Everything You Should Know About DLT - What is Distributed Ledger Technology (DLT)

Everything You Should Know About DLT: What is Distributed Ledger Technology (DLT)

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 Work?

How Distributed Ledger Technology Work
Source: AnalystPrep / Working of a distributed ledger

Firstly, you need to understand the basics of DLT. A distributed ledger is a database spread across a synchronized network of participants. On this ledger, every participant has an account and a device that stores, edits and verifies the data. Ledgers can be private or public, depending on the nodes and information. To add or edit any data, every node has to agree on it for the data to get onto the ledger. Since there is no central authority, DLT works with the help of consensus between nodes.

Why 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. With the support of DLT like blockchain, data can be fed to the server after proper verification without involving any middlemen to process the data, verify it and then add it to the database. It thus helps speed up the whole process.

2. Accessibility 

Since DLT is a network of nodes connected parallel to each other, it provides accessibility to the data for all the participants. 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.

3. Tamper-Proof

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.

What Are The Advantages Of Distributed Ledger? 

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.

  • Distributed ledgers are rather secure from hackers as the whole network of nodes has its copy of the ledger, and thus unverified edits get caught easily and removed from the ledger.
  • The information stored on a DLT – for all types of distributed ledger technology –  is available to everyone on the network, be it public or private ledger. A public ledger is open-source – meaning anyone on the internet can access the information. A private ledger makes information accessible to the network participants only. 
  • Not relying on a central authority provides significantly less error margin in adding data to the ledger.

What Are The Disadvantages Of Distributed Ledger Technology?

  • DLT can often be inefficient because of its requirement for data verification through every node. Every edit or add-on to the ledger requires the network of nodes processing, which means a lot of energy, transaction fees and time.
  • No transaction reversal also means that people cannot get their information or even payment back in case of fraud.
  • A smaller ledger network is vulnerable to attacks as hackers can join the nodes and manipulate the data.

Types Of Distributed Ledger Technology

Types Of Distributed Ledger Technology
Source: Packt Subscription / Different types of distributed ledger technology 

1. Blockchain 

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.

2. Hashgraph 

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.

4. Holochain 

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.

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.

Conclusion 

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.

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