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5 Types of Distributed Ledger Technologies (DLT)

  • Bhumika Dutta
  • Apr 08, 2022
5 Types of Distributed Ledger Technologies (DLT) title banner

DLT stands for Distributed Ledger Technology and refers to digital and distributed transaction ledgers that store data blocks distributed across a network of computer nodes. Most of the time, the terms DLT and Blockchain are used interchangeably, but there are many differences. Blockchain is a type of distributed ledger.

 

If you are wondering what a distributed ledger is, it is a database that is shared and synced across multiple sites, institutions, or countries by a group of people. The members of each network node have access to the recordings shared across the network and can have an identical copy of them. Any changes or additions to the ledger are reflected and replicated to all participants in a matter of seconds or minutes.

 

DLT is a broad term that refers to digital database technology, which has a variety of implementations in the ecosystem. Blockchain is the most popular one among them. DLT is made up of nodes on the underlying network that use various agreement processes to come to a consensus. As a result, the DLT not only digitized the entire ecosystem, but also provided fluidity, integrity, security, and decentralization.

 

Before talking about the types of DLTs, we need to understand the different categories of DLT.

 

 

Categories of Distributed Ledgers:

 

Distributed ledgers can be classified as private, public, permissioned, permissionless, or any combination of the two. The four of them are described briefly below.

 

  1. Public/permissioned:

 

Allows applications to be deployed in production or removed without requiring anyone to be notified, reveal their identity, or meet any application criteria. The network's nodes, which make up the network and run the applications, must be invited to join.

 

 

  1. Private/permissioned:

 

There is no decentralization in this type of network. Both the applications and the network nodes that run them must be invited to join the network and must meet certain requirements or provide proof of identity. Any party can be eliminated at any time without warning.

 

 

  1. Public/permissionless:

 

This is the most decentralized type of network. Without having to notify anyone, reveal their identity, or meet any application criteria requirements, applications can be deployed in production or removed. In addition, the network's nodes can join and contribute freely and anonymously, usually in exchange for the network's native cryptocurrency.

 

 

  1. Private / Permissionless:

 

Requires that applications in production be invited to join the network and that they can be removed at any time without warning. The nodes that make up the network and run the applications can join and contribute freely and anonymously, usually in exchange for the network's native cryptocurrency.


 

Types of Distributed Ledger Technologies:

 

Here are the different types of DLTs:

 

  1. Blockchain:

 

It's one of the most popular DLTs on the market. The blockchain is a type of DLT in which transaction records are stored as a chain of blocks in a ledger. Consider it a long list of discs. But not literal blocks; when we say "chain of blocks," we're referring to any type of digital data stored in the database. 

 

The blocks are made up of digital information. They usually consist of three different types of parts. Let's use a blockchain transaction as an example. Let's say someone made a transaction. The transaction block will include the sender's time, date, and amount sent. The sender's information will also be included in the block. However, to maintain your anonymity, the technology will use your unique "digital signature" rather than your real name.

 

Every block will contain a special ID known as the hash to differentiate or synchronize the transactions. This hash function aids in the identification of all transaction blocks on the ledger. The function primarily includes alphanumeric characters, and each hash function is a unique and random selection.


Image showing how blockchain works for bitcoin.

Working of Blockchain (Source)


Working of blockchain goes in this way:

 

  • Multiple blocks are added to the ledger system in blockchain, and there are four different ways to add a block. To begin, a transaction must be made by someone on the network.

 

  • After they've completed the transaction, it must be verified. A transaction can be verified in a variety of ways on the blockchain. It is largely determined by the network's nodes. The nodes would have to agree that the transaction had occurred.

 

  • They do this by verifying that the transaction took place as users stated. The consensus on that network allows the majority of members to agree, and if the majority believes one's transaction is correct, it will be stored in a block.

 

  • When your transaction receives the green light, all information about it is stored in the block, including the time, amount, their digital signature, and the users' digital signature. The user will notice that the amount has been deducted from his or her wallet. The block is given a unique ID before it is placed on the ledger. It's a unique code for that particular transaction. To keep the chain of blocks structured, the block will also contain the hash of the most recent block.

 

  • You will be able to see your transaction once it has been added to the ledger, and depending on the network's characteristics, others may or may not be able to see it as well. If these types of DLTs are public, anyone on the network can see them; if they are private or federated, the rules of the distributed ledger system will apply.

 

Also Read | Introduction to Layer-2 Scaling Solutions


 

  1. Hashgraph:

 

Multiple transactions can be stored on the ledger with the same timestamp in Hashgraph. A parallel structure is used to store all transactions. Every entry in the ledger is referred to as an "Event" in this case. 

 

No node on the network will be able to manipulate the information or transactions in this distributed ledger without blockchain. It means that no one on the DLT system can change or postpone all of the instructions that will take place, or control the transaction's process. 

 

When we compare it to the blockchain, we can see how a miner decides which transactions to include in the "block." The verifier nodes in the hashgraph must include both your and the other user's transactions in the same order as you did, so no one is left behind.

 

What is different in a hashgraph?

 

All network transactions are provable in this type of distributed ledger implementation. As soon as a transaction occurs on the network, everyone on the network will know where the transaction will be recorded in the ledger within a few minutes. 

