Distributed Ledger Technology

Also referred to as DLT, distributed ledger technology is a type of database utilized for recording transactions across a network of devices, typically computers or servers.

Let’s dissect the term. “Distributed” pertains to the architectural design and geographical placement of the network nodes (or computers or servers). Geographically distributed networks are employed by numerous traditional companies today, which maintain offices throughout the country while remaining connected to the same network. Architecturally distributed networks grant control to each node, ensuring that if one node fails, the protocols operating on the network can be redirected to other nodes.

A node serves as a backup for the other nodes within the network.

In this context, “ledger” traditionally refers to a centralized database used for storing financial records, including a company’s financials, liabilities, revenues, owner’s equity, and other financial data. All nodes in this type of network would synchronize their data or make updates to a central repository.

Visualize the wheel of a bike – the nodes or spokes converge at the center of the wheel, at the hub. All data is accessed and stored at this hub.

Now, merge these two concepts, and you have a ledger that is distributed across multiple devices, rather than being confined to a single device in various locations, potentially worldwide. Even if one of those locations ceases to exist, or a computer or server fails, the ledger remains intact and secure, allowing the data within it to be processed, validated, and authenticated.

If a centralized node hosting a ledger were to go offline, the other nodes would be unaware of the data held by their peers or whether that data had been altered. Imagine this information includes financial transactions, such as buying and selling goods. How would a business ascertain if a payment was made? How would a customer verify their account balance? If the central authority responsible for managing that information is unreachable, the entire network becomes ineffective.

Centralized networks are also more vulnerable to cyberattacks, as hackers need only target a single copy of the data rather than attacking all copies stored across the network nodes.

A blockchain exemplifies distributed ledger technology. It integrates cryptography, secret keys, and digital signatures with a ledger operating across a distributed network, resulting in a network and ledger that are more reliable, secure, transparent, and traceable.