We can also understand distributed ledger technology as a decentralized database that stores information regarding value exchange. This digital ledger is shared between a global network of computers. Each computer or node can own an identical copy of the ledger, hence, it is called a distributed ledger. Every node has the right to access the ledger whenever they want and verify the time and date of a transaction.
Thus, a digital ledger is used to record, track, monitor, and share information about the exchange of valuables and assets. Assets such as property, automobile, votes, health data, currency, cryptocurrency, etc can be recorded on a ledger with a timestamp.
Blockchain is a type of Distributed Ledger Technology that is specifically used to record and share financial transactions. Blockchain was first used as an underlying technology to facilitate Bitcoin transactions. It is a peer-to-peer distributed network. Whenever two nodes within the network wish to exchange tokens, the details of the transaction are sent to all the nodes for verification. The other nodes verify a transaction by the means of a digital signature procedure. The transaction details are also secured using the process of cryptography and hashing.
All the transactions are stacked in a block and this block is given a unique identity in the form of its hash value. Also, every block is linked to its previous block using the hash value of the previous block. In this way, these blocks of transactions form a long chain that is unbreakable. This gives this technology the name blockchain as it is an immutable, tamper-proof log of sensitive data and transaction activity.
Thus, a blockchain securely stores digital ledgers having files, money tokens, smart contracts, media, health records, or codes. Anyone having the right to access this ledger can have access to this content.
Now let’s focus on how Blockchain works along the lines of distributed ledger technology. So, the chain of blocks (Blockchain) is a ledger that we store on the network cloud. Every node that is a legitimate part of that network can access the ledger and possess an identical copy of it. Each node will see the same information stored on a block that the others see. This promotes transparency in the network.
In addition to this, each node is given the freedom to directly exchange tokens (cryptocurrency) with another node without an intermediate. Therefore, DLT makes blockchain quick, reliable, and transparent.
Significance of DLT in Blockchain
A ledger is a record of data that is chronologically stored in it. The concept of maintaining ledgers is not a recent one. Ancient cultures used stones to etch the records on, clay slates, papyrus, etc. Later, with the dawn of civilization came the invention of paper. Then the process of maintaining records or ledgers was done on papers. Thick stacks of ledger books were maintained. These ledgers can contain important information about the exchange of assets like money, goods, bonds, property, and other valuables.
Ledgers are believed to be the backbone of the economy and banking. However, in the humongous wave of digitization, the ledger system also got digital. It got introduced into the digital realm where everything is just a few fingertips away.
The distributed ledger technology is a modern interpretation of the idea of ledgers. Traditionally, such transaction records are owned by a central authority, for instance, banks. Whatever exchange of money we initiate, it occurs via the bank and sometimes even some intermediaries. This gives all the power and control of the transactions to the banks. They are the ones we need to reach out to every time we need to access, send, or receive money.
Currently, such centralized organizations like Google, Facebook suck up most of the data left behind by us and use it to influence our choices. This data is used to influence societies and manipulate their preferences by analyzing societal trends. Technologies like DLT and Blockchain disrupt such scams completely by providing a decentralized peer to peer network.
In such networks, you have complete ownership and control over your data. It is your choice to share your financial, personal, or healthcare information with the respective organizations. For instance, you can keep your entire medical record on the ledger and give permission to only selected doctors and hospitals to access it in need.
In this way, DLT states its significance in technologies like Blockchain where the users can claim ownership on their assets, have transparency, accessibility, security, feasibility, and much more.
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