Decentralization Explained

Decentralization is a term you’ll hear a lot in the crypto, web3, and blockchain space. It’s an ideal and an ethos of the entire movement.

Decentralization is the transfer of authority, value, and information from a single entity to a more widely distributed network.

The Nakamoto Coefficient is one way to quantify how decentralized a blockchain is: the higher the coefficient, the more decentralized the blockchain.

Validators are computers that verify the state of a blockchain network. The Nakamoto Coefficient is calculated using the # of validators; generally, the more validators a blockchain has, the higher the coefficient. Therefore, more validators = more decentralization.

Higher decentralization leads to a higher Nakamoto Coefficient.

A major contributing factor to the redistribution of information and data from centralized corporations is the open source nature of smart contract code.

In layman’s terms, this means that the computer science and math behind blockchain and DeFi is uploaded to a public database, accessible by anyone in the world! Transparent accessibility is no doubt a positive for decentralization.

Finally, borderless value exchange is the opportunity to interact with anyone across the entire globe - not just within your country - through these distributed blockchain networks. In the case of DeFi, financial value is being exchanged through trading, borrowing, lending, and the like. But the key aspect here is you don’t need your bank’s permission to exchange this value, you have the freedom to choose when and how you do it.

Woman with freedom on her finances.

Next, we’ll look at how DeFi benefits the public.