Centralization is all around us more than we know. A great example is social media platforms, where a central authority controls the data and purposes of the said platform. The double-entry accounting system highlights an accounting system that has a centralized ledger. Anything with a financial value is recorded in journals and posted to ledgers. These ledgers are just like the central receptacle of posted transactions, and they are the backbone of any organization.

Advantages of Centralization

There are undoubtedly multiple benefits of centralization. They are listed below.

__Command chain __

The command chain is clearly defined. If an organization utilizes centralization, they know the chain of command. This means that every person in the organization knows their role and to whom they need to report. They also know which person is under their control and are responsible for their subordinates’ actions as well.

All of these also mean that delegation is easy in the chain. Senior executives can easily delegate work to their subordinates and finalize and finish the work in the best possible way. If work is completed, it creates a level of trust among the workers and chain, improving the confidence required to make it work.
When it comes to a network that utilizes centralization, one central node or a collection of nodes is responsible for transactional verification.

1. Reduced Costs

One of the biggest advantages of centralization is the cost associated with it. Any centralized network or infrastructure requires less support and cost. As centralized organizations or networks are pre-planned, the costs associated with it do not cross budgets until and unless it is required to expand the network.

2. Quick Decision Implementation

There is no doubt that centralization organizations or networks enable quick decision implementation. As centralized networks have fewer nodes or people, it requires less communication among the different levels of authorization.

Also, if a centralized network decides to implement a change, it can be done in a matter of minutes. For instance, a centralized network can put more stress on the KYC procedure and decide to add more requirements for it. As the network is centralized, they can push the new guidelines or change the KYC procedure which can go live almost instantly after proper testing.

Disadvantages of Centralization.

There are also various disadvantages of centralization. Some of them are as below:

Trust

Even though centralized organizations are secure and trustable, they are not 100% secure or trustable. Trust is an agreement that is set by the service provider and the user.

All of this happens because of centralization and the reason that all the data are stored in a centralized database.

1. Single point of failure
Centralization also means that the whole network is dependent on a single point of failure. Organizations know about the disadvantage and hence have deployed measures to contain it. However, the fact that there is a chance for failure is a big disadvantage for mission-critical services.

2. Scalability Limitation
As a single server is used in most cases, it leads to scalability limitations.