The Force Behind Blockchain: Distributed Ledger Technology

The concept of Distributed Ledger Technology is simple: it creates a common record or “ledger” of activity that is shared across every computer in a network. When every user has the same information, it is impossible for one user (or a group) to game the system – we mean, it can be done if more than half the total users of the network unite, yet it is highly unlikely on large networks!

This technology eliminates the need for centralized authority and instead places trust in the users of the network. For example, DLT can be applied to financial use cases to record transactions, which users can verify through various consensus mechanisms, such as proof-of-work (PoW) and proof-of-stake (PoS). No third-party authorities needed to verify the price of a large commission!

Distributed Ledger Technology essentially leverages a network of nodes, so the user at each node has the exact same copy of the ledger. When each user can review the data, the recorded data is tamper-proof, transparent and decentralized. Sounds interesting, right?

Here’s a deeper dive into Distributed Ledger Technology, or DLT.
 

What Is Distributed Ledger Technology?

The primary distinction between DLT and a conventional, centralized ledger is that a copy of the ledger is distributed to every node (or user) on the network. Since everyone can view and validate the ledger, trust and transparency are vastly improved.

Moreover, as DLT is essentially an immutable database, information that is stored cannot be updated or deleted without the consent of 51% or more users. For business ecosystems, this can be a boon! DLT is also advantageous for military and financial activities as the record of data is permanent. Once a transaction or activity is validated by a majority of users, DLT uses cryptography to safely store the data.

No more arguing about who won which round at the annual TechDogs Rock-Paper-Scissors tournament! #YesThatsAThing

While hand games have been around for centuries, DLT is a recent concept – here’s a brief look!
 

Evolution And Origins Of Distributed Ledger Technology

You may have come across the term “distributed computing” recently. Although businesses and governments have been experimenting with the concept for decades, today we have achieved a deployable use case for it through Distributed Ledger Technology. Here’s how we achieved that:

The concept of a distributed ledger can be traced back to the Roman Empire through a thought experiment called the Byzantine Generals' Problem. The issue describes a situation in which a general prepares to attack but lacks centralized command as the Byzantine army is widely dispersed. The General can only prevail if he plans an organized attack where every soldier has access to the same information.

Then, in the 1990s, it became possible for computers at various locations to work together to solve complex problems and send the solutions back to a central location. This led to the birth of distributed computing solutions. If only the Byzantine General had heard of this technology! #JustKidding

In 2017, the FCA (Financial Conduct Authority, UK) released an academic paper that led to the HM Treasury’s demand “call for evidence” (CfE) on the public uses of Distributed Ledger Technology. The FAC responded and the CfE described how equities, bonds and other structured products were successfully and legally issued by businesses via the Ethereum blockchain.

Later, in 2020, the American company Axoni launched Veris, a distributed ledger platform to manage equity swap transactions. The platform securely matched and reconciled post-trade data, which led to adoption by major players such as BlackRock Inc., Goldman Sachs Group Inc., and Citigroup, Inc.

The Monetary Authority of Singapore started a pilot program, allowing banks to trade tokenized Singapore government bonds, Japanese government bonds, Singapore dollars and yen using smart contracts. DBS and JP Morgan were the first to use this Distributed Ledger Technology in 2022.

Although the journey has been slow, the steady adoption of DLT leads many to ask: how does it even work? Well, read on!
 

How Does Distributed Ledger Technology Work?

You know by now that DLTs allow data to be stored securely using cryptographic techniques. The data can still be viewed by users through "cryptographic keys" but once the information is stored, it turns into an immutable database – no modifications or changes allowed.

Moreover, every node on the distributed ledger network receives an updated copy of the ledger. When changes happen in the ledger, such as a new transaction, it is recorded across ledgers on all nodes. #EqualRightsForAllUsers

Yet, the real fun is what happens before the data is etched permanently. When a transaction or activity occurs, voting is carried out where all the nodes must participate. If at least 51% of them agree on the data, the transaction is accepted and the ledger is updated so each node has an updated version.
 
Think of blockchain networks: when the users reach a consensus about the validity of the latest transaction, the information is finalized, encrypted and stored in the ledger. DLT is what makes blockchain so successful; it is decentralized, transparent and immutable.

