A Beginner-Friendly Guide to Distributed Ledger Technology (DLT)
We’re about to find out. A distributed ledger technology is a decentralized digital database. It eliminates the need for a central database that lies in the hands of a central authority.
What is distributed ledger technology?
Let’s peek a little into the history of accounting. An enterprise or a shop always maintains a book of accounts for its transactions. As accounting practices evolved, these accounts were categorized into tiny ledgers with all the necessary data. Technology in banking also followed suit and had a central database of these ledgers.
However, a DLT is a network of nodes that contains the same amount of data across locations. The data can be recorded, updated, and viewed but cannot be changed. These distributed ledgers are what coined the term “distributed ledger technology.”
Since cryptography enables it to store data safely, it can only be accessed with a certain crypto key or signature, which is allocated to authorized users ONLY. Thus, making this technological infrastructure unbackable, foolproof, and extremely secure.
Blockchain Technology, more commonly known as DLT (distributed Ledger Technology), this technology refers to technical infrastructure and protocols that permit concurrent access, record updating, and validation in an immutable way throughout a network that’s located and separated across many locations or entities.
DLT technology, or blockchain technology, launched the bitcoin, and now it is the most said word in the world of technology. It has a very big and vast potential across many sectors and industries. Suppose we want to simplify put like this way. In that case, distributed Ledger Technology is everything and all about the concept and idea of a decentralized network, which completely goes against the conventional system.
The idea of DLT is not new; Distributed Ledger Technology is not new; many companies keep their data in different locations, and normally these different places are connected in a central location or a central system. This entire network is updated from time to time or periodically. This makes the central system very vulnerable to cyber-attack or cybercrime.
The very nature of distributed Ledger Technology makes the entire system safe and sound from cybercrime. As copies of all documents, transactions, and everything keep stored throughout the networks, it is almost impossible to become successful in a cyber-attack. Additionally, this continuous P2P sharing and upgrading of all the records make the entire process much faster, more effective, and cost-effective.
Distributed Ledger Technology has a massive potential to transform governments, corporations, and institutions. It will be very easy for governments to collect the tax, make sure the citizen’s identifications, passports, registration, and recordings of their licenses, ensure social benefits, and thousands of other things, including the people’s voting. This DLT technology is making waves in many sectors like finance, insurance, music, entertainment, real State, supply chain, and many others.
So, what is blockchain, then?
A blockchain is a data block set that is chained together de-centrally. Yes, that’s what it means. These blocks have a unique code carried forward to the next block using the same code from the previous one. That’s how newer blocks are added to the chain, and the cycle continues.
Therefore, making it a distributed ledger blockchain, a type of DLT.
Are all DLTs a blockchain?
No, a blockchain is a type of DLT. Not all DLTs are blockchains, but all blockchains are DLTs.
Types of Distributed Ledger Technology:
We have three different branches on the DLT tree.
- Permissionless: No authority is involved; anyone can download the data using open-source software. No permissions are required to operate these permissionless ledgers.
- Permissioned: These ledgers lie in the hands of a few authorities who maintain them. Users who wish to read-only or validate transactions need to request access from authorized users.
- Hybrid: It is self-explanatory that this form of Distributed Ledger Technology will encompass the qualities of both permission and permissionless. The authority can control what type of information needs to be for public or private use.
Some Distributed Ledger Technology examples are:
- Blockchain: We’ve already covered the nitty-gritty of blockchain technology, which is just one example of DLT.
- DAG: Or Direct Acyclic Graph is proven to be an improved version of DLT and capable of conducting nano transactions across a broader network. The network nodes have to state two transactions from the past to initiate a new one. This enhances the level of security and strengthens the network.
- Tempo (Radix): It comes with all the benefits of DLT and adds an improvement in terms of providing a timestamp for each transaction. You wouldn’t need notable improvements in hardware components to establish your decentralized applications, coins, or tokens.
- Holochain: A peer-to-peer network with the components of a blockchain and contains peer accountability functionality. You can own the data over this distributed network.
- Hashgraph: Multiple transactions can be stored on the ledger with the same timestamp in Hashgraph. A parallel structure is used to hold all transactions. Every entry in the ledger is referred to as an “Event.” None of the nodes can be modified to pass on instructions. The process is controlled and functions in an organized manner.
What is the relationship between Distributed Ledger Technology and Cryptocurrency?
We’re all familiar with Bitcoin and the likes! And it’s probably because of Bitcoin we learned about the world of blockchain and DLTs.
Distributed ledger technology is the umbrella term for the various ledgers we discussed. Bitcoin uses blockchain technology to its benefit, which is a DLT.
Bitcoin only uses blockchain to create a transparent ledger of payments; however, blockchain can theoretically be used to record any data items immutably.
How can you be a participant in the DLT boom?
Distributed ledger technology stocks are the way to go. These stocks are either involved in manufacturing or offer a platform for these infrastructures. Either way, involvement plays a major role in where technology is today. Investing in them while in the bull run could be quite beneficial. Some DLT stock examples are Nvidia, Mastercard, IBM, Square, etc.