Distributed Ledgers & Blockchain
Technology in 3 minutes: In this weekly newsletter by IrvineTek latest technology concepts, trends and applications will be discussed. Following is the first blog of the series on Blockchain, Distributed Ledger Technology & related topics.
Background: Peer-to-Peer Technologies
The advent of internet introduced peer-to-peer (P2P) technologies that were mainly used for sharing music and other media files. Such networks opened doors to a new era of possibilities because any device that gets connected to a P2P network is able to contribute some functionality to that network. Compared to legacy networks, P2P offered reliability and scalability with lower cost and minimum administration.
However, transferring assets (anything of value) in a similar decentralized way is challenging. For a successful transfer of an asset, it must be ensured that it is only transferred by its true owner and that it cannot be transferred twice.?
In 2008,?an unknown person using pseudonym,?Satoshi Nakamoto?published a paper, "Bitcoin: A Peer-to-Peer Electronic Cash System" that proposed transferring assets in the form of?Bitcoin?using P2P technology. The technology proposed by Nakamoto was termed as?Blockchain.
Soon multiple other methodologies of organizing & sharing information and asset transfers were developed. This led to the term?Distributed Ledger Technology?(DLT), sometimes simply known as?Distributed Ledger.
Blockchain is therefore one of the technologies based on DLT. Other examples include: Hashgraph, Directed Acyclic Graph (DAG), Holochain, and Tempo etc.
Distributed Ledger Technology
DLT allows data to be recorded, shared & synchronized across a geographically distributed network.
Unlike centralized database, DLT has no central administrator. Instead of one entity, the ledger is controlled by several or all network participants.
In a distributed ledger system, no single entity can add, approve or change data entries. Instead a predefined consensus mechanism is used for validation.
A predefined validation method ensures that there is a agreement about the state of distributed ledger across all peers. This is achieved through?consensus algorithms?or?consensus mechanism. The process ensures that each node processes and verifies every item before generating a record in the immutable database. This means that once stored, the information cannot be deleted and all updates are permanently recorded.?
There is always only one version of the ledger at any given time. Each peer owns a full and up-to-date copy of the entire ledger.
No technology is immune from vulnerabilities. However, since all peers can view the ledger & activity, it practically eliminates the chance of fraudulent activities and therefore no central authority to control or monitor the ledger is required.
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Another key feature of DLTs is?Cryptography & Digital Signatures. All these concepts will be discussed in subsequent notes.
Types of Distributed Ledger Systems
Distributed ledger systems can be:
Members in permissioned distributed ledger systems are pre-selected by the owner of the ledger. Therefore, certain aspects of such system such as access & rules are controlled by the owner.
Permissionless distributed ledger does not require any approving authority i.e., participants can join or leave the network without being preapproved by anyone. They only need relevant software to gain system access. Blockchains used for?Bitcoin?&?Ethereum?are based on permissionless DLTs.
Applications of DLT
One of the fastest growing application areas of DLTs is?Fintech. DLTs have applications beyond cryptocurrencies in the financial sector. Similarly several other industries are carrying out research and development of DLTs to address their own specific needs.
Potential applications of DLTs include sectors such as:
Finance: Digital currencies, payments, issuance, foreign exchange, capital markets (issuance, trading & settlements of securities) etc.
Commerce: Invoicing, supply chain management, IoT, Intellectual property registration
Healthcare: Electronic Medical Records (EMR), vaccination drives, medicine distribution
Governance: Record keeping (birth, marriage, death certificates etc.), criminal records, voting systems, reducing tax and payment frauds
Agriculture: Crop finance, insurance, delivery (seeds, crops, fertilizers) programs
#DLT #DistributedLedgerTechnology #Blockchain #DistributedLedger