is valued is the cryptocurrency industry with projects building on several blockchains and distributed ledger technologies (DLT).

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Advantages of a decentralized system

• High security
  Transactions on decentralized blockchains are very secure and easy to tell when there are fraudulent actions because they are open-sourced ledgers and every transaction is recorded on them. There are thousands of miners all over the world validating transactions at any given moment and it makes the blockchain nearly invulnerable to fraud.

• Protection from Government Policies
  Cryptocurrencies that are blockchain-based are not controlled by any governmental bodies or financial sector and hence cannot be meddled with. These third parties always have the power to control currencies with sometimes causes inflation by devaluing or debasing the currencies but this does not happen in decentralized systems. This is basically because cryptocurrencies are software programs with a certain number of coins and this gives it resistance over inflation, unlike fiat currencies.

• Increased transaction speed
  Transaction times in blockchain-based cryptocurrencies are much faster than that of the traditional banking system. The latter can take days for the transaction to go through while transactions made on blockchains take just a few minutes. Money flow is usually faster with a higher level of accuracy which is actually beneficial.

• Financial efficiency
  Transactions on decentralized blockchains are made directly from peer-to-peer without the need for a third party. This in turn increases financial efficiency and makes people be less reliant on traditional banks and other financial institutions. It saves some money in transaction fees and other costs that come with using banks.

• Fast decision-making
  Decisions in a decentralized system are taken very quickly because there is no third-party interference and it makes transactions more efficient.

Disadvantages of a decentralized system

• Crime
  Decentralized blockchains have reportedly being a place for illegal acts due to their anonymity. It has become a preferred financial instrument for criminals as they can buy illicit narcotics with blockchain-based cryptocurrencies.

• Volatility
  Blockchain-based cryptocurrencies are very volatile and can fluctuate up to 20% in one day. This is not exactly good because there are no certainties as to the price of the coins.

• Technical know-how
  It requires individuals who are highly skilled and experienced to operate it because it is complex.

• High cost of Maintenance
  It is relatively expensive to build and maintain a decentralized system.

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In what areas of life can a decentralized blockchain be helpful?

• Banking and Finance sector
  Using decentralized blockchain in the banking sector can help to increase transaction speed. More transactions can be carried out faster even outside working hours and days and they will also be a reduction in transaction fees. It will also help in the control of fraud in financial institutions.

• Health Sector
  A decentralized system can be beneficial in the health sector by keeping good records of the data of patients which can be accessed by doctors anywhere in the world. A decentralized system will keep a patient’s data private and safe.

• Political sector
  Electoral rigging and fraud can be minimized using decentralized blockchain because votes cast cannot be transferred to anyone else. With this system, there will be no manipulations of the electoral process and the result can be credible.

• Personal Data storage
  Personal data can be stored on a decentralized blockchain which will be kept safe and secure. The owner can always make reference to it and in case the document goes missing physically, it can be retrieved from the blockchain. The data stored on the decentralized blockchain is verified and stored forever.

• Business sector
  Decentralized blockchain is also useful in the business sector for store and record keeping. Business people can use it to keep records of the goods they have in store and those sold out. It can also be used to verify how authentic products are.

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Conclusion

Decentralization is highly valued in the cryptocurrency industry. It is high transparency, secure, and has high transaction speed. It can be disadvantageous because of fraud due to its anonymity. It can be used in various sectors that are important in our lives such as the health, political, personal, and business sector. Decentralization is the way forward and welcomed development.
cc: @yousafharoonkhan