Much like blockchain, DLT also has different types and each one has a specific utility. Here’s all you need to know!
 

Types Of Distributed Ledger Technology

Distributed Ledger Technology has three main flavors:
 

• Permissioned DLTs

  To access or modify any part of the data, nodes (users) must first obtain permission from a centralized authority. These permissions typically require identity verification.

• Permissionless DLTs

  There is no central authority to validate transactions. Instead, the nodes (users) work together to establish the accuracy of the data. This is done using a variety of consensus mechanisms; for instance, Bitcoin uses a proof-of-work consensus mechanism.

• Hybrid DLTs

  Permissionless and permissioned DLTs can be combined to create a hybrid DLT that can reap the benefits of both types. Certain actions need permission from the centralized authority, while others are accessible to all users.

Now that you know about the types of DLTs, let’s explore where they are used. Let’s go!
 

Applications Of Distributed Ledger Technology

 
That’s our way of saying that blockchain is probably the most widespread use of DLT. While such solutions have proven to add value in specific industries, we are seeing new applications with each passing day! Some common applications of DLT include:
 

• Record Transactions With Accuracy

  DLT enables secure, transparent and decentralized processing and recording of transactions without the need for a central authority. As a digital ledger, it can register transactions, activities, events and other records of immutable nature.

• Tamper-Proof Voting Through Consensus Mechanisms

  DLT can be used to create a secure and transparent voting system that prevents double voting and identity scams to ensure the integrity of the voting process. For instance, voting to approve network updates can be recorded in a transparent, immutable ledger along with user interactions.

• Developing Smart Contracts

  DLTs allow users to create smart contracts, that is, agreements that can automatically be executed based on preset conditions. For example, insurance funds may be automatically released once a claim has been processed.

• Tracking Ownership

  DLT can be used to record property transactions and ownership, creating a tamper-proof and transparent record of ownership. Even if there is a transfer of property, the ledger can be updated and used as immutable source ownership.

You bet there are more uses to Distributed Ledger Technology, as there are benefits!
 

Benefits Of Distributed Ledger Technology

Using a DLT provides several unique advantages, including:
 

• High Transparency Of Data

  As the records are open to public view, distributed ledgers offer a high level of transparency. If anyone attempts to change or alter data in the ledger, it is immediately reflected across all nodes, preventing any invalid or fake transactions. Any addition to the existing records must be validated by a majority of the nodes (51% or more) using consensus mechanisms.

• Decentralization

  In a centralized network, a single point of failure could happen and bring the entire network to a halt. However, this risk is eliminated in distributed networks as the decentralized architecture of DLT depends on multiple participating nodes.

• Lower Validation Time

  A central authority is not required to consistently validate transactions as users of the network validate transactions using a variety of consensus mechanisms. Hence, the time required for validating each transaction is dramatically reduced.

• Scalable Nature

  Given its quick, reliable and scalable mechanism, Distributed Ledger Technology is adaptable as the number of nodes grows. When we say blockchain projects are sophisticated and secure, it is actually DLT that supports millions of daily transactions!

So, what happens when the transactions go from millions to billions in a few years? To find the answer, read on!
 

What’s The Future Of Distributed Ledger Technology?

You may have realized that Distributed Ledger Technology has potentially impacted several sectors already. Distributed ledgers are being used across industries such as finance and banking, cybersecurity, healthcare, data security, etc. However, we will see more effective DLT solutions replace outdated ones in the near future.

Most enterprises and visionary tech experts are trying to solve the challenge of quickly and sustainably establishing new networks to leverage DLT solutions. Businesses will try to integrate DLT into existing networks which may radically change how they share data, store sensitive records, vote during meetings, etc. One thing is certain: DLT will enable entirely innovative processes and business models soon! So, are you ready for the DLT Revolution?
 

Conclusion

 
To ensure accuracy, transparency and security, Distributed Ledger Technology creates ledgers stored on separate but linked devices in a network. The famous "blockchain" was developed from DLT to address growing concerns about central third-party entities in transactions. Every modern business that invests in Distributed Ledger Technology can guarantee accuracy in financial reporting, supply chain planning, data security, identity authorization and lots more!