Depending on its accessibility, distributed ledgers are divided into two main categories; the Public ledger and the Permissioned ledger. These are also the types of blockchains. Although, the fundamental principle of working is the same for both the ledgers. They only differ on the basis of who can access its contents. The public ledger is available for all whereas a permissioned ledger is open for a selected few.
1. Public ledger
A public ledger is openly accessible to all the nodes that wish to be a part of the distributed ledger network. There is no restriction whatsoever on the node to access, verify, or transact in the network. The Bitcoin network is a well-known example of a public ledger that is spread across the globe. Anyone who is a registered node in the network from any part of the globe can make bitcoin transactions and mine them.
2. Permissioned ledger
A permissioned ledger involves only those participants whom the creator allows. This means that the creator of the network has the authority to grant permission. Only those who get permission to be a part of the network can transact and verify transactions rightfully. Popular examples of these systems are Ripple and Corda. Where Corda is a network of more than 70 financial institutions. These institutions share their financial information only to those who have permission.
Advantages of Distributed ledger technology
Distributed ledger technology brings with it a lot of advantages as follows:
1. Accessible: Distributed ledgers are easily accessible to everyone who is a part of the network. The users do not need to request access to a central authority. They can access the ledger, which they also have a copy of any time they want.
2. Decentralization: A ledger is distributed efficiently on decentralized networks. Decentralization takes away control over your data from centralized authority and gives it to individual users. Every user has a legitimate copy of the record which they can use for transactions, verifications, or for auditing.
3. Transparent: DLT promotes transparency within a network. This means that as everyone is having access to the ledger, they can trust the network. No piece of information present in the ledger can be hidden from them. Also, if a user tries to lie about something, others can immediately check for it on the ledger. This develops trust and transparency in the network.
4. Tamper-proof: The way distributed ledger systems are designed, it makes it absolutely tamper-proof. Meaning, no one can make changes in what is already recorded on the ledger. If anyone tries to change the contents stored on the ledger, he can only do so on one node. All the other nodes in the network will have the original copy of the ledger. They can easily detect a security breach through disrupted hashes and cross-check the ledger contents with their own.
5. Fast: With a central authority or intermediate eliminated from the scenario, the transactions occur at a much faster rate. The point to point or peer to peer nature of such networks makes every process happening on it a lot faster. As two nodes are directly uploading data on the ledger or transacting with the other node, it is a quick process taking only a few minutes to complete.
6. Cost-efficient: One major drawback of having a centralized authority and an intermediary was that a portion of your money is cut as a payment for their service. This made the entire process of transacting costlier in transitional systems. Suppose you are shopping online and you choose to pay via a debit card. Your transaction is going to be facilitated via a payment gateway acting as a middle man.
This means that you are paying for the product as well as for its services. In a point-to-point distributed system, there is no need for a middle man and the cost of operations will naturally go down. Thus, reducing overhead costs.
7. Secure: The framework of distributed ledger technology is such that it secures the database or record from any potential attacks. This is because if at all there occurs a successful attack on one node, the ledger will be safe and intact on the others. Suppose the network is having 200 nodes in total. If an unauthorized user (hacker) hacks the ledger on one node, the other 199 will still be fine. Therefore, DLT makes sure that there is no single point of failure that disrupts the functioning of the entire network upon attack.
8. Synchronized: Another advantage of DLT is there is no delay or hindrance in the availability of information. No matter how many nodes that information is shared between, The same (latest) version of the ledger is going to be available as well as accessible to everyone who is a part of the network. This ensures easy flow information within the network.
9. Disintermediation: DLT promotes disintermediation i.e. there are no intermediaries needed to carry out a transaction. Nodes on a DLT based network can directly upload their data onto the shared database. They do need a third-party to do it for them. This makes the network fast and affordable.
Summary
This concludes our tutorial on “Distributed ledger technology” short as DLT. Here, we learned about the concept behind DLT, it’s types and advantages. In addition to this, we saw how Blockchain is rather a type of distributed ledger technology. We hope this information is useful and helped you understand blockchain and DLT better. It is important to understand here that Blockchain and Distributed ledger technology is not essentially the same thing. DLT is an underlying concept for Blockchain’s blueprint.
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