 

Furthermore, everyone on the network will be aware that the transaction has been detected by the entire network, allowing them to make the necessary changes. It indicates that the nodes will make the changes before discarding the transaction. 

 

This information will not have to be kept in your ledger indefinitely. As a result, the Hashgraph distributed ledger database platform only requires a few gigabytes of storage space to store all of its data.


 

Acid nature of the hashgraph network:

 

One of the most important features of the Hashgraph distributed ledger implementation is this. When a system is Byzantine, it means that no single group or entity can sway the path to consensus. 

 

Furthermore, once a consensus has been reached, no one can stop it. Every member will be aware that a consensus has been reached and will continue to be so. Every node on the network will agree on how the transaction occurred and list it out accordingly in this distributed ledger without blockchain.

 

This DLT's entire community will have a distributed yet unified database system with similar properties. When we compare the blockchain DLT to other distributed ledger technologies, we can see how nodes on the network are never sure if a consensus has been reached. It is, however, possible in Hashgraph. As a result, it is also ACID compliant.

 

Also Read | Consensus Algorithms: Concept, Properties and Types


 

Hashgraph works in this way:

 

  • The Gossip protocol is used by this distributed ledger system to relay all kinds of information, primarily about transactions, across the network. 

 

Each node on the network can send out information on a new transaction (known as "events" and pre-signed). Every node will choose a neighboring node at random to relay this information to. A node will then combine the event with other received data before relaying it to other nearby nodes.

 

  • When a transaction occurs, neighboring nodes share the information with other nodes, and after some time, all nodes are aware of the transaction. Because the process is quick, everyone on the network would know about the event in a matter of minutes.

 

  • Every node validates the transaction and then adds it to the ledger using the "Virtual Voting" protocol.


 

  1. Directed Acyclic Graph (DAG):

 

The DAG, or Directed Acyclic Graph, is another ambitious addition to the distributed ledger family that isn't a blockchain. DAG was created as a counter-proposal to Blockchain DLT. 

 

As a result, this distributed ledger without blockchain provides all of the benefits of blockchain while also improving on them. Even though it's an alternative, this ledger's structure is quite different. The ability to offer fee-free Nano-transactions is one of the major advantages of DAG distributed ledger implementation. It's because the network's scalability improves as it grows.


Image showing directed acyclic graph (DAG)

Structure of DAG (Source)


  • DAG takes a different approach to reach a consensus. On the nodes, the distributed ledger system stores transaction processes. Like blockchain, every member of the network is referred to as a "node."

 

  • The ledger is validated by all nodes on the network, and validated transactions are also represented by validated transactions. Any node can initiate transactions, but to validate them, they must first validate at least two previous transactions on the ledger.

 

  • His/her transaction will be confirmed after he/she validates them. The more a person validates, the more his or her transactions on the distributed ledger database become valid transactions. As a result, a transaction with a long branch of previously validated transactions will be given the greatest weight in the ledger.

 

  • An algorithm, on the other hand, will choose two previous transactions at random for each member to validate. Because if it doesn't, members will only validate their transactions while abandoning others. 

 

This is a fantastic new way to achieve greater scalability through consensus. Companies that require a higher volume of transactions per second should use this distributed ledger implementation due to the nature of the distributed ledger implementation.

 

Also Read | Blockchain in Education Sector: Advantages and Disadvantages


 

  1. Holochain:

 

Holochain takes pride in presenting the next generation of digital ledger technology. The platform's most visible change is its shift away from a data-centric to an agent-centric approach. Holochain-DLT has virtually limitless scalability because it does not use a global consensus protocol. 

 

Whereas Blockchain aims to decentralize network transactions, Holochain aims to decentralize the interactions between individual nodes as well. Each node on the network runs its chain, allowing them to operate independently while still being a part of a larger network that includes thousands of other similar nodes.

 

How is this different from other distributed ledgers?

 

Traditional methods force all other nodes on the network to reach a global consensus and verify the entire network. Holochain, on the other hand, alters this dynamic. The procedure follows the same pattern as its name. The name of this distributed ledger database comes from the hologram concept that underpins the architecture. 

 

If you want to make a 3D pattern in a hologram, you'll need to use specific light beams and interact with them in a certain way. Holochain is a similar concept. Individual modules are used to build the entire ledger system.

 

Also Read | What is Blockchain Mining in 2022?


 

  1. Tempo:

 

Tempo is the final addition among the new DLT variants (Radix). Tempo is a relatively new addition that combines the benefits of timestamping with other DLT features. Tempo's main advantage is that it can be used for both public and private modules without any modifications. 

 

Furthermore, you wouldn't require any notable hardware additions to create your decentralized applications, coins, or tokens. The distributed ledger database is based on three main principles: a cluster of networked nodes, a distributed global ledger, and special algorithms for timestamping events on the ledger.

 

It's not like any other distributed ledger database currently available. Any node has the option of carrying a subset of the entire global ledger. Shards are a subset of the ledger, and each node carrying a shard will be assigned a unique ID for their subset of the ledger. As a result, nodes on the network are not required to carry the burden of the global ledger. This ensures that the network can handle more traffic, resulting in increased scalability.


Next Read | Difference between Public and Private Blockchain

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