A lot has changed in terms of technology in the last few years. The last decade has seen significant growth in the number of people actively participating in the blockchain. Blockchain is a distributed ledger technology that allows every participant to record and maintain data independent of a watching figure. Now you may ask what is a distributed ledger technology. Well, getting into the simple answer, it is a cryptographic platform that allows users a decentralized place to store and maintain data. It is a peer-to-peer network with each participant having a duplicate copy of the database and each participating in validating the data before it gets stored immutably and cryptographically in the shared database.
What is Distributed Ledger Technology?
DLT is the technology that allows users to be connected to a large network, encrypt data storage, and edit and remove data over a network of nodes. The question of ‘what is DLT in blockchain’ often crosses people’s minds. DLT is just a large network of nodes (or connect blocks of users) that relies on no central authority to add and verify data. DLT or blockchain uses a combination of cryptography, decentralization, and consensus protocols to securely store the data in its database and validate subsequent transactions/data based on it. Participants in a DLT network interact in a peer-to-peer fashion without the need for a middleman or intermediary. DLT also helps automate transactions via smart contracts.
How Distributed Ledger Technology Works?
What is distributed ledger technology, and how does it work? Distributed ledger technology (DLT) works by allowing multiple parties to maintain a shared, decentralized record of transactions or other data. Each node in the network stores a copy of the ledger and updates it independently of the other nodes. When a new transaction or data point is added to the ledger, it is broadcast to the entire network.
The network then verifies the validity of the transaction or data point, using a set of predetermined rules or algorithms, before adding it to the ledger. This process is known as “consensus,” as it requires the consensus of the network to validate and record the transaction or data point.
Once a transaction or data point has been added to the ledger, it is extremely difficult to alter or delete, as it is hashed and recorded across multiple nodes in the network. This makes DLTs highly secure and resilient, as there is no single point of failure that can be exploited.
In addition to maintaining a shared record of transactions or data, types of distributed ledger technology can also be used to execute smart contracts, which are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. Smart contracts can be used to automate complex business processes and can be triggered by events or data inputs.
Why Distributed Ledger Technology (DLT) is Important?
After successfully tackling what is a distributed ledger technology, it is time to prove its importance as well. An organization with a central authority needs to verify all the data in the database from a single point and often follows a long procedure where data from every direction first has to travel to the central authority, get verified, and then be used by the rest of the network. The process is prone to multiple errors and also single-point-of-failure issues. With DLT, every node gets the opportunity to add data to the ledger, and the consensus between the nodes helps the nodes collectively approve the information.
DLT is important because it allows one to add verified data to the database without errors. It provides security and transparency and eliminates the need for a middleman. DLT, when integrated with any process or system, can help decentralize its operations to lend security, verifiability, transparency, immutability, and traceability to every transaction that occurs on the system or within the process. DLT networks can be customized to suit the specific needs of different processes, verticals, horizontals, and sectors.
Why are Distributed Ledger Technologies Useful?
1. Remove the Middleman
An organization suffers significantly from the problem of many intermediaries due to centralization. Distributed ledger technology (DLTs) offer a decentralized alternative to traditional central ledger systems, which rely on intermediaries such as banks or lawyers to facilitate transactions. Unlike central ledger systems, DLTs do not require the use of intermediaries, allowing parties to transact directly and immediately. This can result in significant cost and time savings, as intermediaries can add significant overhead to the transaction process. In addition, DLTs do not rely on a single, central point of control, making them more secure and resilient than central ledger systems. Because DLTs do not rely on intermediaries, they do not require trust in any single entity to guarantee the validity of the ledger. This “trustless” aspect of DLTs makes them an appealing option for a wide range of applications.
Distributed ledger technology (DLTs) provides a decentralized alternative to centralized systems, which often control and restrict access to their ledger. DLTs allow businesses and individuals to conduct transactions freely, without relying on or trusting any other individual. This is in contrast to centralized systems, which often require the use of intermediaries and can be burdensome in terms of cost and efficiency. Public DLTs take this concept even further by issuing no restrictions on participation or transactions. This means that anyone can access the platform and no transaction is given preferential treatment over others. This level of accessibility and fairness makes DLTs an appealing option for a wide range of applications.
