Before Blockchain, There Was Distributed Ledger Technology
When the first Bitcoin Genesis Block was mined in January 2009, most people had never heard of blockchain — a technology that has since become a global buzzword. But the concept was not the first of its kind: It evolved as a form of distributed ledger technology (DLT), which has a rich past.
But not all DLTs are blockchains, and understanding the differences may help entrepreneurs and business leaders determine which solution is best for them. “If one understands the differences, they will be able to better understand if DLT is of potential use in a given application area and, if yes, whether blockchain is the preferred method of distributed ledger organization,” says George Giaglis, director of the Institute for the Future at the University of Nicosia.
The idea of blockchain traces back to 1991 when researchers Stuart Haber and W. Scott Stornetta wrote “How to Time-Stamp a Digital Document,” a paper proposing practical procedures for certifying when a digital document is created or modified.
Over a decade later, in 2002, David Mazières and Dennis Shasha took the concept further, studying how blocks can store data. In their paper “Building secure file systems out of Byzantine storage,” Mazières and Shasha focused on data structures and protocol of a multi-user network file system called SUNDR (Secure Untrusted Data Repository) that highlighted blockchain’s ability to store data in each block, thus laying out the framework for today’s blockchain.
Blockchain development saw a breakthrough in 2005, when computer scientist Nick Szabo proposed a whole new blockchain-based currency: bit gold. It was one of the earliest attempts at a decentralized currency, which shifts control from a single entity to various smaller ones. Szabo proposed the new currency based on “computing a string of bits from a string of challenge bits,” introducing innovative concepts like “client puzzle function,” “proof of work function,” and “secure benchmark function.” Although he pioneered cryptocurrency features such as proof of work and time-stamping, Szabo’s bit gold could not overcome the double-spending problem of electronic transactions, wherein digital currency users could duplicate transactions and therefore spend the same digital money more than once.
In 2008, the famously anonymous innovator known by pseudonym Satoshi Nakamoto introduced a peer-to-peer version of electronic cash that allows direct online transactions between two parties without a third party. Nakamoto’s paper proposed a solution to bit gold’s double spending problem by implementing distributed peer-to-peer timestamp servers, which generate computational proof for the chronological order of transactions.
Nakamoto’s proposal became a reality in 2009 when he, she, or they mined the first block, meaning a transaction was verified and added to the base of the chain, thus kicking off a chain of blocks, each containing information on verified transactions.
Distributed Ledger Technology
Blockchain’s rise to popularity is recent history, but distributed ledger technology (DLT) is an even older concept. It is frequently associated with blockchain, often creating confusion between the two. Both are methods of organizing transaction records in a shared, distributed database, explains Giaglis of the University of Nicosia. But DLT is an umbrella term that encompasses all sorts of structures — including blockchain, which is just one type, he points out.
“We should remember that distributed ledgers need not use blockchain, and blockchain does not have to be distributed — although its practical value is very much in question without the distributed ledger characteristic,” Kai-Lung Hui, chair professor at Hong Kong University of Science and Technology’s Department of Information Systems, Business Statistics and Operations Management, tells Blockstreet HQ. Blockchain, Hui explains, refers to a unique way of storing data using a “chained block” structure to ensure data integrity using cryptographic methods.
DLT has its earliest history in the Roman Empire, which hosted a banking system that allowed people to participate in transactions across other regions belonging to the empire. Further exploration of distributed ledger in the Roman Empire came in the form of paper checks, leading to enhancements in updating and recording transactions.
But the use of DLT was held back due to a dilemma that became known as the Byzantine Generals Problem (BGP). Picture this scenario: Multiple generals leading their respective armies are strategically positioned outside enemy territory. Generals must communicate with messengers to form a common agreement. But what if a corrupt general conspires against the others to prevent them from reaching a common goal? The dilemma was described by Leslie Lamport, Robert Shostak, and Marshall Pease in their 1982 paper.
Bitcoin provided a convincing consensus protocol, called proof of work, to solve the Byzantine Generals Problem. “The BGP is the main hurdle to massive distributed processing, which is the key foundation for distributed ledger where everyone must work individually — without coordination or communication — to maintain a synchronized and distributed ledger,” says Hui. “Bitcoin came up with a convincing — and now proven — solution to build such a distributed ledger on the Internet.”
Other Forms of Distributed Ledger Technology
Decentralized digital currencies based on blockchain have gathered mainstream attention, with Bitcoin and Ethereum leading the way. However, some notable forms of DLT are gaining popularity. IOTA, for example, is described as a cryptocurrency for the Internet of Things industry. Rather than using the chain construction, the token’s main feature is “the tangle, a directed acyclic graph for storing transactions,” the IOTA Foundation’s research paper states.
Meanwhile, R3’s Corda is a blockchain-inspired open-source distributed ledger platform for decentralized app development. Although initially thought to be on blockchain, R3 later clarified that Corda is not a blockchain. “There is no blockchain. Transaction races are deconflicted using pluggable notaries. A single Corda network may contain multiple notaries that provide their guarantees using a variety of different algorithms. Thus Corda is not tied to any particular consensus algorithm,” Corda’s white paper states.
The Hedera hashgraph platform provides a form of distributed consensus, a way for people who don’t know or trust each other to securely collaborate and transact online without the need for a trusted intermediary. “The platform is lightning fast, fair and secure and, unlike some blockchain-based platforms, doesn’t require compute-heavy proof-of-work,” Hedera’s website reads.
“Naturally, researchers and companies have already started proposing non-blockchain distributed ledger architectures,” says Giaglis.