Decentralization vs. Centralization

5 min readSep 13, 2023

BIBI is an example of a truly decentralized project in the crypto industry. BIBIers believe in BY THE COMMUNITY & FOR THE COMMUNITY.

Today let’s learn about the difference between decentralization & centralization through reading about CeFi and DeFi here.

What is Centralized Finance?

When we talk about centralized finance, we often use the structure of traditional banks as an example. Suppose today I want to deposit or withdraw money from a traditional bank, I would need to complete the whole identity verification process through the bank. When you want to borrow money from the bank, you need to provide collateral of equal value to borrow a loan. When you open an account at a bank, the bank also obtains access to all your complete personal information and financial status. They use this information to assess your repayment ability. All of these examples illustrate that banks are composed of centralized institutions.

Last November, the second-largest cryptocurrency exchange, FTX, unexpectedly closed and went bankrupt. This May, there was a wave of bank closures in the United States. Among the top 4 bank closures in U.S. history, 3 occurred in the past 2 months. In addition to the First Republic Bank and Silicon Valley Bank, Signature Bank, headquartered in New York, also closed in March during the chaos in the banking industry.

When banks lend money to regular depositors, in addition to the identity verification mentioned above, they also need to provide collateral to borrow money. However, when a bank goes bankrupt, depositors may not necessarily get their money back. This unequal relationship is the hidden danger of centralized finance.

What is Decentralized Finance (DeFi)?

Decentralized finance (DeFi) is a form of finance built on blockchain technology. It does not rely on brokers, exchanges, or banks to provide financial tools. Instead, it utilizes smart contracts on the blockchain to conduct financial activities.

It’s a completely new decentralized financial system constructed on public blockchains like Bitcoin and Ethereum. This system operates without centralized organizations, relying entirely on smart contracts on the blockchain. This approach enables faster transactions and eliminates concerns about exchange closures. In addition to being fast and convenient, it also provides more accessible financial products for countries affected by war and turmoil.

Differences Between Centralized and Decentralized Organizations:

After understanding centralized finance (CeFi) and decentralized finance (DeFi), let’s discuss the differences between projects with centralization and those without, often referred to as DAOs (Decentralized Autonomous Organizations).

Simply put, if a project has a management team running it and holds a majority of the tokens that can be utilized, then the project’s decisions can be controlled by the team. In contrast, decentralized organizations work entirely differently. Since there is no central team with tokens and funds to operate, the development of all projects needs to go through decentralized organizations via voting or communication to achieve the majority’s will. This is what we often call DAOs.

The biggest difference between the two lies in the fact that centralized organizations can have more efficient decision-making power to execute tasks and drive projects, while decentralized organizations require multiple discussions and votes to reach consensus. Furthermore, decentralized organizations need to establish their own funding channels, making it more challenging to promote project development.

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So, many describe decentralized organizations as overly idealistic and impractical, as they lack funds and actual power and rely solely on consensus. In the context of Web2, they are unlikely to succeed. Most decentralized organizations are voluntary and nonprofit entities.

However, in Web3, it’s possible to clearly define protocols and regulations through smart contracts. Anyone can execute the organization’s tasks. Since smart contract coding is transparent and open for verification through on-chain data, it can prevent profiteering and ensure fairness. Therefore, DAO organizations have the potential to generate positive cash flow in Web3, allowing projects to operate sustainably within a decentralized framework.

Risks of Centralized Organizations:

The meme coin PEPE experienced a sharp rise in April this year, reaching an all-time high (ATH). It marked the beginning of this year’s meme coin craze and the first wave of FOMO (Fear of Missing Out). Large amounts of capital began pouring into meme coins, led by PEPE. However, PEPE subsequently faced a series of price decline. Last month, PEPE’s project team began to show signs of suspicious actions, including unauthorized changes to the multi-signature wallet protocol, embezzling 6.9% of PEPE tokens from the treasury, and rumors of insider trading, which led to massive dumping of PEPE tokens to crash the market.

For more detailed information on PEPE, you can refer to the video titled “The Birth and Fall of PEPE.”

This is a common problem with centralized projects. You never know whether the project team’s next move will be to pump or dump.

Representative of Decentralized Projects — BIBI:

In contrast, BIBI is a project that aligns with decentralized organizations. After the contract went live, all tokens were deposited into the liquidity pool, and the permissions were discarded. This means that no one can control this smart contract, and everything is left to the free market to trade.

Although there is no dominant party controlling the market and no strategic pumping of token prices, there is also no need to worry about a major player crashing the market.

Within the BIBI community, as long as you participate in the Telegram group and stay updated on the project’s development, you will discover the strength and charm of the BIBI community.