In centralized systems, decisions are typically made by a single central authority.
For instance, companies utilize a centralized accounting ledger managed by the accounting department to record all economic transactions.
This central entity is responsible for maintaining and updating the ledger entries.
Empowering Autonomous Decision-Making
On the contrary, decentralized systems consist of numerous distributed and independent actors with similar levels of authority who collectively make decisions.
Therefore, the need arises for consensus on the precise state of the network at any given time.
Achieving consensus among multiple remotely cooperating nodes is challenging, especially when nodes may malfunction or intentionally act against the network’s interests.
Network Harmony Achieved
Cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH) employ technical solutions, such as the proof-of-work and proof-of-stake algorithms, to establish network consensus on the exact transactions and their chronological order.
These mechanisms ensure consensus without relying on centralized enforcement of rules.