Distributed Ledger

A distributed ledger is a database that is exchanged in various geographical places between a network. Traditionally, the concept of a ledger has meant a set of financial accounts. This has now taken on a new form with the advent of a distributed ledger.

For thousands of years, ledgers have existed. These documents may have been written in clay at the beginning, and they have moved over time to paper, and then to the birth of distributed ledger technology in the digital domain (DLT).

In this case, distributed means globally distributed and managed by multiple parties. Therefore, a distributed ledger is a database held and updated in various locations by multiple persons. To ensure consistency, the database is synchronized between the networks.

A ledger was used in the past to refer to financial documents. The reach of these databases has expanded tremendously with distributed ledger technology. Now, only the database is referred to by a distributed ledger and offers little insight into the content. The number of use cases is sky high for these groundbreaking databases.

Benefits

The key advantages of a distributed ledger are that it is highly stable, open, permanent and tamper-proof, while without the need for third parties, entries in this database will occur.

These few items are highly important. A distributed ledger is eternal, if set up correctly. This implies that it can not be rectified by another party until a report has been written on that ledger. As long as the ledger remains distributed, therefore, the data is 100 percent tamper proof.

With DLT, activity without the input of a third party is not always required, but it can be a huge bonus in certain use cases. In the supply chain industry, for instance, sensors can write results directly to the blockchain without a third party requirement, which saves a lot of time, money and effort.

A distributed ledger is decentralized by its very existence. As there is no centralized agency to target malicious activity, this provides a layer of protection. The database is distributed around the world, so it can not be targeted.

Transparency is often seen as a DLT advantage. A distributed ledger will make it simple and free to access all the information that is stored, which will bring a tremendous amount of needed transparency to a variety of industries.

How it works

Individuals known as nodes keep, manage and maintain a distributed ledger database. By processing every transaction that happens on the network and making its own conclusion on the progression of the database, each node independently builds the database.

All the nodes then vote on the transaction-based changes to the database, and when the majority agree on the new transaction, they are accepted into the database. Then all the nodes update their version of the database so that they are all the same. On the blockchain, the transaction is written into a new block. The majority needs to be greater than 51% of the nodes, and there is no central authority that has the power to overrule the database input.

In the case of Proof-of-Work (PoW) blockchains, nodes are also known as "miners" When they successfully placed transactions into a new block, miners earn a reward.

Being a miner needs computer power that is dedicated. To calculate the cryptographic hash for the new block, miners must function. The good miner who wins the reward is the first miner who manages to find the right hash. The more you have committed computational resources to finding this hash, the more effective you will be as a miner.

It gets more complex as mining progresses. The complexity of finding the next hash scale after each active block is produced. The aim is to ensure that the pace of block generation remains constant.

The rivalry is fierce now that mining has risen in popularity. If they expect to turn a profit, new miners must invest more than $1,000 to build a rig dedicated to mining Bitcoin. Competition is lower, but still rising, for other smaller cryptocurrencies. The high cost of energy that comes from operating a powerful machine 24/7 must also be regarded by miners.

Use Case

The design of the distributed ledger means that it can be extended to many different fields and could be used to strengthen current processes in many instances.

In the financial sector, one of the best recognized use cases is. Without the need for a third-party mediator, blockchain and distributed ledger technology can be used to strengthen facets of finance, such as cross-border transfers and enabling transactions to occur. Another useful case that can use smart contracts to promote this is peer-to-peer lending.

For open and equal voting, a distributed ledger might be used. Votes can be logged and securely checked.

To prove ownership and validity of a commodity, DLT may also be used. A commodity can be tagged from output, and from there, the transaction can be logged on the ledger when it changes hands legally, allowing the rightful owner and the integrity of the product to be clear.

DLT can be utilised by the food industry. A chain will follow the food route from the farm to the shelf, allowing consumers, for example, to see the origin of the food and ensure that it is organic.

As a final example, to track goods, DLT can be used in the supply chain sector. They can be scanned as products exchange hands, which will write the transaction on the ledger. In order to track certain elements, such as temperature or humidity, sensors are often placed in place. The ledger will be able to demonstrate that during transport, the correct levels have been preserved, and this will demonstrate that the product is available.