Distributed Ledger – the Technology behind Blockchain

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Distributed Ledger Technology is the concept behind the famous Blockchain technology. Let us see some of the key features of Distributed ledger, (which are all present in Blockchain as well) and how it is different from Blockchain.

In the conventional ledger systems, there is a central authority that keeps a single copy of the all the transactional records in the form of a physical or digital ledger. The authority itself holds the responsibility of maintaining and modifying the data.

Distributed ledgers on the other hand, are not dependent on any central administration or any central storage. A Distributed ledger is a database consensually shared, replicated and synchronized across multiple nodes in a peer-to-peer network.

A distributed ledger has the following model :-

  1. A Distributed ledger is maintained by multiple nodes connected to form a peer-to-peer network.
  2. The transactional records and their details are replicated and stored on all the participating nodes. So, each participant has the identical copy of the ledger.
  3. In the absence of a central authority, the process of updating the distributed ledger relies on a process for achieving consensus among the nodes regarding all new information added to the ledger. A consensus protocol is used to ensure the validity of a transaction and synchronization of the data on all nodes.
  4. Once a transaction is verified using consensus, the information is timestamped and permanently recorded on the network. Once recorded the information cannot be modified. This helps in achieving the integrity of the ledger.
  5. Digital signatures are based on asymmetric key cryptography and are used in Distributed Ledger Technology to certify the authenticity of transactions, i.e. to show that a person is the true owner of an indicated digital identity. When a person creates and sends a transaction, the transaction must also bear that person’s digital signature.
  6. Smart Contracts are contracts whose terms are recorded in a computer language instead of legal language. Smart contracts can be automatically executed by a computing system, such as a suitable distributed ledger system.

Distributed Ledger Vs. Blockchain

Although the Distributed Ledger is the technology behind the Blockchain, the two are not same. Blockchain, as the name suggests, is a chain of blocks growing continuously as and when new transactions are made. The blocks are linked and secured using cryptography which is hash-based proof-of-work. Blockchain is a type of Distributed Ledger. The features of Blockchain namely decentralisation, replication, consesus protocol, smart contracts; all have been inherited from Distributed Ledger Technology.

A distributed ledger on the other hand, stores timestamped transactional records, but not in the form of a block. Also, no links are maintained and thus proof-of-work cryptography is also not used in the distributed ledger.


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