Examples of problems with centralized systems.
Uber raises fees
According to the RideShareGuy Blog (source: https://therideshareguy.com/uber-raising-rates-for-riders-but-not-drivers/), in March of 2018, Uber raised rates for passengers but let the drivers know that the drivers would be getting the same amount they have been getting before the fare increase. Practically speaking, it means that drivers in a city like Tampa have been paying Uber 23% of the fares before the rate hike and would be paying 32% after the rate hike simply because the company wants them to. One centralized authority is in control and can make any decisions it wants at any time, including introduction of changes to terms of service and user agreements and users can’t do anything about it. A pop-up shows up on the screen telling that a user has to accept new terms of agreement and the user can either proceed by agreeing or leave the platform at a time when leaving the platform would essentially mean staying without service.
United States government bails out companies it chooses
A very different-looking scenario has occurred during the bailout of 2007/2008 in the United States, yet the underlying dynamic of the scenario was identical to the example about Uber: one central authority can change the rules of the game and decide what it wants to do. This authority during the crisis was the United States government. The government has decided to bail out companies that could not survive in business on their own thinking that letting these businesses fail would make more harm to the economy than giving the money to the businesses. The money came from the Treasury, which means that it came from the tax payers. Large businesses made big mistakes, which is why they were about to go bankrupt, and the government took the taxpayer money and gave it to the businesses.
These scenarios are simply not possible on blockchain networks because if the majority of users disagree with a decision, they do not have to participate in the implementation of the decision. In practical terms, blockchain networks consist of software. If users disagree with what some of the other users are doing, including the introduction of changes to the software, they can simply keep a copy of blockchain on their computers and can keep running the old version of the software.
The blockchain network would function as if nothing happened, even if the biggest government in the world tries to shut it down or introduce changes to it.
Problems with decentralization: mistakes and malicious intent
The advantage of not having a third party making decisions or claiming that it is making decisions to benefit users when it reality the third party is looking to benefit itself also comes with a number of disadvantages, one of the biggest ones being that a public blockchain project cannot have official support. In practical terms, it means that there is software. The software is open-source, so theoretically anyone can inspect it and figure out how it works, but practically a lot of people who are not software developers would not be able to do so unless they are willing to learn programming languages. Also in practical terms it means that with a public blockchain such as Bitcoin, Ethereum or Sia there is no official phone number to call, no chat agents to exchange messages with, no email, and no snail mail address. There are developers who know how the product works, but they can’t change how the blockchain operates because otherwise they would become a centralized third party.
Destroying Bitcoins and problems with backup storage
A practical consequence of this is that some mistakes on blockchain networks are irreversible. For example, a lot of people are unaware that it is actually possible to destroy Bitcoins in a sense that it is possible to send the coins on the Bitcoin network in a way that that will forever become not usable by anybody.
One of the ways to do so is to send Bitcoins to an address that does not have a private key. The Bitcoin network does have a mechanism that prevents users from doing this accidentally. The mechanism consists of a checksum field that prevents typos, but it is still possible to send Bitcoins to an address with no known private key. There are several known examples of such addresses. In each cases, transactions with funds being sent to these addresses become a part of the Bitcoin blockchain, it is just that after the money lands at the address, it will stay there forever and nobody will be able to access it.
In 2013, developers of Bitcoin software have introduced a new field to the network. This field was OP_RETURN and it allows adding up to forty bytes of information to a transaction. There are ways to use OP_RETURN to make Bitcoins unspendable.