Blockchain technology is well-known as the underlying technology behind cryptocurrencies like Bitcoin and Ethereum. However, the technology behind blockchain is called distributed ledger technology (DLT). DLT is a decentralized digital system that uses a network of computers called nodes to propose, record, validate, synchronize, and share transaction details or data in a shared ledger distributed across multiple places. Unlike traditional databases, data in DLT is distributed across multiple nodes instead of being stored in a central database. Each node records and verifies every transaction, ensuring a secure, transparent, and tamper-proof record keeping system.
DLT has revolutionized various industries including banking, finance, supply chain management, and healthcare. It serves as the building block for innovative solutions like decentralized identity and blockchain platforms. The history of DLT dates back before the introduction of Bitcoin in 2009. Ledgers have been used for record keeping since ancient times, and advancements in cryptography and computing in the 1970s and beyond paved the way for the development of DLT. Concepts like public key cryptography, distributed peer-to-peer networks, and consensus mechanisms played a crucial role in the rise of DLT.
DLT works by utilizing a network of nodes that collectively maintain a synchronized digital database of transactions or data. Transactions are initiated by a node and verified by other nodes in the network. Consensus algorithms are used to reach an agreement on the validity of transactions, ensuring that all copies of the transaction on the ledger are identical. Once verified, the transaction is added to the ledger and distributed across all nodes, ensuring immutability and integrity.
There are three types of DLT based on access control: permissioned DLT, permissionless DLT, and hybrid DLT. Permissioned DLT requires participants to be approved before joining the network, offering improved privacy and faster validation of transactions. Permissionless DLT allows anyone to join the network without approval, providing open participation and transparency. Hybrid DLT combines the privacy benefits of a permissioned system with the transparency of a permissionless system, offering flexibility in data sharing.
Overall, DLT is a groundbreaking technology that has transformed the way transactions are conducted and recorded. Its decentralized nature and secure record-keeping capabilities have made it a crucial component in various industries, paving the way for future innovations.