Any node can enter the data into the ledger, and others can verify it and form a consensus around it via protocols like Proof-of-Work and Proof-of-Stake. The data is accessible only with the help of security keys that are stored by the nodes.
One of the biggest drawbacks of centrally controlled ledgers is data tampering. Since DLT forms a ledger that allows adding and editing data only after consensus, there are few chances of data tampering on the platform. DLT is tamper-proof, so even if the data gets altered through an external means, there still is a whole network of nodes that get the alert and can quickly edit and secure the ledger.
Traditional ledgers, which are controlled by a single central entity, are vulnerable to tampering and hacking. These vulnerabilities arise because there is only one copy of the ledger, which can be easily accessed and altered by a corrupt central agent or a hacker. This leaves users of traditional ledgers at the mercy of the trustworthiness of the central entity, as there is no visibility into whether the ledger has been tampered with.
Distributed ledger technology, on the other hand, offers a more secure and resilient alternative to traditional ledgers. DLTs are decentralized and distributed across a network of computers, rather than being controlled by a single central entity. This decentralized structure makes it much more difficult for a malicious actor to tamper with the ledger, as they would need to alter the ledgers of multiple nodes in the network simultaneously. DLTs are also more transparent than traditional ledgers, as any tampering would be immediately apparent to all members of the network.
Hedera Hashgraph is one of the types of distributed ledger technology that has achieved a particularly high level of security through the use of asynchronous Byzantine fault tolerance (aBFT). This consensus mechanism allows Hedera to guarantee real-time consensus and resist distributed denial of service (DDoS) attacks, which can be a vulnerability for some public ledger platforms. To date, Hedera Hashgraph is the only distributed ledger technology that has formally proven its use of aBFT.
4. Immutability and Controlled Mutability
Some types of distributed ledger technology (DLTs) offer immutability, which means that once a record has been added to the ledger, it cannot be changed or deleted for any reason. This ensures that the ledger is tamper-proof, as there is no way for any participant or group of participants to alter the established records.
Immutability has several benefits, including providing a permanent, unchanging record of transactions or other data. This can be particularly useful in industries where accurate record-keeping is critical, such as finance and healthcare. Immutability also ensures that the ledger is transparent, as all members of the network can view the unaltered records.
However, immutability also has some drawbacks. For instance, if a bug in the DLT’s code causes a transaction to be misrepresented in the ledger, immutability would prevent anyone from fixing the problem. The invalid transaction would remain a part of the official ledger permanently. Additionally, as laws change to catch up with technology, new government regulations may necessitate a change in record-keeping practices. Immutable systems would not be able to adapt to these changing legal conditions, and could potentially violate government standards as a result.
Recognizing the benefits and drawbacks of both mutability and immutability, some DLTs opt for controlled mutability. Controlled mutability allows records to be changed, but only under certain circumstances and with heavy restrictions. This can provide a balance between the security of immutability and the flexibility to adapt to changing circumstances.
One example of a DLT with controlled mutability is Hedera Hashgraph. Hedera Hashgraph will establish the Hedera Council, a diverse group of businesses that will have the ability to remove illegal or malicious content from the ledger through unanimous vote. This controlled mutability allows the DLT to adapt to changing government regulations while still maintaining a high level of security. The council’s actions will be transparent and subject to term limits, ensuring that participants can observe and hold the council accountable for any changes that are made to the ledger.
Overall, the decision to use an immutable, controlled mutable, or fully mutable DLT will depend on the specific needs and goals of the application. Immutable DLTs provide a permanent, unchanging record of transactions or data, but may not be able to adapt to changing circumstances. Controlled mutable DLTs provide a balance between security and flexibility, but may not offer the same level of security as immutable DLTs. Fully mutable DLTs are the most flexible, but may not be suitable for applications that require a high level of security or transparency.
What are the Advantages of Distributed Ledger Technology?
When it comes to the whole point of distributed ledger explained, security, transparency, and removal of central figure count as the biggest advantages of it. More advantages of distributed ledger are explained below:
DLTs provide a secure and permanent way to record transactions. Transactions are encrypted to protect against tampering and hacking, and once a transaction has been validated by the network and added to the ledger, it becomes a permanent part of the record that cannot be altered or changed.
