You may have heard people talk about decentralization and the decentralized economy but never really understood how it works. In reality, decentralization has crept into our lives and is slowly, but gradually, becoming the new normal. But what exactly is decentralization?
Decentralized Economy Explained
Decentralization is when control is not in the hands of a central authority but dispersed among private or independent individuals.
Take an organization, for example. In a centralized system, the CEO or managing director will be in charge of decision-making. But with decentralization, those personnel working at the grassroots level are allowed to make decisions concerning what affects them immediately, such as when an employee interacts with a customer.
And this is how a decentralized economy works. In this kind of economy, management, financial activities, and all transactions occur directly between individuals or individuals and their devices without having to go through a third party, such as a bank. Demand and supply control prices and money movement in a decentralized economy rather than a central bank or government. Since there's no regulation from such centralized authorities, transactions become faster and more efficient. You become an active player in the market rather than someone who goes with whatever policy the government puts in place.
So, to be definitive, a decentralized economy is one in which the movement of goods and services is primarily in the hands of individuals and private companies, with little or no government interference.
Why Decentralized Economy May Completely Replace Centralization
Investors and business people form the vast network of any nation's economy. But some low-income individuals are willing to invest, although such persons cannot always afford high-ticket investments. Why is it so?
With a traditional centralized economy, investing in real estate, shares, stocks, and bonds are usually cumbersome with lorry loads of paperwork and legal formalities. These things hinder the common person. That's aside from the high cost of investing in these assets if you hope to get substantial returns.
Hence, low-income individuals leave the market for the high-net-worth who have already found their way with the market regulations.
But with a decentralized economy, like cryptocurrency trading, just about anyone can become an investor from the comfort of their homes. No legal paperwork, no dealings with any bank or financial institution; the trading is entirely between you and the blockchain.
The Decentralized Market As We Know It Today
Today, technology has made investing so easy, as you can buy and sell cryptocurrencies directly with your smartphone. Just as you deal with commodities, you can purchase a cryptocurrency such as bitcoin online or through a bitcoin ATM. The cryptocurrency gets deposited into your wallet address immediately after getting verified from the bitcoin blockchain.
As a decentralized currency, Bitcoin was created as a revolt against centralization and the current market economy. Alongside other cryptocurrencies that came after it, bitcoin is now paving the way for financial decentralization, and this will undoubtedly impact the economy.
In a decentralized market, technology enables investors to transact with one another rather than following traditional third-party processes. Virtual platforms that enable the buying and selling of cryptocurrencies are, therefore, key examples of a decentralized market.
What is a Decentralized Currency?
Like bitcoin, a decentralized currency is out of any bank's involvement but moves directly from peer to peer via blockchain technology. It's also known as a digital currency.
There is complete anonymity, so you don't have to write out your name or address before buying any digital currency as you'd do in a traditional market setting.
However, there are platforms where investors and traders can deal with digital currencies. Although not all such platforms are entirely decentralized, they all use fiat—physical currency issued by a bank (e.g., the dollar). So you have to convert your dollars and euros into digital currency on the platform.
In effect, digital currencies are a massive part of the decentralized economy because they allow individuals to have complete control over their money without third-party involvement.
How Decentralization Impacts Business, Education, and Individuals
Let's consider a typical business structure. Traditional organizations have a hierarchy when it comes to decision-making. In that case, there may be delays since a manager or director has to respond before any action is taken. But with decentralization, decision-making can become faster and more efficient. That's because those making the decisions are closer and have a firsthand understanding of the issue at hand.
Furthermore, decentralization can lead to better prices. This becomes obvious when you consider the tax and interest rates financial institutions impose on loans, lines of credit, and the movement of goods and services. If these bottlenecks are out of the equation, it would only be natural for the reduction to reflect in prices.
What then are the implications of decentralization on education? Typically, a central ministry is responsible for structuring, financing, and delivering primary and secondary school education in a centralized economy. But with decentralization, these issues are left in the hands of teachers, staff, and local school districts. Management is thus closer to home.
But then, can we say education is truly decentralized?
A 100% decentralized system is still a thing of the future. No country's education is yet fully decentralized, given the fact that the federal government still plays a huge role in controlling and allocating resources to local districts. In the end, the educators and local districts only have very little left in their control.
Decentralization undeniably has a far-reaching effect on world systems. Although it's not yet entirely in effect, some countries and organizations are adopting some levels of decentralized economy. "Some levels" because there's still a degree of regulation in place.
How Decentralization Can Be the Global Future
As good as a decentralized economy sounds, it faces rejection, especially by central banks and governments of nations. And we can see the resistance from the fact that systems still yearn to have a level of control and regulation over how things play out in the smaller networks.
But then, financial decentralization is one thing the world genuinely needs, something that can bridge the socio-economic gap. But since global decentralization is still a far cry away, one can seize the financial freedom digital currencies have provided.