Distributed Ledger Technology



What Do Distributed Ledger Bring To The Table?

Ledgers have formed the foundation of accounting for years; they help to determine who owns what, who owes what and who has what. While the concept of holding ledger has remained the same since time memorial, the methods of holding the ledger have changed with technology. People have become accustomed to using digitalized ledgers whereas papyrus and books were once the best methods for holding them. Keeping the records as efficient and effective as possible has always been the end goal.

Although the methods of holding ledgers have experienced a revolution over time, one aspect almost always seems to remain constant- the role that third parties play. Third parties make it easier for people trading value to trust each other as well as provide a validation basis. Well, this model is far from perfect.

It is prone to fraud, downtime, and misinterpretation. As the complexity of modern-day transactions became global, so did the challenges that conventional ledger increase in complexity. Distributed ledger technology simply looks to eliminate the problems tied to third parties as well as presents some more benefits.

Read on to understand more about distributed ledger technology:

What Is Distributed Ledger Technology?

Distributed ledgers are simply databases that exist across multiple locations or several participants. Unlike the conventional ledger systems, they are decentralized. This eliminates the need to have a third party authority present playing the role of transaction authorization, validation, and processing. Instead, the ledgers are distributed between the users which transfers the validation and maintenance responsibility to the hand of the user of these ledgers.

As such, this bypasses the need to trust one another when conducting transactions of value which often widens the scope to which these transactions can reach. Once a transaction is processed, the files are time stamped within the ledger, and each is given a cryptographic signature. While this article focuses mostly on the decentralized nature of distributed ledger technology, it is good to note that these ledgers can still be centralized or private depending on the will of the users.

Benefits of Using Distributed Ledger Technology

The fact that the files on the ledgers are time stamped and given a cryptographic signature reduces fraud. This way, no one can change any information in the ledger once it is processed. However, the information has to be verified by at least half of the participants, and will only be approved if this half reaches a consensus.

On the other hand, ledgers tend to be quite transparent. All participants in a distributed ledger system can see the transaction, which further helps to reduce fraud. Additionally, with the aspect of having to rely on third parties no longer being an issue, participants can be in control of all transactions as well as maintaining the ledger system.

This reduces the chances of experiencing downtimes that participants have no control over. In a centralized state, ledgers have one point of attack which can lead to serious transaction delays. The decentralized nature of the ledgers, on the flip side, diversifies the field of attack while their immutable state limit the harm the can be done.

Common Areas Where Distributed Ledger Technology Is Being Used

1. Voting

There has always been the question of transparency during voting, but DLT systems plan to change all that. It happens to have gotten a foothold in a few voting systems over the years. For instance, Moscow recently embraced it in their voting system during the local elections. On the other hand, NASDAQ- an American stock exchange market (NASDAQ are also offering their technology to crypto exchanges- has also used it in the voting process of its shareholders. They claimed the technology to be both practical and innovative.

2. Quality Assurance

Distributed ledger technology can also help to raise the bar when it comes to quality assurance. This is mainly due to its secure and transparent nature. For instance, it can be used in the food industry to identify details such as origination, food-safety and batch information.

3. Peer-To-Peer Global Payments

Making transactions through paper currency tend to have its downsides. First of all, it is controlled by many factors such as the politics of the countries involved which affects the exchange rates. On the other hand, there can be limits as to the number of transactions allowed, since the governments play the role of a third party. The decentralized nature of distributed ledger technology eliminates all these challenges as there is no authority governing the transactions. This has led to the emergence of cryptocurrencies such as Bitcoin, all which make it easier to make international transactions, for example when buying crypto t-shirts.

4. Accounting

The obvious function of DLT systems is in the accounting. Generally, the accounting industry always yearns for simple, transparent and secure accounting methods. Luckily, distributed ledgers bring this to the table. Furthermore, they reduce the chances of common human errors which can be quite costly.

Ledger vs. Blockchain Technology

Although often used interchangeably, ledgers and distributed ledger technology have a slight difference from each other. before diving into this difference, it is best that you first understand what blockchain is:

What Blockchains Are

Blockchains, at their core, are shared databases that have entries that must be confirmed and encrypted when being filled. The best way to think of them is as a very secure document. Any document entry should have some form of a logical link to the other predecessors when being keyed into the blockchain.

The document entries are supposed to be added as blocks to the resulting transaction chain. Additionally, they also have to implement cryptographic signatures, commonly known as a hash, to make the information secure and eliminate the ability to edit it.

The Key Differences between the Two

Blockchains are simply a subset of distributed ledgers. Simply put, all blockchains are distributed ledgers, but not all ledgers can be termed as blockchains. While a blockchain’s transactions and files need to be aligned in a chain of blocks, distributed ledgers can take a diversity of forms.

Cryptocurrencies that use DLT

Any cryptocurrency that uses blockchains should also be considered to use distributed ledger technology. Here are some few examples:

• Ethereum
• Dash
• Monero
• Hyperledger
• Litecoin
• Dogecoin
• Ripple
• Bitcoin
• Stellar

Regardless of the growing prevalence of distributed ledger technology like blockchains, the use of the technology remains limitless. The security, transparency, and immutability it provides are all factors that are poised to revolutionize a variety of economic sector. As the years go by, you should only expect its foothold in the world to become even bigger.

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