Generally, Distributed means spreading the same thing all over the marketplace and Ledger means a book in which we maintain the record of the overall transactions. In this article, we will discuss what exactly distributed ledger is concerning blockchain so, let’s get started and know more about Distributed Ledger Technology (DLT).
What Is Distributed Ledger Technology (DLT)
A distributed ledger is a type of database that is stored on each node across a network and it is used to safely keep transaction records using cryptographic formulas, and once the information has been stored, it cannot be modified. In short, it is a permanent, decentralized, secure, and transparent database.
Furthermore, it allows each node in the system to access the data, and any alteration of the data will be mirrored and updated on every copy of the distributed ledger network as well as be confirmed by each node. Once the changes have been confirmed, they will be broadcasted. The most renowned example of a distributed ledger is the Bitcoin (BTC) technology.
Let’s Have a Better Understanding of DLT
We are aware that blockchain is an interconnected system where each component has the same authority and rights when it comes to data storage. Online people can join the blockchain network by running the consensus protocol and get the same rights as nodes that were part of the network earlier. When a new node comes to the network, the ledger will automatically be stored in the node that connects to the network. To make this clearer, let us use an example.
For instance, a blockchain network B with the total number of nodes x1, x2, x3, x4, x5 ……… Xn , all these nodes have the distributed ledger as well as the same privileges. When a random node XR would become a part of this entire network B the mainly two tasks would be performed on it:
1: XR has to download the software which helps to fetch all the database or distributed ledger.
2: After successful fetching of data it would reside in XR and from now onward it has the same privileges as all other nodes.
A distributed ledger works by replicating the database across multiple nodes in a network, each node maintains a copy of the ledger and can validate transactions and add them to the ledger.
B = x1ledger, x2ledger, x3ledger, x4ledger, x5ledger……………… xnledger
Working of Distributed Ledger
Whenever a transaction is initiated, it is sent out to the network and checked by several nodes to make sure it is authentic. After the transaction is approved, it is included in a block along with other transactions, this block is then encrypted and connected to the prior block in the chain. This results in a series of blocks, or a "blockchain," that holds an unalterable record of all the transactions.
Cryptographic methods such as digital signatures guarantee that activities can be proven to be real and the ledger remains safe from interference. The decentralized character of the network joined with the consensus protocols, makes a highly secure and tamper-resistant ledger that is impervious to hacking and other types of cyber assaults.
Components of DLT
A distributed ledger is typically made up of the following parts:
- Nodes are machines or devices that keep a copy of the ledger and are involved in the consensus process to certify transactions.
- Network: A communication network that allows the nodes to share data and come to reach a consensus.
- APIs: These are the interfaces that permit applications to communicate with the ledger and access its data.
- Consensus Mechanism: This is the process by which the nodes agree on the state of the ledger and the validity of the transactions (examples include Proof of Work, Proof of Stake, Proof of Identity, and Practical Byzantine Fault Tolerance).
- Storage: This is the system for storing transactions and data permanently.
- Smart Contracts: These are programs that determine the rules and conditions of transactions on the ledger.
- Cryptographic Techniques: Used to secure transactions and preserve user privacy (like encryption and digital signature algorithms).
What is the Purpose of DLT
The main objective of using a distributed ledger is to provide a secure, transparent, and unchangeable record of transactions. It decreases the possibility of data tampering, hacking, and unauthorized access. Additionally, it offers a common source of information which implies that each node in the network would authenticate every transaction and then broadcast it after it has been verified.
Furthermore, it enables innovations like decentralized applications (Uniswap, Aave, OpenSea, Upland, Steemit, Pancake Swap, 1 Inch, and Audius), Financial Transaction Systems, Supply Chain Management, Digital Identity, and others.
Why DLT is Better Than a Centralized System
A distributed ledger is better than a centralized system in several ways:
- Security: Compared to a centralized system, a decentralized system is more secure as it does not rely on a single authority to store all the data. In a centralized system, the risk of data theft or loss is greater due to the presence of a single point of failure.
- Transparency: A decentralized system is more reliable than a centralized one, where all information is held by a single source. The danger of this single point of access is that data can be easily taken and lost.
- Efficiency: In centralized systems, a third party is often needed to manage exchanges and make sure it is carried out securely. By eliminating this intermediary, a distributed ledger can help to reduce expenses and speed up the completion of transactions.
- Scalability: When a lot of transactions occur in centralized systems, they can become overloaded, resulting in slower speeds for processing and more expensive costs. However, with a distributed ledger, new nodes can be connected to the network to increase its capacity, allowing the system to increase in size as needed.
- Decentralization: When a system is centralized, there is only one governing body and you are entirely reliant on them. They can alter and delete your data whenever they choose, leading to you no longer having access to it. However, in a distributed ledger technology system, the data is stored across each node and there is no centralized power or single source of failure.
Use Cases of DLT
Distributed Ledger Technology - DLT is being used in a variety of software like Cryptocurrencies, Supply Chain Management, Digital Identity, Healthcare, Finance, Energy, and Real Estate.
Advantages of DLT
Disadvantages of DLT
- Energy Consumption
- Validation performance could be slower than a centralized authority
- Poor adoption and no regulatory
All things considered; the distributed ledger is managed by a cooperation of computers that are spread out over a decentralized network. These nodes collaborate to verify trades and guarantee the reliability of the ledger. By taking advantage of the strength of multiple nodes in the network, a distributed ledger can offer a protected and open registry of transactions that all members can believe in.