What is Distributed Ledger Technology?
Distributed Ledger Technology (DLT) is essentially a kind of database or digital ledger that is shared, synchronized, and replicated over several computers or network nodes. DLTs are deployed in a distributed manner, typically without a single central authority, in contrast to traditional databases, which are frequently kept and managed centrally.
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Key aspects and characteristics DLT
Here are some of Distributed Ledger Technology’s salient key aspects and characteristics DLT:
Distributed Nature
Every node in the network holds and maintains the ledger. Each node processes information, verifies it, and agrees on the ledger’s actual state often via a consensus mechanism instead of a single authority updating it. Every copy of the ledger is automatically and continuously synced, so all participating nodes have the same copy. Because of its distributed architecture, which by design generates numerous backup copies, the ledger is extremely resilient to the loss or destruction of a central server or even several nodes.
Ledger as a Record
A Distributed Ledger Technology’s primary purpose is to act as a record of digital events or transactions. It includes a specific, verifiable record of each and every transaction. All previous data is included in the ledger’s data.
Append-Only and Immutable
Generally, once new information or a transaction has been entered and validated, it cannot be removed or changed. DLTs are made to be both resistant to and obvious of tampering. Because of this unchangeable characteristic, the records are extremely reliable and offer an ideal audit trail.
Underlying Technology
Distributed Ledger Technology(DLT) is an architecture or a synthesis of pre-existing ideas such as consensus processes, peer-to-peer networks, and cryptography rather than a single technology.
- DLTs often use peer-to-peer (P2P) topologies to let users talk directly.
- Cryptography: DLTs use hashing techniques, digital signatures, and asymmetric-key cryptography to secure transactions and prevent data manipulation.
- Consensus Mechanisms: Network members must agree on transaction validity and ledger state. Proof of Work, Proof of Stake, and Practical Byzantine Fault Tolerance methods let potentially distrusting entities reach consensus.
Trust Enablement
One of the biggest benefits of Distributed Ledger Technology(DLT) is enabling trust between strangers without an intermediary. The technology architecture, which includes cryptographic security, consensus algorithms, and shared ledgers, builds confidence.
Transparency and Provenance
Transactions can be transparent because the ledger is available and shareable (in various setups). This makes it possible to trace the provenance of assets and their whole transaction history.
Efficiency and Cost Savings
DLT may eliminate middlemen, enabling faster transactions, lower fees, more efficient operations, and lower administrative costs.
DLT vs Blockchain
Remember that DLT is broader than blockchain. Many distributed ledgers are not blockchains, even if all blockchains are. A particular kind of DLT called a blockchain organizes data into blocks that are then connected cryptographically to form a chain. A series of transactions is contained in each block. However, this block structure is not used by all DLTs. Ripple is a DLT that uses blocks, whereas R3’s Corda is characterized as a DLT that does not. Although they provide an alternate structure to the conventional chain of blocks, Directed Acyclic Graphs (DAGs), which are utilized by technologies such as IOTA, are also classified as DLTs.
DLT is frequently used in the banking industry to refer specifically to consortium-adopted permissioned blockchains.
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Types of DLT
DLTs can be grouped according to their model of permission:
- Anyone can join, read, write, and take part in consensus on a permission less (public) DLT without requiring authorization. Public blockchains, a kind of permission less DLT, include Ethereum and Bitcoin.
- Only approved players are able to join and/or validate transactions on permissioned (private/consortium) DLTs. They are frequently used for a consortium or a collection of organizations. R3 Corda and Hyperledger Fabric are well-known permissioned DLTs.
Applications
Although DLT was initially used as the foundation for Bitcoin (electronic currency), its potential applications go well beyond cryptocurrencies. It has the potential to completely transform a number of sectors, including government services, supply chains, healthcare, financial services, and personal identification. New application models including tokenization of assets, Decentralized Finance (DeFi), and smart contracts code that runs on its own based on certain conditions are made possible by DLT.
DLT is not a panacea, though, and it has drawbacks such scalability issues, privacy issues (particularly with public DLTs), and the requirement for suitable governance systems. Instead of attempting to shoehorn every problem into the DLT paradigm, it should be properly studied and used.