Distributed ledger technology is revolutionizing the way data is recorded, shared, and verified in the digital world. Known primarily as the foundation of cryptocurrencies like Bitcoin, this technology offers a decentralized, transparent, and highly secure system that eliminates intermediaries and fosters trust across diverse sectors. Next, we’ll learn about distributed ledger technology.
What is distributed ledger technology (DLT)?
As we saw in our previous article, distributed ledger technology works as a kind of decentralized database, which is managed by several participants who are responsible for verifying and approving any changes to information through the database, without the need for a central authority.
A distributed ledger tends to increase user confidence, as it increases transparency in each transaction, minimizing or hindering any type of manipulation or fraud, making it a highly secure system.
Characteristics of distributed ledger technology (DLT)
Distributed ledger technology (DLT) has the following characteristics:
Decentralized system
Distributed ledger technology (DLT) is a decentralized digital system that operates through a network of nodes and is managed by multiple participants who are responsible for verifying and approving any changes to information across the network rather than relying on a central authority.
Consensus protocols
Distributed ledger technology (DLT) is characterized by having consensus protocols, through which all participants must validate transactions within the network through consensus protocols, such as proof of stake (PoS), proof of work (PoW), among others.
Immutable database
Distributed ledger technology (DLT) is characterized by an immutable database that can record transaction information, and once created, it cannot be altered or deleted.
Integrity and transparency
Distributed ledger technology (DLT) is characterized by ensuring integrity and transparency, allowing all network participants to observe transactions and associated information.
High level of traceability
Distributed ledger technology (DLT) is characterized by being a digital system with a high level of traceability, as it can accurately, transparently, and immutably record every transaction within the network. This facilitates data verification and approval, as it provides a history of all events.
Differences with blockchain technology
Due to its characteristics, distributed ledger technology is often confused with blockchain technology. Therefore, we mention their main differences below:
Category level
DLT technology has a “higher” category than Blockchain, since according to its category, we can say that all blockchain networks are DLT technologies, but on the contrary, not all DLTs are blockchain technology.
Applicability
Depending on the industry or sector, one technology may be more applicable than another. For example, a DLT can be adopted or implemented in the banking sector, allowing for simpler operations and lower fees. However, using a DLT does not necessarily require adopting blockchain technology as the primary system. There are other DLT systems that can be used for this purpose, such as Tangle, Hashgraph, DAG, Holochain, Radix, among others.
Place where the information is stored
Distributed ledger technology is a type of database distributed across different participants, sites, and regions. Blockchain’s operation, on the other hand, depends on the constant generation of blocks in which information is stored (these blocks are linked to others, generating a linked and immutable record of information).
Consensus
Blockchain uses specific consensus algorithms such as Proof of Work (PoW), Proof of Stake (PoS), or Proof of Authority (PoA) to validate and aggregate transactions. Distributed ledger technologies, on the other hand, use a variety of consensus algorithms depending on their requirements, allowing for greater flexibility in choosing the right algorithm for each specific case.
Main applications of DLT
Because distributed ledger technology (DLT) provides security, transparency, and decentralization to businesses, it currently has a wide range of applications that enable data and transaction management across a variety of industries.
Among the main applications, the following stand out: security and efficiency in transactions and operations of financial services, smart contracts, management of supply chain, Internet of Things (IoT), energy sector, voting systems, data management, and healthcare providers, among others.
What do you think about this topic? Do you want to learn more about distributed ledger technology (DLT)?
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