by Arleen Atienza
One of the things people talk about is a decentralized technology, which applies to many things in the tech industry now. From customer data management to blockchain, decentralization has pros and cons, especially for startups.
Decentralized tech can create a robust way to skyrocket your startup to success. It can also become problematic, allowing tech that can be beyond your needs and understanding. Here’s everything you need to know about decentralized technology and how it impacts startups today.
What Is Decentralized Technology?
The meaning of decentralized technology changes depending on the industry. As the name suggests, decentralized tech refers to hardware or applications that are not under propriety control anymore. Instead, the public can access its development, growth, and updates.
Instead, it’s spread across multiple networks peer-to-peer, allowing for crowdsourced development. For example, a decentralized web (also known as the “web 3.0”) is a web where data is not stored by one company or person, such as Google, Apple, or Facebook. Instead, users store data across the web in an efficient, safe, and peer-to-peer way.
Decentralized technology can apply to peer-to-peer payments, data storage, and more. It’s decentralized because no single entity controls it, which confers several pros and cons.
Is Decentralized Tech Good For Startups?
Startups must solve a problem, whether that’s related to education, entertainment, or DeFi. A startup’s tech must be efficient and effective so the business can succeed. Decentralized technology, like blockchain, for example, is becoming increasingly popular. It’s gained traction in supply chain management, digital identity, and data security.
Startups can use decentralized tech to build new products and services and incorporate them into their ecosystem. This is why some startups are skeptical about embracing decentralized tech. Decentralized technology is still developing, and startups might not see a benefit. However, there are several reasons why decentralized tech is great for startups.
1.Decentralized Tech Solves Problems
One of the weaknesses of traditional centralized technology is its inability to solve problems. For example, social networks like Facebook, Twitter, and Instagram are problematic. These companies create tech for the masses, but people grow tired of the tech. Facebook’s newsfeed, for example, was once robust and dynamic; now, it’s the social media’s most tedious part.
Decentralized systems benefit from crowdsourced problem-solving. Several startups use blockchain to improve their supply chain management. Startups often struggle with supply chain management because they lack capital or resources.
Startups can set up automated contracts so both parties involved in a transaction can validate the information. This helps both parties trust each other. Blockchain can also track data on shipments and inventory. Some startups use blockchain to prevent fraud and improve cybersecurity.
2.Decentralized Tech Is Scalable
Some startups need full tech to scale. Unfortunately, hiring new employees, including developers, can be expensive. A startup’s tech must work while staying efficient.
Decentralized tech is the perfect solution for startups looking for efficient tech. This tech grows and scales with its users, so your needs won’t outgrow your tech.
3.Decentralized Tech Gives You More Control
Startups are known for being agile, but it can be difficult to be agile when you don’t have control. Startups have ideas, but they don’t exactly pan out.
Decentralized tech gives startups control. Rather than relying on a single entity, startups can create tech exactly how they want it, with agility.
4.You Don’t Have To Reinvent The Wheel
Startups are creative, innovative, and ambitious. However, they often have limited resources. This allows them to produce tech, but it also means they can lack the resources to innovate.
Decentralized tech is open-source, meaning anyone can innovate on top of existing tech. You don’t have to build everything from scratch, reducing development time. The startup could hire developers, develop the platform, and incentivize other developers to build on the platform.
How Decentralized Tech Becomes Detrimental To Startups
Decentralized tech is great for startups, but there are some drawbacks, too. For starters, decentralized technology is complex. It’s easy to understand a centralized system because many patent owners provide the knowledge needed to start from the basics. Decentralized tech isn’t like that.
Decentralized tech relies on several algorithms and applications, all of which work together. This tech can be inappropriate for startups because many don’t have experience developing it. They don’t always have the expertise in engineering the right algorithms and applications.
Decentralized technology allows several users to create, modify, and innovate on existing tech. This is great, but it can lead to fragmentation. Since anyone can make an application based on existing tech, it’s common for competitors to fork.
Forks create problems for startups as they create multiple application versions. One split might be better, but users can’t access both. Forks take the concept of open source and make it chaotic, allowing everyone to develop on the same thing. Each fork creates a fragmented ecosystem, often creating low-quality, inefficient tech.
For example, the DAO hack on the Ethereum network was catastrophic. This hack was costly, but forks made the situation worse. Multiple chains and ledgers emerged, creating an environment where no one was sure which information was valid anymore.
Should Startups Used Decentralized Tech?
Startups have a lot on their plate. They must develop an effective product or service, acquire funding, hire the right employees, and more.
Startups must appeal to investors, such as venture capitalists, angel investors, and corporations. These investors are looking for projects that will be profitable and provide a significant amount of ROI. Startups in highly-regulated industries, such as fintech, are even harder to fund.
Decentralized technology solves these problems, but it comes with its own set of challenges. A startup must identify if the benefits of decentralized technology outweigh the challenges.
A startup should consider decentralized tech if centralized technology doesn’t solve the issue. They also have to account for their current resources.
Can they acquire the funding, talent, and time needed to develop needed tech? Or should they wait until decentralized tech is more developed so they can use fewer resources? Startups should weigh all their options before incorporating decentralized tech.
The Bottom Line
Decentralized technology solves several problems startups are facing. It can secure data, reduce fraud, and simplify supply chain management. However, startups must carefully weigh the benefits of decentralized tech.
Your tech needs to solve a specific problem. If your tech doesn’t solve that problem, then there’s no point in incorporating it. Decentralized tech is powerful, but it also comes with several risks. Startups need to consider if it’s worth the risk seriously.