What is distributed ledger technology and how it works?

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What is distributed ledger technology?

A distributed ledger technology is database which is consensually shared and synchronized across multiple sites, organizations, or geographies, accessible by multiple people. It makes transactions to have public “witnesses”. The participant at each node of the network gain access the recordings shared across that network and can have an identical copy of it. If anything is changed or added to the network they will be reflected and copied to all participants in a few seconds or minutes.
A distributed ledger stands in contrast to a centralized ledger, which is a kind of ledger which most companies use. A centralized ledger is more prone to attacks and fraud, as it has a single point of failure.
Distributed ledgers is the technology that is used by blockchain, which is the technology that is used by bitcoin.

Understanding distributed ledgers

Since ancient times, ledgers have always been really important, in order to record contracts, payments, buy-sell deals, or move assets or property. Over the last twenty years, computers have provided the process of record-keeping and ledger maintenance with perfect convenience and speed. Today, the information stored on computers is moving towards much higher types, which is cryptographically secured, fast, and decentralized. Companies can use this technology in many forms, one way being through distributed ledgers.
A distributed ledger is a ledger of any transactions or contracts maintained in decentralized form across different locations and people, eliminating the central authority to keep a check against manipulation.
All the information on the ledger is securely and accurately recorded using cryptography and can be accessed by keys and cryptographic signatures. Once the information is recorded, it becomes an immutable database, which the rules of the network govern.

Advantages of distributed ledgers

While centralized ledgers are prone to attack, distributed ones are inherently harder to attack as all of the distributed copies need to be attacked at one time. Moreover, these records are resistant to malicious changes by a single party. By being hard to manipulate and attack, distributed ledgers allow for extensive transparency.
Distributed ledgers also reduce operational inefficiencies, speed up the amount of time a transaction takes to complete, are automated, and thus function 24/7, all of which reduce costs for the entities that use them.
Distributed ledgers also makes flow of information easily, which makes an audit trail easy to follow for accountants when they conduct reviews of financial statements. This helps remove the possibility of fraud happening on the financial books of a company. The reduction in the use of paper is a benefit to the environment.

Use of distributed ledgers

This technology can revolutionize the way governments, institutions, and corporations work. It can help governments in tax collection, issuance of passports, recording land registries, licenses, and the outlay of Social Security benefits and voting procedures.
The technology can be used in several industries, including:

  • Finance
  • Music and entertainment
  • Diamond and precious assets
  • Artwork
  • Supply chains of various commodities

While the distributed ledger technology has multiple benefits, it’s in a primary stage and is still being explored in how to adopt it in the best possible way. But it is clear that the future format of centuries-old ledgers is to be decentralized.

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