Decentralisation meaning for startups

Decentralisation is a type of organisational structure in which top management delegated decision-making and day-to-day operations to middle and lower levels of management. As a result, top management can focus on making key decisions with more time on their hands. Businesses frequently feel compelled to decentralise in order to maintain operational efficiency.

Decentralisation can be defined as the systematic distribution of authority throughout an organisation’s management tiers. It describes how decision-making authority is distributed among various levels of an organisation’s hierarchy. In other terms, it refers to the dispersal of authority, functions, and responsibilities away from a single point of control.‍

Decentralisation meaning

Advantages of decentralisation

Making quick decisions

By delegating decision-making authority to the operational level, which is closest to the problem, decision-making becomes both faster and better.

‍Leadership development

It promotes subordinates to be self-sufficient and confident, because when authority is assigned to lower levels, they must rely on their own judgement. Executives are continually challenged by such delegating, and they must develop solutions to the challenges they face in day-to-day operations.‍

Management skills development

Subordinates get an opportunity to demonstrate their abilities in a decentralised organisation, and management gains a pool of qualified labour that can be promoted to more challenging and responsibility-laden positions.

Provides relief to upper management

It reduces the supervisor’s direct supervision of subordinates because they are given the freedom to decide and behave as they see fit, within the restrictions specified by the superior. As a result, top executives will have more time to make policy judgments.

‍Promotes growth

It gives lower management levels, such as heads of departments, divisions, units, and so on, more autonomy by allowing them to fulfil responsibilities in the method that is most appropriate for their department or division. It instils a spirit of competitiveness among diverse departments, encouraging them to exceed one another. This leads to an improvement in production and a higher return on investment for the company.

The types of decentralisation

Monetary/ fiscal decentralisation

The key component of decentralisation is monetary duty. If local governments and private organisations are to perform decentralised functions effectively, they must have a sufficient amount of revenue — either earned locally or transferred from the central government — as well as the authority to make consumption decisions.

Political decentralisation

Citizens or their elected representatives are given additional authority in public decision-making through political decentralisation. supporters of political decentralisation believe that decisions made with broader participation will be more informed and relevant to a wider range of societal interests than ones made solely by national political authorities.

Market decentralisation

Privatisation and deregulation are the most comprehensive kinds of decentralisation from the government’s standpoint since they shift responsibility for duties from the public to the private sector. Economic liberalisation and market development policies are generally, but not always, accompanied with privatisation and deregulation. They allow enterprises, community groups, cooperatives, private voluntary organisations, and other non-government entities to perform services that were formerly solely or mostly the duty of government.‍

Decentralisation in cryptocurrency/blockchain

Decentralisation examples

One decentralisation example of use is through the protocols used to run blockchain networks. By outsourcing validation and record-keeping to the platform’s users on the network, validation and record-keeping processes are decentralised and automated, removing the need for a central controlling authority. The current state of the ledger is determined through consensus procedures. No one needs to know or trust anyone else in a decentralised blockchain network. In the form of a distributed ledger, each member of the network owns a copy of the exact same data. If a member’s ledger is tampered with or corrupted in any manner, the majority of the network’s members will reject it.

Many new disruptive markets can be created by blockchain applications, such as medical data recording/sharing, NFT marketplaces, music royalties tracking, cross-border payments, decentralised finance (DeFi) capabilities etc. The DeFi market is valued at over $100billion and the NFT market is growing every day. These all use the decentralised network to succeed and in doing so have created platforms that have reduced points of weakness, safe place to store data and a trustless network.‍

Defi defi market

Centralisation vs Decentralisation within blockchain

While Blockchains USP has typically been that their platform is decentralised which provides all the benefits listed above, however we have seen that some of the newer blockchain networks have focused their platforms on the functionality of their blockchain instead, which has lead to blockchain sliding alone the scale closer to centralisation.

This has led to some platforms having a semi-decentralised system where a smaller group of handlers will have access to the blockchain, meaning it is close to being a centralised network. What the issue is with a semi-decentralised system is that the users are left with a permissioned network that resembles a centralised structure, however the infrastructure is far inferior in comparison to those in place now.

This raises the discussion of what is the priority for each new blockchain, a ‘permissionless’ platform or a platform that may provide users with better functions. What looks to be the medium to long term future for decentralisation being used in blockchain is as a base foundation which can utilise some of the efficiencies that centralisation provides in added layers onto the blockchain base so that you really are utilising the benefits from both.

Originally posted on 7startup.vc

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7startup.vc

7startup.vc

We help tech ventures scale by strategically advising, boosting growth, and getting startups funded from our investor network.

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