Decentralisation is a different system of networking and data ownership that comes with many benefits, but also has its drawbacks.
Pros include the possibility of more personal control and security, but with this power comes also great responsibility: on decentralised networks there is no “back” button. Mistakes are irreversible, which means it’s important you understand the rules that govern these systems before getting involved.
In this article we’ll examine:
- The origins of decentralisation
- Why decentralisation matters
- The drawbacks to decentralisation
- How decentralisation applies to crypto wallets
Decentralisation is older than you think
Decentralisation has been around for as long as humans have been around; even our most ancient civilizations had some form of decentralised structure. For example, hunter-gatherer tribes or nomadic communities where every individual contributed equally to the group’s survival efforts.
In a decentralised world, there is no central authority deciding how everything should work. Instead, people collaborate on their own terms and create networks for exchanging goods and services in new and exciting ways.
The internet is a prime example of a decentralised network. It uses no central administration and no central server to route information from one user to another. Instead, it relies on a distributed architecture made up of individual computers connected via cables and routers that form a network.
However, the platforms that have sprung up on the internet are very different. Power has consolidated to single companies, raising concerns about censorship, deplatforming, and the siloing of data, which forms a honeypot for hackers. From facilitating opaque data reselling to the rise of “cancel culture,” the sins laid at the door of internet companies are many.
It was these types of failings in centralised systems - and a growing loss of trust in our public institutions - that gave rise to decentralised networks such as Bitcoin, which promised a more participatory, open access economic system with no single point of control. In the digital age, the re-emergence of decentralisation is changing how we think about everything from governance to privacy.
At its core, decentralisation is about the distribution of power away from single persons or organisations. In a decentralised network, your data is spread across multiple locations and can't be controlled by any one entity. Moreover, if one computer goes down or becomes compromised, it doesn't affect the entire network. It's like having multiple backups in case something goes wrong with a server.
In the context of cryptocurrency, decentralisation means that no one person or authority controls your money. Instead, you have a global virtual network, maintained by an army of miners (Bitcoin) or validators (Ethereum) who keep the system running smoothly for anyone around the world to access by confirming transactions on the blockchain. These miners are rewarded with freshly minted cryptocurrency in return for their work – a fair reward considering they would have no way to earn these coins without the network being decentralised in the first place.
Another benefit of decentralisation is censorship resistance: unlike traditional financial institutions like banks or credit card companies, there's no central authority that can tell you what you can do with your money, or who gets to access it. This also means that it's much harder for governments or other third parties to meddle in your affairs or access sensitive personal information.
Ultimately, in today’s world, we can all readily appreciate the impact of living with the consequences of decisions made by a few, behind closed doors. The ideal of decentralisation aims to provide necessary counterbalance to exclusion, abuse of power, and public breaches of trust, returning a degree of autonomy to those who would otherwise have little or no power over the systems dictating their lives.
How decentralisation affects your choice of crypto wallet
If you’re a current Zumo customer, you hold cryptocurrency in a non-custodial wallet. That means a wallet that only you control. No one else – not Zumo, the government, or an adversary – can access that crypto without knowing the seed phrase to your wallet. Provided you’ve stored this seed phrase in a safe place that only you can access, your funds are safe.
Your private keys are stored on your computer or phone and never leave your possession. You should choose to use a non-custodial wallet when you want to have complete control over your funds.
When it comes to using decentralised networks such as Bitcoin and Ethereum, sometimes the greatest enemy is yourself. If you forget or lose access to your wallet recovery phrase and accidentally delete the Zumo app, there’s no means of recovering your funds. As noted earlier, the lack of reversibility or “chargebacks” is what makes cryptocurrency so powerful. But it also means there’s a need to tread carefully.
If that’s a level of responsibility you don’t want to carry, the alternative is to choose a custodial wallet. That’s one you access using a conventional password and username, with your crypto entrusted to your selected ‘custodian’, or provider. A custodial wallet is basically the crypto equivalent of a bank account. It’s still your money, but theoretically the “bank” can access your funds, even if they would only exercise that right in extreme cases, such as when compelled to do so by law. You must also trust them to keep your funds safe on your behalf.
So, what's the point of decentralisation? It's about giving power back to the people. In a world where most things are run by central authorities, this is a radical idea. But it’s also one that has real benefits and advantages. And with the rise of blockchain technology and other decentralised networks, it’s something we may soon see more widely adopted in our daily lives.
For all its benefits, decentralisation isn’t a panacea that can make everything better. This is particularly true when it comes to selecting a cryptocurrency wallet. Whether you choose a decentralised (non-custodial) or centralised (custodial) wallet is your decision - nor is it an either/or. Certainly, you can use both (and most do depending on what they’re doing with their money in a particular use case). Educate yourself about the pros and cons of each system and then make your decision based on your perspective and needs. Whatever your choice, just know that every time you send or receive cryptocurrency on the blockchain, you’re participating in a new, decentralised system of money.