In a DLT network, all members or nodes have a copy of the ledger, which increases transparency. The decentralized nature of the network also improves the reliability of the system and ensures continuous operation without interruption. This gives users control over their information and data.
In a DLT network, the identity of each participant is anonymous and does not reveal their personal information or reveal any information that could be used to identify them. DLTs can offer this anonymity while still allowing for the secure and transparent recording of transactions, as the ledger is encrypted and visible to all members of the network.
In a DLT network, once a transaction has been validated and added to the ledger, it becomes a permanent part of the record and cannot be altered or changed. This irreversibility ensures that the ledger is a reliable and trustworthy record of transactions, as any changes or tampering would be immediately apparent to all members of the network.
Distributed ledger technologies (DLTs) offer a high level of transparency, which can be particularly useful for certain industries such as finance, healthcare, and banking. In these sectors, accurate and reliable record-keeping is critical, and DLTs provide a secure and transparent way to record transactions and other data points.
Distributed ledger technologies (DLTs) can process large transactions more quickly than traditional methods. This is because DLTs do not rely on intermediaries or manual processes, which can slow down transactions. Instead, DLTs uses a decentralized network of computers to validate and record transactions, which can be done more efficiently and with less delay than traditional methods.
What are the Disadvantages of Distributed Ledger Technology?
While types of distributed ledger technology (DLT) offers many benefits, there are also some potential drawbacks to consider:
1. 51% Attack
One potential concern with distributed ledger technology (DLT) is the possibility of a 51% attack. In a 51% attack, a group of malicious actors gains control of more than half of the computational power of the DLT network. With this level of control, the attackers can manipulate the ledger, including reversing transactions and double-spending digital assets.
2. Costs of Transaction
In a DLT network, the connected nodes are responsible for validating transactions. This process requires a certain amount of computational power and resources, and the nodes that participate in the validation process may be compensated with incentives, such as cryptocurrency or other rewards. This can lead to high transaction costs, as the cost of these incentives must be factored into the overall cost of the transaction.
3. Slow Transaction Speed
One potential disadvantage of DLT is the slow speed of transactions. This is because DLT networks rely on multiple nodes to validate transactions, and this process can take some time. The more nodes that are attached to the network, the longer it may take to validate a transaction, as each node must individually verify the transaction before it can be added to the ledger.
4. Scalability Issues
DLT may face challenges in expanding on a large scale due to its slow speed and high transaction costs. DLT networks rely on multiple nodes to validate transactions and that may make it difficult for DLT systems to scale up to meet the demands of large-scale applications, such as global financial networks.
Types Of Distributed Ledger Technology (DLT)
Being the most popular form of DLT, people often confuse the whole concept of what has distributed ledger technology with blockchain. As the name suggests, as a part of types of distributed ledger technology, a blockchain is a ledger that allows the nodes to create blocks recording the data related to transactions. Cryptocurrencies use blockchain, wherein every transaction gets recorded with time, amount, and digital signature. A cryptographic hash (unique characters) is provided to every block for security.
Hashgraph is another kind of DLT that claims to be better than blockchain regarding data reliability and security. Every transaction info is passed as a relay to this network of nodes. It is called gossip, and with the gossip synced with the whole nodal network, a gossip sync forms, and the transaction is recorded on the hashgraph.
3. Directed Acylic Graph
DAG is a type of graphical representation of transactions in the ledger. The transactions here are built on top of one another, and for every new transaction to get added, the previous one must be verified by it. Since the verification requirement is urgent, transactions with larger previous transactions get priority to be added to the DAG.
Holochain is the next step to the blockchain; every node is given a separate network with an interconnected bigger network. Every transaction needs to be verified properly; thus, every node gets a data validator to make the nodes comply with rules and keep the ledger verified.
5. Tempo or Redix
Tempo uses a technique called sharding to partition the ledger. In this method, all events that occur in the network are ordered properly, and transactions are added to the ledger based on the order of events rather than the timestamp. This approach can help to improve the efficiency of the ledger and reduce the burden on the network, as it allows the ledger to be divided into smaller, more manageable chunks.
