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Everything about Distributed Ledger Technology (DLT)
- Bhumika Dutta
- Mar 29, 2022
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Blockchain technology has revolutionized the world by introducing decentralized finance, high-security transactions, and many more. Blockchain is a type of distributed ledger. From the financial services industry to other areas like healthcare, energy, telecommunications, and supply chain, blockchain and distributed ledger technologies (DLTs) are bringing disintermediation to practically all businesses.
In this article, we will understand the concept of Distributed Ledgers and DLTs.
What are Distributed Ledgers?
A distributed ledger is a database that is shared and synced by a group of individuals across many sites, institutions, or countries. It enables public "witnesses" to be present during transactions.
Each network node's member has access to the recordings shared throughout the network and can possess an identical copy of them. In a couple of seconds or minutes, any modifications or additions to the ledger are reflected and replicated to all participants.
A ledger is used to record contracts, payments, moving assets or properties, etc. A distributed ledger is a decentralized ledger of any transactions or contracts that are maintained across several places and persons, nullifying the need for a central authority to keep an eye on things.
Cryptography is used to safeguard and precisely store all of the information on the ledger, which can be accessed via keys and cryptographic signatures. Once the data is saved, it becomes an immutable database governed by the network's rules.
Diagram explaining the decentralized ledger (source)
What is Distributed Ledger Technology (DLT)?
DLTs are digital and distributed transaction ledgers that hold blocks of data that are distributed over a network of computer nodes. Blockchain technology, more specifically, is a decentralized ledger that runs in a transparent context. Each block of the ledger provides information on transactions made on the platform. Every computer node in the network must verify and validate a block before it can be added to the ledger.
Most of the time, blockchain technology is used as a synonym of DLT, but they are not the same. To allow blockchain applications, a blockchain employs a variety of technologies, including distributed ledger technology. So, a distributed ledger is a subset of blockchain.
Blockchain vs Distributed Ledger Technology (DLT)
The Distributed Ledger Technology (DLT) is a decentralized database that is administered by various contributors across different nodes. Blockchain is a sort of DLT in which transactions are recorded using an immutable cryptographic signature known as a hash.
The transactions are then organized into blocks, with each new block including a hash of the preceding one, effectively chaining them together, which is why distributed ledgers are sometimes referred to as Blockchains.
A blockchain has extra qualities integrated into it to complete its make-up or DNA. Cryptography and mining algorithms are two of such features. They are utilized in partnership to develop decentralized ecosystems and resilience.
Blockchain is made up of a network of expanding nodes that all exhibit the same status of events and information while adding new blocks to the network using the preceding block's hash functions regularly. Blocks are linked together in this way as a simple cryptography method.
A distributed ledger, unlike blockchain, does not require a block-based data structure. A distributed ledger is just a database that spans numerous locations, regions, or participants.
DLT has the potential to transform the financial system, making it more efficient, robust, and trustworthy. DLT might help to solve long-standing financial sector issues and shift the responsibilities of financial industry players. Manufacturing, government financial management systems, and sustainable energy are among the industries in which DLT has the potential to revolutionize.
Also Read | Everything you need to know about Web 3.0
Self-Sovereign Identity:
The amount of large corporate firms interested in making DLT more than simply aspirational is a major characteristic of Hyperledger. By providing valid credentials, Hyperledger is utilized for decentralized identity management. The self-sovereign identity (SSI) economy has resulted as a result of this.
SSI is a user-authoritative and liberating identity management paradigm and procedure that allows you to govern your digital identity and any other credential associated with it without relying on third parties to validate individual credentials. Credentials may be almost anything - your birthday is a credential, as is your evidence of residency.
Benefits of DLTs:
Following are the benefits of distributed ledger technology:
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The transactions will be of high integrity. They will be carried out exactly as scheduled, with no opportunity to change the procedure. Because the ledger is immutable and irreversible, and there is no single point of failure, DLT is dependable.
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The time stamped data on a DLT makes it easy to verify and trace information. The blockchain also lays the groundwork for a highly secure audit trail by providing a shared source of information and allowing users to exchange encrypted data instantly.
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Users have complete control over their data and transactions, which gives them more power.
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DLT lets two parties interact without the need for a third party, effectively decentralizing the system. They improve transaction processing speed, decrease or even eliminate counterparty risk, and allow new business models.
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Because all transactions are maintained on a single public ledger, DLT eliminates the costs and complexity of keeping data across several ledgers.
Challenges of DLT:
Here are the challenges of DLT:
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DLT has a very uncertain regulatory status:
If the status of government regulation remains unclear, distributed ledger technologies and cryptocurrencies will confront a significant barrier to widespread adoption by existing financial institutions and potential customers.
Regulators must answer questions about their use as an asset or money, the conditions for initial coin offerings, their leveraging for transaction processing platforms, particularly when they can disintermediate regulated third-party intermediaries, and the enforcement of smart contracts in court, among other things.
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It is hard to link the physical and digital assets:
Some goods or transactions, such as books, music, and money transfers, are already digital or may be easily converted to digital. For others, such as physical arts or deliveries, the link between real assets and digital representations - frequently referred to as "tokens" - can only be formed through the use of additional technologies like IoT and RFID chips.
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DLT and blockchain consume too much energy:
Miners on the Bitcoin blockchain network, for example, are attempting 450 trillion solutions every second to validate transactions, consuming a significant amount of computing power.
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Integration concerns:
DLT applications provide solutions that need considerable modifications to existing systems and business processes, or their entire replacement. Companies must plan ahead of time to transform.
Business ventures based on distributed ledger technology (DLT)
Business ventures based on distributed ledger technology are slowly growing in popularity. Hundreds of firms, including prominent global companies and leaders within their nations or regions, have joined important blockchain and DLT initiatives in 2017 and 2018.
Let's have a look at a quick overview of DLT in the business world. Many people are unfamiliar with distributed ledger technology, which is not limited to Bitcoin and cryptocurrencies. And, as we've only looked at blockchain technology and DLTs from the perspective of the financial services industry and the Internet of Things (IoT) in the past, we'd want to take a look at what it is and how it's being used in more applications and industries, beyond the financial purposes.
The excitement around blockchain technology also creates a significant gap between what a system may theoretically achieve and what it really can, or even better, does. There is no question, however, that distributed ledger technology is becoming big business and large business in particular.
There are various reasons why DLT adoption is predicted to accelerate across all use cases and industries, while in many others it will fall short of expectations or be unnecessary. Even while distributed ledger technology is still in its infancy for most businesses, all indicators point to it becoming one of the most important developments.
Conclusion:
DLT can completely transform the way governments, organizations, and businesses operate. It may assist governments with tax collecting, passport issuing, property registry and license recording, and the distribution of Social Security payments, as well as voting processes.
Finance, music and entertainment, diamonds and other precious assets, art, supply networks of various commodities, and other businesses are all benefiting from the technology. This blog has served as an introduction to distributed ledger technology.
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