Many companies and individuals are currently using the blockchain for many projects. For instance, cryptocurrencies such as Bitcoin rely on the blockchain to run smoothly. But what many users don’t know is that the blockchain is part of the distributed ledger technology. It is an example of the DLT at work. So, what then is distributed ledger?
This article will explain everything you need to understand about the distributed ledger and how it works. So, if you’re curious about it, keep reading!
What is a Distributed Ledger?
A distributed ledger is simply a database existing in many locations or amongst many participants. The distributed ledger’s idea is to provide a digital record of different data types from multiple industries.
For instance, DLT helps the crypto industry to track the owners of all kinds of assets by storing transaction details. These details are stored publicly in all the computers connected to the network.
A distributed ledger is not centralized and therefore doesn’t have a central authority. As a result of the decentralized nature, there’s no need for control or intermediation during processing, validation, or authentication of transactions. But it’s important to note that before storing any transaction on the distributed ledger, the parties to it must agree.
Many companies often use a centralized database with a fixed location. But these types of databases have one point of failure, and that can be detrimental to users.
The distributed ledger doesn’t have a central admin. Instead, it’s distributed among many nodes with different functions in a P2P network. The nodes represent all the computers connected to a network. For instance, cryptosystem nodes are those computers that facilitate the operations of the network.
What is Consensus Algorithm?
This procedure makes sure that every node copy in the distributed ledger is identical to others. These copies are known as a single shared ledger.
Every asset owner must transact with a cryptographic signature, and the transactions will now be recorded on the DLT. The nodes or computers connected to the network will then share the transaction for record-keeping.
The nodes in any particular network are the keepers of transaction data, and they usually synchronize the data consensually.
These nodes are also mandated to monitor, protect and control the distributed ledger consensually. This is very easy because the DLT is a P2P network, and everything is transparent. So, it’s easier to identify data forging if it occurs.
Types of Distributed Ledgers
There are two types of ledgers, namely, permission & un-permissioned ledger. The permissioned ledger is owned and controlled by a central authority who verify data on the ledger.
The authority in charge of the ledger also grants access to other contributors and specific individuals. The downside to permission ledgers is that hackers easily compromise them since they use a central server to store data.
Un-permissioned ledgers are decentralized, and no single entity or organization owns or controls them. These ledgers are secure and very difficult for hackers to compromise. They don’t store data on a single server but many nodes & computers working with huge computational power.
Applications of Distributed Ledgers
There are many uses of distributed ledgers. First, crypto developers use DLT to record & track owners of assets in the network. Also, many private companies and even the Government are now testing DLT for recordkeeping, transfers of data, values, commodities, etc.
DLT is also very useful in the banking sector. It helps to reduce operational costs and risks on banking transactions. Many experts predict that blockchain will be instrumental in tax collection, real estate, land registry, voting, licenses & certificates, etc.
There’s also a positive outlook on using DLT in healthcare and other industries. But one thing is clear, DLT will become more useful and adopted following the increasing growth of the internet of things (IoT).