Decentralized (adj.) means that something is not owned or controlled by a central entity. In other words, it is owned and controlled by a decentralized community. There is no central authority. Decentralized means that it is a peer-to-peer (P2P) network.

Bitcoin is a form of decentralized money that does not rely on banks or governments as third parties.

Blockchain is decentralized. There are pros and cons to decentralization. If there is a trusted third party to manage a centralized service, this can be very efficient. A centralized server’s hard drive could simply keep track of the state of a ledger without any need to decentralize. So what is the rationale or benefit of decentralization?

The original vision of the internet was a decentralized communication system. However, it currently runs on a private infrastructure. Servers are owned by major providers like Google and Facebook, which makes it more of a centralized internet. This is Web2. The internet as most of us know it is dominated by a few large companies that monetize their user data.

Ethereum is a public blockchain that seeks to replace internet third parties that store data and financial records. Ethereum makes use of nodes run by volunteers as an alternative to server and cloud systems owned by major internet providers and services. Ethereum relies on this decentralized network of independent nodes to validate transactions.

No one owns the Bitcoin network or Ethereum.

Web3 is a decentralized internet that is blockchain-enabled. It is a vision of millions of devices connected together in an open network. No one actor owns it or controls it. Public blockchains like Bitcoin and Ethereum run on a decentralized network of computers and not a centralized server. This is why Ethereum is sometimes referred to as the “internet computer.” The idea is that Ethereum nodes connect to become a global computer. In this way, Ethereum provides a decentralization of server and hosting duties. Decentralized applications (dapps) offer a user-facing service that does not rely on the sharing of private data.

In a decentralized internet, no one entity has control over personal data and data would be much less vulnerable to hacks.

A decentralized internet cannot be censored. Control is decentralized, so there is no government or company that can block an account.

A decentralized internet is not susceptible to server failure. A company website that runs on servers can become inaccessible if the servers fail. In contrast, Ethereum is a decentralized network of thousands of computers that form the Ethereum Virtual Machine (EVM). The EVM does not rely on any one location or piece of hardware.

For instance, the frontend code of a decentralized application (dapp) can be hosted on decentralized storage such as IPFS.

The computing power of Ethereum is not free. It is powered by Ether (ETH). Ether is the payment to those who help Ethereum run. Ether is the token by which you pay for changes to the Ethereum blockchain. The cost and scalability of decentralized computing is a limiting factor for Web3, but developers are working on solving this problem.

There is now a coin Internet Computer (ICP) that is managed by DFINITY. The Internet Computer claims to be “the world’s first blockchain that runs at web speed with unbounded capacity.” DFINITY launched the Internet Computer into the public domain on May 10, 2021. DFINITY Foundation is a not-for-profit scientific research organization based in Zurich, Switzerland.

Other Forms of Decentralized Systems

Blockchain is decentralized, but not all decentralized systems are blockchain.

Mastadon and Diaspora are three examples of social media platforms that are decentralized. These platforms do not use blockchain, but they rely on a network of independent servers rather than a centralized corporate server. You can check them out at Mastadon and Diaspora. These would also be considered Web3 applications because they are decentralized. These platforms are built on top of peer-to-peer networks, which allows users to connect and share content without relying on a centralized platform such as Facebook or Twitter.

Farcaster is a social media platform built on Ethereum. You can check it out at Farcaster.

With Mastadon, Diaspora, and Farcaster, users have full control over their data and can choose how to share it with others.

Here’s an example of Vitalik Buterin’s social media accounts:

The Mask Network is a Web3 social media network as well. Their tagline: “Mask Network brings privacy and benefits from Web3 to social media like Facebook & Twitter – with an open-sourced browser extension.” The Mask Network acquired one of the largest Mastadon instances in December 2022.

Resources

There is a list of pros and cons for centralization versus decentralization at the end of the Web2 vs Web3 page at ethereum.org.