Distributed Ledger Technology

By: Manraj Singh, Sudhakar Kumar

Blockchain technology is frequently related with distributed databases. They did, however, exist as distributed ledger technology (DLT) prior to the first blockchain network’s inception.

Blockchain is a type of distributed ledger technology that is gaining popularity. In this article distributed ledger technology is discussed briefly as it is very crucial in understanding the distributed databases.

Distributed Ledger Technology: Defination

DLT (Distributed Ledger Technology) is a type of database in which records are kept and updated across several nodes on a network in a distributed manner. These nodes are scattered across multiple locations, organisations, or data centres on separate physical machines.[1]

One type of DLT is blockchain technology. DLT networks are all blockchains, but not all DLT systems are blockchains.

The following are the main properties of DLT :

1. The database ledger is stored across numerous sites/nodes in a distributed manner.
2. The entire ledger is duplicated in each network node.[1]
3. To update the records in the distributed ledger, a consensus technique is used.
4. Without a centralized database source, the network is peer-to-peer (P2P).

As there is a very thin line of difference between DLT and blockchain that is very crucial in understanding the working of DLT technology , next section is briefly going to explain about the various parameters on which they differ along with the working of differences.

Difference Between Distributed Ledger Technology and Blockchain

Blockchains are distributed ledger technology (DLT)-based networks that differ from ordinary DLT in several ways. The following are the fundamental distinctions between DLT and blockchains:

1. To verify and store transaction data, blockchains use cryptography-based security. While some DLT platforms use cryptography, this is not the case with all of them.                                                                                                                                                            
2. Blockchains contain transaction data in a cryptographically linked chain of records. This type of chain-based organisation is uncommon in normal DLT systems.[2]
3. For transactions to be genuine, blockchains, at least the widely used public versions, require network-wide consensus from all validating nodes. The consensus method on conventional DLT networks may be significantly more constrained or centrally regulated.
4. To permit transactions, validate records, pay transaction fees, reward transaction verifiers, and enable decentralised app (DApp) services, blockchains often require certain platform-wide tokens or coins. On conventional DLT systems, such tokenization is not employed.[2]

It might be claimed that blockchain technology is a more advanced and better version of distributed ledger technology (DLT). Satoshi Nakamoto, the architect of blockchain, used basic DLT principles and added essential elements like cryptography and an immutable chain of records to create the first blockchain network – Bitcoin (BTC).

Smart contracts were later introduced to newer blockchains such as Ethereum (ETH), Tron (TRX), and EOS (EOS). Standard DLT systems do not include such a functionality. Many concepts associated with blockchain technology are sometimes applied to DLT as a whole. DLT, on the other hand, is merely a distributed database ledger. Before the emergence of blockchains, concepts like block mining, cryptography, and immutability of records were rarely applied in DLT systems.

The importance properties of DLT which make it suitable as a technology to be utilized in the various industries are shown in image given below ( Figure 1 ).

Above properties are only possible due to some main factors which are crucial in understanding the way DLT works . Next section will discuss all the major components which make it possible.

Main Parts of DLT

A DLT system is made up of three basic components:

1. Records are kept on a distributed ledger. This is the primary database, and each user’s computer has an identical copy.

2. Nodes in a network. These are the DLT system’s users, who may be found at a variety of locations.

3. The database’s consensus process for updating records. The consensus method is not always based on the decentralised platform-wide consensus that is employed on blockchains like Bitcoin and Ethereum. It could be as straightforward as a predetermined process for transaction validation by a single central institution.[1][3]

Non-blockchain DLT systems are frequently used as alternatives to centralized databases. Although DLT systems lack many of the advanced features of blockchain, they do have advantages over systems that store data centrally.

Now after the above discussion the question arises why we want to use this technology in our process and application . As all the technologies have some merits and failures , DLT also has these characteristics which make them attractive to use and some used cases where it is appropriate to implement DLT.

Advantages and Disadvantages of Distributed Ledger Technology

DLT systems provide the following main advantages over centralised database systems :

1. They are far more resistant to failure. The entire system is vulnerable if data in a centrally stored database is lost or corrupted. If one or a few nodes in a DLT system lose data, copies are always kept on other nodes.[3]

2. Data manipulation is always possible with a centrally stored database, however DLT systems are significantly more difficult to corrupt. A bad actor would have to compromise each copy of the distributed ledger in order to update data in an illegal fashion, which is extremely difficult on large enough DLT systems.[2]

3. They have a better level of transparency. The distributed nature of records fosters better degrees of transparency and conformity to network standards even when a DLT system is administered by a single entity. This is due to the fact that network nodes who aren’t in charge of the consensus process nevertheless have access to the entire ledger of records.[3][4]

However, when compared to local database storage, DLT has a number of drawbacks. The most important are:

1. Transactions go at a slower pace. On well-configured and powerful databases, transactions on a centralized database are processed and entered into the ledger almost instantly. Transactions on DLT networks must be broadcast and updated on each copy/node. This comes at a cost in terms of performance and resulting in reduced operational speeds.[4]

2. Scalability is limited. Database systems that are centralised can be grown quickly and effectively. It’s far more difficult to scale up a complicated DLT network.

