Beginner’s Guide: What is Distributed Ledger?

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Ledgers have powered the world’s economy from the ancient time. It started with simple clay tablets to double entry bookkeeping and finally spreadsheets. But, that’s not the end of ledger’s evolution.

What is Distributed Ledger

Image Credit: Wikipedia

Meet Distributed Ledger – a new way to handle ledger, in a much more efficient and secure way.

What is Distributed Ledger Technology?

Distributed ledger is a database that runs on a distributed network. It is spread over diverse locations, networks and beyond boundaries. The main idea behind distributed ledger is that any central authority does not control it and hence offers transparency. Each node of the network takes part in the distributed system. Each of them knows the ledger as they have an exact copy just like other nodes in the network.

Blockchain Distributed Ledger

Image Credit: Ethereum

The distributed ledger systems are extremely fast, and it doesn’t take much time to reflect change across the network.

Blockchain uses distributed ledger technology. And, Bitcoin is the first cryptocurrency that took advantage of the distributed ledger technology.

Distributed ledger technology is an excellent choice in this age of cyberattack. With distributed ledger, it becomes hard for hackers to hack the database. This is because everything is transparent and it is easy to trace back to the hacker. Also, to hack, the hacker needs substantial computational power which might be not possible for almost majority of them out there.

Understanding Distributed Ledgers Deeply

By using distributed ledgers, there is no need for centralized authority. A distributed network is all about decentralization. It is a network of ledger or contracts that is maintained by nodes. The nodes that can be merged into blocks which makes it even easier to maintain larger distributed network ledgers. Without the need for central authority, all the information stays secure. However, to enable the distributed network, technology such as cryptography is required. The data can be used with the help of cryptographic signatures and keys.

Anything that is stored on the distributed ledger is immutable. This means that once stored; it cannot be changed. Immutability makes it even harder for hackers to try to hack the distributed ledger network such as Bitcoin. Furthermore, the absence of the central authority means that it is also free from any intentional change as well.

Blockchain vs Distributed Ledger Technology (DLT)

The main reason why DLT is so compelling is the fact that it can be used to power blockchain. The blockchain is a specialized database that uses DLT. If you are still confused about the comparison, check out Blockchain vs Database comparison.

The current state of DLT is still an infant stage. Blockchain has wholly embraced it, but a lot of improvement is still left to go. The financial sector, for example, can benefit massively from DLT and blockchain. Other areas such as manufacturing, clean energy, banking, etc. can also see a revolution sooner than thought.

Right now, a lot of startups are working towards a different version of DLT. Some of them offer privacy, while others don’t. For example, Monero and Zcash, both provide a blockchain where the information can be encrypted and hidden. They provide privacy that Bitcoin failed to deliver.

There are also crucial differences in how DLT works. A consensus is essential when it comes to distributed ledger technology. To achieve consensus, the blockchain uses multiple methods. Two of the most popular ones includes Proof of Work(PoW) and Proof of Stake(PoS). Check out the comparison we did on these two consensus algorithms.

DLT solves a lot of problems that the current world is going through. Not only it is capable of storing essential data, but it also solves customer problems such as protection, integrity, speed and so on. It also reduces environmental footprint with the reduced use of paper.

Is Distributed Ledger Technology is here to stay?

The answer is definitely yes. It is here to stay. DLT is still in infant stage, but that shouldn’t discourage companies to utilize it to make their business more effective. DLT is also incremental which means that it can be scaled easily. It can act as a cornerstone of the future technologies and solutions that can make life easier for every one of us.

So, what do you think about distributed ledger technology? Comment below and let us know below.


About Author

Nitish holds a BSc in computer engineering. He is a blockchain enthusiast and in spare time likes to read about the moon. His articles have published on Dzone, InfoWorld, and Hongkiat.

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