Distributed Ledger Technology (DLT) is one of the fascinating innovations in the world of technology and computers in storing information.
Human beings always tend to store important information in a place that is both secure and easy to manage. The use of the ledger has been common for a long time, but with the advancement of technology and the emergence of the concept of decentralization, distributed ledgers emerged and introduced us to a new world.
Many people think that distributed ledger, Blockchain, Bitcoin, and cryptocurrencies are all the same, but this is not the case.
A distributed ledger is one of the methods of implementing decentralized systems, Blockchain is one of the types of the ledger, and Bitcoin is a decentralized project or system with the aim of creating digital money that uses Blockchain platform as its distributed ledger.
In this article, Mohammad Hosseini presents a complete introduction to DLT and examines its history, types, and applications.
Mohammad Hosseini was born in 1969 in the west of Tehran and has a master’s degree in mechanical engineering. He is an entrepreneur and expert in the field of cryptocurrencies as an analyst and trader.
His areas of activity include cryptocurrencies, forex, stock exchanges, and other financial markets. He has established a holding company in the field of digital currencies in Iran.
What is a distributed ledger?
Distributed Ledger Technology (DLT) is a decentralized data storage system in which data are processed by network members or nodes and stored in several different locations.
The data can be any type of information including financial transactions. The difference between DLTs and traditional databases is that DLTs are not managed by one organization or power or central node, and all members of the network can participate in decisions.
Does the question probably arise as to how network nodes participate in the data processing process in a DLT? Information sent to the network, such as transactions, must be reviewed by all members before being added to the ledger and, if valid, written on the ledger.
The nodes perform these actions based on a concept called the Consensus Algorithm. A consensus algorithm is a set of instructions contained in network software code that specifies what steps need to be taken to process and verify transactions. There are several types of consensus algorithms; PoS and PoW are two well-known ones.
Any network can use DLT to increase the security of its transactions and databases without the need to use an interface. By eliminating intermediaries and distributing management power among members, network activity will become more cost-effective and transparent, and it will be very difficult to manipulate and infiltrate.
Please explain the history of the ledger:
Human beings have long understood and used the concept of the ledger. Merchants and merchants kept records of their goods and transactions in a ledger and cited them to determine their financial status.
With the advancement of technology and the invention of computers, everything became digital, and the ledgers were no longer paper-based. But what remained was the need for a mechanism to verify the information before inserting it into the ledger.
In centralized systems such as banks, the whole process of credit verification and registration of information in the ledger is done by a specific unit, the servers of the same bank.
The manager of a centralized network has complete control over everything and can make any changes he wants to the ledger at any time. On the other hand, if the central system of such a network is compromised, the information of all users will be compromised. It was here that the idea of building a distributed ledger was created to solve such problems.
What are the types of distributed ledgers?
There are many types of DLT, and Blockchain is the most popular. Of course, there are other DLTs such as “Hashgraph”, “Holochain”, “DAG”, and “TEMPO” which will be talked about below.
Blockchain:
Blockchain is the most popular DLT, and everyone knows it by its ciphers. In Blockchain, information is reviewed in the form of transaction records and, after verification by a majority of nodes, is placed in units called blocks and added to the previous block collection in the database. Because blocks are stored sequentially in memory, this structure is called a Blockchain structure.
The security of each block is provided by special cryptographic algorithms using the mathematical hash function. Each block has its own hash code as well as the previous block hash, and if there is a change in the block transaction information or previous blocks, this hash changes. This process makes the security of information stored in the Blockchain very high.
Hash graphs:
Hash graphs are a distributed ledgers that work based on a process called the Gossip Protocol. In this process, each node first sends “events” or verified transactions to nearby nodes.
The side nodes check the accuracy of the information, comment on it, and send it to more nodes around them. The mechanism of this system acts like a rumor spread, and since the speed of this work is very high, it only takes a few seconds to receive the whole network of new information.
Finally, using a special process called Virtual Voting, the accuracy of the information is verified and added to the network ledger.
DAG:
Directed Acyclic Graph (DAG) is another type of DLT that was introduced with the goal of replacing Blockchain and, therefore, has all the capabilities of a Blockchain. But, it has a completely different structure. This network is designed so that the more transactions, the faster the network!
Nodes in the DAG network use a very interesting consensus algorithm. Each node must verify and confirm the previous two network transactions in order to send a transaction. The more nodes a transaction confirms, the more transactions it can send. On the other hand, a transaction that has more confirmers will be more valid.
Houchin:
The Holochain network is a new DLT developed by the company of the same name based on the idea of holograms. In the world of holograms, to create a three-dimensional pattern, we have to use a certain spectrum of light in a certain direction to get a whole unit from the set of those components. Holocaust uses the same mindset to build a single office by putting together detailed information.
Here, each node has its own ledger. Each ledger contains specific parameters called DNA. It is the DNA that determines the activity and validity of each node in the network.
When a node sends information to the network, other members check the DNA of the sending node to make sure it is valid. If there is a malicious node in the network and it changes valid information, it will have different DNA and the others will notice.
Tempo:
TEMPO is a product of RADIX. Each node in this system can have a part of the whole network office called “Shard” with a unique identifier. This means that the volume of the ledger version decreases with each node and the processing speed increases. Feature leads to much greater scalability in the network.
The transaction verification process in this network is done through a feature called Logical Clocks. Previous consensus algorithms in DLTs can only use the time-stamping system.
This means that two transactions are compared in terms of the “send time” parameter to determine which one should be processed sooner.
However, in the TEMPO network, to determine the priority, the previous transaction itself is checked and no time comparison is made. That is, the nodes in this network record the continuity of transactions and have nothing to do with when they occur.
Concluding remarks:
DLT is one of the evolving human inventions in the field of digital technologies. This technology has brought with it a new concept of decentralization.
A system implemented on the basis of a distributed ledger entrusts network management to individual members of that network. No transaction or information shall be entered into the database unless approved by a majority of the members, after which it shall be recorded in a transparent manner, permanently without the possibility of tampering.
Encrypted currencies, as one of the applications of distributed ledger, have shown well that this technology will have countless applications because the more decentralized and transparent the systems, the more people will use them.
The main question is, to what extent do the world’s great and centralized powers allow such evolving technologies to expand and grow?
Summary:
A distributed ledger is a decentralized information processing and storage technology. In such a system, there is no central management and network nodes perform all activities related to data processing and storage. Transparency, security, elimination of intermediaries, and decentralized management are among the advantages of distributed ledger technology.