3. Programming and technological maintenance are more difficult. DLT systems are more challenging from a programming and technical standpoint because of their distributed nature.

4. In the corporate sector, it has a lower applicability. For privacy and control, most firms prefer to retain their data in a central location. This explains why distributed ledger technologies, such as blockchains, are less widely used in the corporate world than centralised database solutions.[4]

The figure 2 shows the key differences between centralized and distributed ledger as discussed above in the advantages and disadvantages.

As discussed, there are many more applications of DLT. There are other types of it which are highly useful in the technical world other than blockchains. It’s very helpful to know about these types which enables us to know about the different applications of DLT.

Other Types of Distributed Ledger Technology Besides Blockchain

While blockchain is the most well-known form of DLT, other DLT-based systems are also in use. Directed acyclic graphs (DAGs), Hashgraphs, and Holochains are the most frequent types.

1.  Directed Acyclic Graphs (DAGs)

Directed Acyclic Graphs (DAGs) are distributed ledger technology (DLT) networks in which data blocks are linked together in a flowchart pattern rather than in sequential blocks as in blockchain. The difference in data structure between DAG and blockchain networks is seen in the graphic below figure 3 .[3][4]

Each data block in a blockchain must be connected to a preceding block. To be confirmed and placed into the ledger in a DAG system, each transaction must reference and confirm two previous transactions. As the number of transactions grows, this double verification results in the formation of a complex transaction flowchart, as seen in the image above.[2]

2.  Hashgraphs

Hashgraph is a type of DLT system in which the priority of transactions is determined by a voting mechanism embedded into the system. Nodes communicate with one another about network events like transactions.

The network recognises the more “popular” events, i.e. those broadcast by more nodes, as the knowledge spreads across the nodes. In the transaction sequence, these popular events are given a higher priority.[4][5]

Hashgraph technology was developed to be a faster alternative to Proof of Work (PoW) blockchains. Many thousands of transactions per second are possible with hashgraph systems.

3.  Holochain

Holochain is a distributed ledger technology (DLT) network in which each node runs its own chain. This is in stark contrast to blockchain, which uses a single huge chain to run all network nodes. Holochain is the most decentralised of all DLT variants, thanks to its intricate web of independent chains.

A consensus process based on distributed hash table (DHT) technology validates transaction data that needs to be confirmed across all separate chains. Individual chains send transaction data to a distributed table in the DHT system, where each transaction is authenticated, verified, and broadcast to all individual network chains for updating.[5]

Conclusion

DLT is a network architecture concept that can be used instead of centralized databases. Blockchain technology, DAGs, hashgraphs, and holochain systems were all designed using DLT concepts.

DLT networks, in comparison to centralized database systems, offer superior protection against data loss or corruption, increased transparency, and a decreased risk of data manipulation. Many businesses, however, still value the control, secrecy, and transaction efficiency that a central database provides. Nonetheless, as blockchains and other DLT systems mature, DLT has the potential to address many of these issues.[2]

Private or permissioned blockchains already provide a realistic option in terms of privacy and control.

When it comes to transaction speed, some Proof of Stake (PoS) blockchains, as well as DAGs, Hashgraphs, and Holochain, can already handle thousands of transactions per second. DLT systems may become more popular in the commercial sphere as a result of their efficiency.

References

1. Rauchs, Michel, et al. “Distributed ledger technology systems: A conceptual framework.” Available at SSRN 3230013 (2018).

2. Maull, Roger, et al. “Distributed ledger technology: Applications and implications.” Strategic Change 26.5 (2017): 481-489.

3. Liu, Xing, Bahar Farahani, and Farshad Firouzi. “Distributed ledger technology.” Intelligent Internet of Things. Springer, Cham, 2020. 393-431.

4. Sunyaev, Ali. “Distributed ledger technology.” Internet Computing. Springer, Cham, 2020. 265-299.

5. Distributed Ledger Technology [A Complete Guide] | upGrad blog

6. R. Kuhn, D. Yaga and J. Voas, “Rethinking Distributed Ledger Technology,” in Computer, vol. 52, no. 2, pp. 68-72, Feb. 2019, doi: 10.1109/MC.2019.2898162.

Cite this article as:

Manraj Singh, Sudhakar Kumar (2022), Distributed Ledger Technology, Insights2Techinfo, pp.1

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