The concept of centralization relates to the distribution of power and authority in an organization or a network. When a system is centralized, it means that the planning and decision-making mechanisms are concentrated in a particular point within the system.
A governance mechanism is required in any system. Otherwise, no decisions can be made that give direction to the rest of the network. The level of governance can range from laying down the foundational rules to micromanaging each function of the system.
In a centralized system, a central point of power authorizes and enforces decisions, which are then passed down to lower tiers of power.
The opposite of a centralized system is a decentralized system, where decisions are made in a distributed way without the coordination of a central authority.
The key question in the debate of centralization vs decentralization is whether the specifics of decision-making should happen at a central point in the network, or be delegated away from any central authority.
However, with the introduction of Bitcoin, a decentralized network has become a valid alternative to centralized ones. This made the debate between centralized and decentralized more elaborate and provided a potential alternative to the existing power structures.