What is the difference between a centralized and decentralized blockchain?

In a decentralized

network, anyone can

transact on the ledger. 

Bitcoin’s network uses

mining and proof-of-

work to maintain the

integrity of the ledger.

In a centralized

network, only known

and identified parties

can transact on the

ledger. Therefore, their

transactions can be

audited.

A blockchain can be either centralized or decentralized. It

is important, however, that decentralized not be confused

with distributed. While a blockchain is inherently distributed

(meaning that many parties hold copies of the ledger), it is

not inherently decentralized.

Whether a blockchain is centralized or decentralized

simply refers to the rights of participants on the ledger, and

is therefore a question of design.

In a decentralized network, anyone can participate and

transact on the ledger. As a result, mechanisms must exist

in order to combat the vulnerabilities that arise from this

design and to ensure that transactions are correct. Bitcoin,

for example, is a decentralized blockchain that uses

mining and proof-of-work* to maintain the integrity of the

ledger and to prevent people from corrupting the system.

A centralized network, on the other hand, is made up of

parties whose identities are known. Thus, the system is valid

because only credible and reputable participants can

post to the ledger. Because participants’ identities are

known, their transactions can therefore be audited.

Ultimately, a centralized distributed ledger

should be used in any highly regulated

industry - such as financial services - to

minimize vulnerability. While both

decentralized and centralized blockchains

have respective risks, a centralized network

is much preferred for our purposes in that

the identity of participants is known and, as

a result, an audit trail exists should an actor

attempt to corrupt the system. It is

preferable, for example, to fine a known

entity that entered an invalid transaction

rather than attempt to account for every

possible manipulation that could

potentially occur in an anonymous,

decentralized network.

Balancing centralization and decentralization is often one of the key issues in the design of organizational structures. A number of lead questions can help you start the conversation about what should be done centrally and which activities, deliverables and decisions should be allocated to decentral units

*Proof-of-work: a function to deter denial

of service attacks and other potential

spam on a network by requiring some level

of work that is usually costly and time-

consuming. In the Bitcoin network, miners

must complete a proof-of-work in order to

regulate the rate at which new blocks are

generated

Source :-Blockchain

Byte

The Blockchain Byte features a question from the

distributed ledger space

R3 Research

Emily Rutland