Distributed Ledger Technology (DLT): Definition and How It Works
Distributed ledger technology (DLT) refers to the technological infrastructure and protocols allowing simultaneous access, validation, and record updating across a networked database. This technology underpins blockchains and provides transparency by enabling users to view any changes, reduces the need for audits, ensures data reliability, and restricts access to those who require it.
Key Takeaways
Distributed ledgers are maintained by a network of nodes, each holding a copy of the ledger to validate information and attain consensus on its accuracy. Although distributed ledgers have existed for decades, they gained popularity and development momentum with the introduction of Bitcoin.
Applications Across Industries
Distributed ledgers can be utilized in nearly every industry for data collection and usage. Notably, all blockchains are distributed ledgers, but not all distributed ledgers are blockchains. While DLT offers enhanced accountability, security, and accessibility, it remains complex and challenging to scale.
History of Distributed Ledgers
The concept of distributed computing has been present in businesses and governments for several decades. Enhanced connectivity through intranet and internet protocols has enabled more extensive data collection and analysis. Automation and data encryption have addressed the need for verifying changes, paving the way for consensus mechanisms that automate majority agreement on data validity.
Evolution and Scalability
Distributed ledgers evolved into programmable platforms like Ethereum and HyperLedger, enabling diverse solutions from asset tokenization to streamlining manufacturing processes.
How DLT Works
DLTs leverage cryptography to store information securely and accurately. Data becomes immutable once stored, governed by network rules embedded in the database code. Blockchains’ decentralized and cryptographic nature renders these ledgers less susceptible to cybercrime since multiple attacks across the network’s nodes are required for a breach.
Node-Based Data Handling
Every device or node on a DLT network houses a ledger copy. Changes to the ledger are recorded globally, and consensus on the latest transactions ensures the blockchain’s immutability, where each block contains encrypted data pertaining to the previous block.
Industries Implementing DLT
DLTs are tailored for various purposes, with Hyperledger Fabric being one popular modular and scalable platform. Industries such as aviation, education, healthcare, insurance, manufacturing, transportation, and utilities have adopted DLT solutions. Supply chains in particular stand to gain from DLTs by mitigating inefficiencies, inaccuracies, and corruption.
Source: Distributed Ledger Technology (DLT): Definition and How It Works.