What is the Future of Distributed Ledger Technology?
Was the above information enlightening in our distributed ledger explained blog? DLT has become a concept for open discussion globally. Many experts believe it will be able to revolutionize governance, industries, and institutions. DLT will allow active participation from concerned members to eliminate the need for a central authority. It might even help with innovations, and the transaction will occur in real time across the internet. Thus, people believe that the future of DLT is bright. On the other hand, some also believe that DLT might lead to forming a new leader class, followers, and laggards. Thus, it is in the hands of the participants as to what the future would be like for all types of distributed ledger technology.
What are the Examples of Distributed Ledger Technology?
There are many examples for distributed ledger technology explained, including:
Bitcoin is a decentralized cryptocurrency that uses a DLT called the blockchain to record and validate transactions.
Ethereum is a decentralized platform that allows developers to build and deploy decentralized applications (DApps). It uses a DLT called the Ethereum blockchain to record and validate transactions.
Hyperledger is an open-source collaborative project that aims to advance cross-industry blockchain technologies. It includes a number of DLT frameworks, such as Hyperledger Fabric and Hyperledger Sawtooth, which can be used to build private, permissioned DLT systems.
Ripple is a DLT platform designed for use in the financial industry. It allows banks and financial institutions to securely send and receive payments and make cross-border transactions.
Corda is a DLT platform designed specifically for use in the financial industry. It allows financial institutions to securely record and track financial transactions and contracts.
6. Hedera Hashgraph
Hedera Hashgraph is a decentralized public DLT platform that uses a consensus mechanism called directed acyclic graph (DAG) to validate transactions. It is designed to be fast, secure, and scalable.
We come to conclude this paradigm of the network of networks, DLT. Questions like ‘what is DLT in blockchain’, ‘is DLT helpful’, etc. will continue for a while. Since this is a new technology, it will take time to get accepted. There are many positives about DLT, and the emerging trend is institutions, governments, and corporations tilting toward DLT. We can say that the new information age is on the brink, and DLT is a major part of it.
Frequently Asked Questions (FAQs)
1. What is Distributed Ledger Technology Used For?
DLT is used to securely record and track transactions and other data points in a decentralized manner. DLTs are particularly useful for applications where accuracy and trust are important, such as in the financial industry. They offer a secure and transparent way to record and track transactions and can be used in a variety of industries and sectors.
2. What is Distributed Ledger Technology in Simple Words?
Imagine a traditional ledger, like the kind a store owner might use to keep track of sales and inventory. In a DLT system, instead of one store owner keeping a ledger, a group of computers all keep copies of the same ledger. This way, there is no one central place where the ledger is kept – it is distributed among the computers in the network.
3. What is Distributed Ledger Technology Example?
An example of DLT is the blockchain, which is the underlying technology behind the cryptocurrency Bitcoin. In the Bitcoin blockchain, transactions are recorded on a decentralized ledger that is distributed among a network of computers.
Other examples of DLT include Ethereum, which is a platform for building decentralized applications (DApps), and Hyperledger, which is an open-source collaborative project that aims to advance cross-industry DLT technologies.
4. Is Distributed Ledger Technology the same as Blockchain?
Distributed ledger technology (DLT) and blockchain are often used interchangeably, but they are not exactly the same thing. DLT refers to any system that uses a decentralized ledger to record and validate transactions, while blockchain specifically refers to a type of DLT that uses a chain of blocks to record and validate transactions.
What are Ethereum Virtual Machines | What is a Crypto Whale | What is Staking in Crypto | Metaverse Cryptocurrency | Is Blockchain Hackable | Blockchain Advantages | Types of Cloud Mining | Layer 1 Crypto Projects 2022 | Best Technology Stack for Mobile App | Best Blockchain Bridge | | Gas Fees Blockchain | Layer 1 Blockchain Protocols | Define Blockchain Technology | How to Buy Real Estate in the Metaverse | How Does Blockchain Wallet Work | Examples of Altcoins | SB Token | DDoS Mitigation | Blockchain Features and Benefits