For many of those interested in blockchain, one of the biggest draws of the tech is its potential to build decentralized networks and do away with the need for trusted third parties. 

Over the past few years, decentralized crypto networks have proliferated. As they expand, these platforms provide powerful examples of how decentralized networks can benefit their users.

Keep reading to learn why decentralized solutions, like decentralized crypto exchanges and other platforms, are so important in this moment.

Why Decentralized Platforms Are Different

Advocates of blockchain-based platforms argue that decentralized platforms offer a few major advantages compared to centralized programs.

In the view of blockchain advocates like investor Chris Dixon, centralized platforms follow a reasonably predictable life cycle. In the beginning, platform runners are primarily interested in attracting new users to the platform. Once there is a critical mass of users, however, their strategy changes. 

Instead, they begin focusing on extracting value from those users. This method is the quickest way for platform runners to recoup operating costs, continue growing the platform and make a profit. They may find value by mining and selling customer data, serving advertisements or otherwise finding ways to profit from the platform’s users.

Decentralized platforms, on the other hand, don’t grow in the same way. Because there are no sole platform managers, the platform’s power and function lie with its real stakeholders — the users.

Decentralized networks based on blockchain, sometimes called crypto networks, can be used for a massive variety of purposes — the same purposes as more centralized networks. For government-backed currencies, there’s Bitcoin, which serves as a decentralized currency. On social media platforms like Twitter and Facebook, there’s Mastodon, a blockchain-based, federated social media network. If you want a decentralized alternative to big-name file storage solutions, you can use Filecoin. 

Crypto networks also provide opportunities for decentralization in industries outside of tech. For example, new approaches like blockchain-based real estate are transforming how housing sales happen and enabling the rise of new approaches to deed and property management.

In general, these approaches help improve data transparency. The blockchain at the base of the system provides all stakeholders in a transaction or on a platform with access to the same accurate info. 

Decentralized Crypto Exchanges and the Potential Limits of Crypto Networks

One area where blockchain will likely have the biggest impact is in finance. Decentralized finance (DeFi) is the application of blockchain tech to decentralize financial platforms. Ethereum, the second-largest cryptocurrency platform, is a leader in this space. Most DeFi applications are based on the Ethereum blockchain. 

DeFi is growing extremely quickly. By the middle of 2019, about a year and a half after the term entered widespread use, more than half a billion dollars were tied up in the market.

Part of the reason for this growth is Ethereum’s support for distributed apps — dApps, or sometimes smart contracts. These are applications that run on a decentralized peer-to-peer network across multiple systems.

However, the platform has run into some pretty significant challenges. These difficulties may demonstrate some of the limits of highly decentralized platforms. For example, Ethereum has struggled to scale their tech up to meet demand. A lack of interoperability between blockchains also means that developers are mostly limited to the most popular networks if they don’t want to risk cutting off Ethereum users.

The Importance of Decentralized Crypto Networks

Blockchain-based crypto networks provide a valuable alternative to more centralized platforms. For just about every purpose, a crypto network can replace a centralized network, offering greater data transparency and trust to platform users.However, for all the advantages that decentralized platforms can provide, they have some limitations that may limit their effectiveness in the long run. A lack of interoperability or difficulties in scaling the tech may limit the adoption of these platforms. Tech advancements will be necessary to make them more accessible to a great number of users.

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