Distributed ledgers have become the technology of choice for new applications since the rise of the blockchain industry. From healthcare to finance and even logistics management, companies are using distributed ledger technology for various applications. So what is distributed ledger technology? How is it different from blockchain technology?
What is Distributed Ledger Technology?
DLT, or distributed ledger technology, enables users to validate and update records. Users can also access them from anywhere in the world. This record is stored on a network spread across multiple locations and systems. Distributed ledgers are not stored in one place, unlike traditional databases. As a result, DLT has no single point of failure.
The need for a trusted central authority is eliminated by DLT. DLT creates a system not based on trust. Users of DLT can witness changes made by other users to the ledger transparently. Users control the distributed ledger, unlike traditional databases where control is given to a single entity.
How does DLT work?
DLT, with the support of cryptography, enables users to store data securely. This is achieved with asymmetric cryptography, where each user has two keys. The first key is a public key that acts as your identity. The other key is a private key that serves as a password.
Information can never be altered or removed once it is stored in a distributed ledger. This feature of DLT is known as immutability. New additions to this ledger are also transparent and permanent.
Observability is a vital element of this transparency. All users can make additions to the ledger in DLT. However, all other users can witness who is making changes to the distributed ledger. As there is no possibility of making changes anonymously, it eliminates the possibility of fraud and increases trust in the system.
Types of distributed ledger technology
Most DLTs use a similar basic system for their operation, but there can be differences in the application of the ledger based on user requirements.
Permissioned DLT
An authorizing party permits users to validate blocks in a permissioned DLT system. It can be possible to block access to certain parts of the system. For example, while some have read-only access, other higher-level users get permission to add new blocks to the ledger. Some users may not even be able to read the ledger.
Permissionless DLT
Any user can validate blocks in this system, unlike permissioned DLT. No central authority provides permission for using this system. As a result, users can operate and maintain systems freely. This type of ledger is publicly available and is created using open source code.
Hybrid DLT
Sometimes an organization wants a mix of the benefits provided by permissioned and permissionless systems for their operation. Hybrid DLT enables organizations to choose what data to keep private and what data is freely accessible to any user. This flexibility helps organizations in dividing their data into public and private sections.
Benefits of distributed ledger technology
The concept of distributed ledgers is not new. They have just been applied differently in companies over the years. Some businesses keep separate records for each branch, but these are only synced to a central database when necessary.
Modern applications of DLT help users overcome the need for frequent updates. All users can have access to the same ledger at all times, there is no central database. This system helps to ensure there is no delay in information reaching parties in faraway locations. Validation in this ledger is based on the system rather than human input, eliminating errors in the reconciliation process.
These advantages of DLT are helping its application in several industries. Finance is one of the primary areas of application. Blockchain can be called another type of distributed ledger technology. Blockchain allows real-time recording of transactions in a decentralized manner, making it one of the most prominent technologies in the financial sector in recent years. This feature of blockchain technology enables users to create systems like crypto payments that function without a central authority.
DLT is being applied to several other sectors apart from the finance sector. The healthcare sector is exploring the applications of distributed ledgers. DLT can help the healthcare industry to maintain complete patient records across different hospital chains and branches. Large companies like Walmart and IBM are exploring their applications in supply chain management. DLT can simplify warehousing and shipping since it provides real-time access to data.
Lastly, governments can also benefit by adopting distributed ledgers. DLT can help in creating immutable records of official and government documents. Administrative and legal duties can be fulfilled easily by keeping track of documents such as intellectual property and property deeds.
Final Thoughts
Distributed ledgers are sure to have a long-lasting impact in several industries because of the tremendous rise in their popularity. DLTs simplify the process of sharing the latest information publicly. These ledgers also enable approved users to add more data transparently and securely. Much development and research are ongoing in the field of distributed ledgers. New developments in distributed technology will lead to hassle-free applications and ease of business.
