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What Are Distributed Ledger Technology? All You Need to Know

DLT stands for Distributed Ledger Technology, a set of protocols and technical infrastructure that enables immutable access, validation, and record updating across multiple entities or locations simultaneously.

Since its introduction by Bitcoin, distributed ledger technology (DLT), more popularly known as blockchain technology, has become a hot topic in the computer industry. A “decentralised” network opposed to the traditional “centralized” mechanism is at the heart of the DLT, and it is expected to have far-reaching effects on sectors and organizations that have long relied on a third party for confidence.

Explanation of Distributed Ledger Technology

Using Distributed Ledger Technology (DLT), a decentralised digital database can operate securely. To guard against manipulation, distributed networks do away with a centralized authority.

The use of cryptography in DLT enables for the safe and secure preservation of any data. Cryptographic signatures and “keys” can be used to get access to the same information. An immutable database and network rules govern the information once it has been stored.

While the distributed ledger concept isn’t entirely novel, it’s already being implemented by a number of businesses. Although each location is connected to a central system that updates each one of them on a regular basis, this is not always the case. As a result, the central database is vulnerable to cyber-crime and susceptible to delays, as a central body must update each remotely distributed remark.

There are no single points of failure in a decentralised ledger, as all of the copies kept across the network must be attacked simultaneously for an attack to be effective. As a result, the entire process is considerably faster, more effective, as well as cheaper because of the simultaneous sharing and updating of records.

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DLT has the potential to fundamentally alter the way governments, institutions, and businesses conduct business in the future. Tax collection, passport issuing, land registries and permits, and Social Security benefits distribution can all profit from the use of blockchain technology. Financial services, music and entertainment, diamonds and other precious assets, art, and the supply networks for diverse commodities are just a few of the fields where this technology is creating waves.

The blockchain technology is also being experimented with by large corporations such as IBM and Microsoft. Ethereum, Hyperledger Fabric, R3 Corda, and Quorum are some of the most prominent distributed ledger protocols.

distributed ledger technology

Origins of the Blockchain and Distributed Ledger

The trade of assets is typically overseen by middlemen in a traditional marketplace. A bank, for example, is in charge of the transaction when you receive your paycheck. Validation of a bank check, verification of employer funds, and recording of the transaction are performed by the bank.

The transaction and the resulting change in wealth are documented in this ledger; you may check your bank statement and see that you’ve gained some money. Most transactions are recorded in a single ledger that is controlled by a single institution, such as a bank.

While it takes a lot of faith to hand up control of our transactions to a centralized authority, this has historically been the greatest technique for safeguarding the ledger. Consider the possibility of your company, rather than the bank, held the ledger. It’s possible for your employer to falsely declare that they paid you and then modify the records to prove it. There should be no one in charge of the ledger, as a result of this security issue.

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In most history, the only way to avoid this form of fraud was to entrust an impartial intermediary with the ledger and hope that this middleman would faithfully maintain the book. As a result, in the past, a third-party institution was used to carry out and document a transaction between two parties.

Although central ledgers are still an option for exchanging our assets, they are no longer the only one. We no longer have to put our faith in a bank to obtain our paychecks anymore, thanks to distributed ledger technologies.

Permissioned Vs. Permissionless, Public Vs. Private

Distributed ledgers can be classified as “private” or “public,” as well as “permissioned” or “permissionless” — or any mix of the two. Hedera argues that distributed ledgers must be public permissionless networks in order to achieve full decentralization.

Permissioned / Private:

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 specific requirements or give proof of identity. Any party can be removed at any time without warning.

Permissionless / Private:

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

Permissioned / Public:

Allows apps to be deployed in production or withdrawn without requiring anyone to be notified, show their identity, or meet any application criteria. The network’s nodes, which make up the network and perform the apps, must be asked to join.

Permissionless / Public:

This is the most decentralised sort of network. Without having to notify anyone, divulge their name, or meet any application criterion requirements, applications can be put in production or deleted. In addition, the network’s nodes can join and contribute freely and anonymously, usually in exchange for the network’s native money.

distributed ledger technology

Why Do We Need Distributed Ledgers?

Businesses and individuals can use distributed ledger technologies to conduct safe transactions without an intermediary. Decentralized ledger technologies (DLTs) offer a more cost-effective, accessible, and reliable transaction platform than centralised ledger systems.

No middleman

Intermediaries’ expenses and inefficiencies impact central ledgers because they rely on them. DLTs eliminate these constraints by eliminating middlemen and intermediaries. Paying a central agent is unnecessary. And, without cumbersome paperwork, you can trade assets promptly. You no longer have to rely on the quickness of pricey bankers, attorneys, or politicians.

You no longer have to trust bankers, attorneys, or politicians with your finances. DLTs are trustless systems, meaning no one needs to trust anybody else to ensure a legitimate ledger.

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Accessibility

Decentralized ledgers (DLTs) provide a far more accessible service than centralised systems. DLTs enable businesses and individuals to transact freely without relying on or trusting third parties. Public DLTs go farther by removing limits on transactions and participation; no one can be denied access to the platform, and no transaction can be prioritised.

Tamper-apparent

Traditional ledgers are quick and easy to use, but they can be hacked. Weak central agents can tamper with the ledger without the members’ approval or knowledge. Because there is just one copy of the ledger, hackers have a single target. When using a centralised ledger, we must trust that the central third-party is neither corrupt or compromised.

But distributed ledgers are impervious to tampering. A malevolent agent could compromise a central system by altering a single ledger, while a distributed system would require manipulating multiple ledgers.

DLTs are not tamper-proof, but they are detectable. In other words, if tampering occurs, the network’s transparency assures that all members are aware of it. While a DLT member cannot guarantee that the ledger will remain unaltered, they may be ensured that they will be notified if it is.

Hedera Hashgraph is the only distributed ledger to date to reach the gold standard of security in distributed ledger consensus procedures, asynchronous Byzantine fault tolerance (aBFT). Hedera provides real-time consensus and is immune to DDoS attacks, a flaw in several public ledger technologies.

distributed ledger technology

Controlled mutability

The immutability of some distributed ledgers prevents any and all participants from modifying established records for any reason. These immutable DLTs allow only ledger viewing and transaction creation. Even if all network participants wanted to update the ledger, there was no mechanism to do so due to the system’s architecture. For an immutable distributed ledger, this means that it is not only tamper-proof, but also tamper-apparent. A distributed ledger system is immutable if no member or group of participants may change or delete records.

Of course, immutability has drawbacks. Forgetting the past can be useful in some instances Immutability, for example, prevents anyone from resolving a DLT issue that causes a transaction to be misrepresented in the ledger. The invalid transaction would be permanently recorded. A change in record-keeping techniques may also be required when rules evolve to keep up with technology. Immutable systems could not adjust to changing legal situations and so risked government standards.

Confronted with the drawbacks of both, some DLTs opt for restricted mutability. Controlled mutability DLTs allow records to be altered but restrict the process.

So no bad person or group of participants can tamper with the records without everyone knowing (tamper-proof), yet the DLT can adapt to defects and new restrictions. A DLT with regulated mutability is Hedera Hashgraph. A diversified group of businesses from practically every industry will form the Hedera Council. The council can remove illegal or malicious content by unanimous vote to comply with local and worldwide standards. Participants will be able to see and hold the council accountable for any changes they make to the ledger because the council is visible and has term limitations. The Hedera Council allows for regulated mutability while maintaining security and allowing the DLT to adapt to changing government norms.

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