A distributed ledger or distributed ledger technology (DLT) is a database that is shared and synchronized across a number of different devices in different locations.
DLT networks effectively eliminate the need for a centralized authority to act as the network’s custodian.
In its place is a Peer-to-Peer (P2P) network as consensus algorithms to ensure replication across nodes is undertaken.
The most common kind of distributed ledger network is a blockchain network.
Blockchain networks are used to run most of the world’s largest cryptocurrencies, including Bitcoin and Ethereum.
Benefits of Distributed Ledger Technology
The primary advantage of DLT is the lack of central authority. Each time a ledger update happens, every node constructs a new transaction.
Subsequently, all nodes vote by consensus algorithm on which copy is correct.
Once a consensus has been determined, all the other nodes update themselves with the new, correct copy of the ledger.
This provides several inherent security advantages, achieved via cryptographic keys and signatures.
The information stored in a distributed ledger is immutable, or unchangeable.
This is because in order to make changes on the network, more than half of the devices that uphold the network would have to consent.
This is a very effective defense against hacking and tampering, but it can also lead to difficulties when it comes to things like agreeing on software updates.
As a result, unmet desires to update a blockchain network’s software has led to the creation of entirely new networks with new cryptocurrencies (i.e., Bitcoin Cash).
Many industries have since branched out with DLT, including banks and multiple fintechs. The area continues to draw much research, and scrutiny.
Many proponents of DLT see it as the future of finance, though this is far from a consensus perspective.