ELI5: What is DLT. What is Blockchain
DLT (Distributed Ledger Technology) is the technical term that basically means: Instead of putting all your data in one server/one location, we are going instead to record it in a ledger that is geographically spread across multiple sites, countries or institutions. In other words, there is no centralized administrator nor centralized data storage.
Take Facebook for example. From the moment you log in, Facebook is recording all kind of information about your behaviour: posts you liked, users you checked, messages you sent, which post/picture/video you spent the most time on… All this data belongs to Facebook and its stored on its own private servers. Now if Facebook was to implement a DLT, I mean, It’s going to be a frozen day in hell before they do so but anyways, for the sake of the argument, if FB decides to go forward with it, they will have to make their data public and to distribute copies of it all over the planet.
Why DLT?
Not all businesses can benefit from DLT of course. It is usually chosen when a project needs some to operate within a trustlessness framework, in other words, when users need to transact between each other but without having to rely on a third party as an escrow.
In Math We Trust
I want to get some money from renting my apartment a few days a week, other visitors need a place to stay. How can I reach them? Can I trust them? Can I trust they will pay me? … We just invented AirBnB
I want to get some money by using my car and picking strangers from one location to another… How can I reach them? Can I trust them to pay me… We just invented Uber
Airbnb and Uber are a perfect example of the “middleman” they connect users and position themselves as an entity that guarantees the transactions on their platform. They are the “middleman”
Now, what if instead of trusting an entity, a person, a bank or the government, I could instead, trust 5000 years of mathematics. Enter “Blockchain”
What is Blockchain
Blockchain technology is basically an implementation of DLT philosophy that aims (among other goals) to cut the middleman. Is it a Distributed Ledger that allows users to trust one another using -in some cases, “Smart Contracts” … I know, another silly fancy term, but stick with me a bit longer, everything will come together.
The vending machine (yes, Soda and candy bars) shares the exact same properties that smart contracts. A vending machine has hard-coded rules that define what happens when certain conditions are met and then executes certain actions when those conditions are fulfilled.
For example:
If I were to put a quarter in the vending machine then I will receive one can of soda.
If I were to put in one dollar bill, then I will receive one can of soda AND seventy-five cents change back.
Simple rules are defined and enforced in this case by a machine in the physical world. In very much the same way, smart contracts are simple rules defined and enforced by code on the blockchain.
And Bam! We just cut the middleman.
Uber and Airbnb on the blockchain
Now imagine a scenario where Uber is replaced by a smart contract running on the blockchain and implementing the following rules:
- When I declare myself available (by pressing a button or whatever) then all drivers in my area are notified
- When the driver picks me up, an estimation of the trip cost is made and it’s automatically debited from my credit card and sent to an escrow account. This information is also recorded on the Blockchain and is being synchronized to all the ledger in the world. Everyone (and not just Uber) is able to see this information.
- You might think this is outrageous! Why would you want everyone to know where you’re going, with whom and how much you paid, well you got a point, and that’s why not all ideas can be built on the blockchain, but this is a simple example, so let’s get going
- Now when I arrive at my destination, the smart contract verifies my current location through GPS coordinates and decides to release the funds to the driver. Have I not arrived, the driver will never get his funds (can you cry and beg the vending machine?)
And that’s pretty much it. The Smart Contract enforces a set of rules and since blockchains are immutable, the whole worlds stand as a witness.
There is definitely more to say about DLT, Blockchain and Smart Contracts but this, of course is an ELI5.
