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Written by

Technical Head

Abhilash A

August 10, 2022 . 4 min read

What is Distributed Ledger Technology and its role in Blockchain?

Ever since Blockchain has come into existence, it has transformed the way information is recorded and stored. It has created a setup to record information that’s impossible to hack or manipulate.

Blockchain is a digital ledger of transactions with replications and distributions across multiple computer network systems. Every block in the chain consists of transactions and has a transparent system where every new transaction is notified to multiple participants in/of that ledger. This activity can also be termed Distributed Ledger Technology because this is a system where the decentralized database is managed by multiple participants. 

Distributed Ledger Technology can be termed as the infrastructure that grants simultaneous access, authentication, and updates records immutably across a network with many entities or locations. 

Simply put, DLT’s core idea is a “decentralized” network opposing the conventional “centralized” mechanism where the entities rely on third-party systems.

The concept of a distributed ledger is not completely new. Most enterprises have data in different locations but each location is a part of a connected central system that updates from time to time. This action makes the central database unguarded and open to cybercrime, liable to delays because the central body has to update each node. 

As DLT has advanced with time, it comes with the capability to remove time-consuming or error-prone processes required to restore different contributions to the ledger, making sure that everyone can get the latest version and that its accuracy can be trusted. 


Why DLT is important?

Distributed ledger technology can be a game changer as it has the capability to improve multiple aspects including record-keeping. It improvises the fundamentals of how organizations collect and share data that’s put into their ledgers. 

DLT has the ability to transform various sectors including governments, institutions, and corporations, and even help governments with tax collection, passport issuance, record land registries, licenses, or even voting procedures. DLT is already standing out in industries like finance, music & entertainment, diamond, and supply chains of commodities. 

Along with startups, big names like IBM and Microsoft too are exploring blockchain today. Some of the Distributed ledger protocols gaining popularity are Ethereum, R3 Corda, Hyperledger Fabric, and Quorum.

What are the challenges with conventional ledgers? 

  1. All additions and changes need to go through a centralized point of control.
  2. Significant labor and computing resources are required to maintain centralized control. 
  3. Centralized control means ledgers aren’t always complete or up to date.
  4. They are prone to mistakes and manipulation, as every location that contributes data to the ledger could become a source of fraud or errors.
  5. None of the other participants contributing data to the central ledger is able to efficiently verify the accuracy of data coming from the other contributors.

To counter these, a distributed approach to ledger technology was adopted to:

  1. Allows for real-time data sharing, which means the ledger is always up to date.
  2. Enables transparency, as each participating node can witness any changes.
  3. Is more secure by nature, as it eliminates the single point of failure and single target for hackers and manipulation
  4. Has the potential to speed up transactions as it removes the need to go through a central authority

In the same way, DLT can reduce the cost of transactions. However, running the decentralized verification process and distributing copies of that ledger can spoil the performance of DLTs in certain networking environments compared to centralized ledgers.

Banks and other financial institutions are the early innovators in DLTs. Since most of their early interest in distributed ledgers has revolved around its applications in financial transactions, it’s quite understood considering that bitcoin cryptocurrency got worldwide use while consistently proving that DLT can work. 

However, it’s important to note that DLT proponents say digital ledgers can be used in other industries apart from BFSI. Government agencies are experimenting with how to use these to record transactions for example real estate title transfers. Healthcare sectors are finding more innovative ways to update patient data, whereas some sectors are maintaining supply chain data. It is also interesting to see that legal professionals are experimenting with DLT to process legal documents. Additionally, it can help even track intellectual property rights and ownership for ex-art, films, music, and more.

Experts have seen that technology is enabling people to gain better control of their information by authorizing them to selectively share records and restrict access or put a timer on the information available to others.

Here’s how 

  • Better visibility and transparent data added to the ledger 
  • Reduced operational costs because of the elimination of central authority 
  • Faster transaction rate due to no lag in updates to ledgers 
  • Reduced risks of hacking or fraud 
  • Higher dependability and resilience since there is an absence of a central system that is susceptible to failure
  • Better security

How is Blockchain related to DLT?

In simple words, Blockchain is a kind of DLT but not every DLT uses blockchain technology.

There can be confusion or a misinterpretation knowing how quickly users hopped/shifted to bitcoin when it started and how interchangeable such technologies can be used in reality.

In any case, both are used in creating decentralized ledgers using cryptography. Both have immutable records, and time stamps and are almost unhackable. They can even be made public, open for use to anyone when it comes to bitcoin, or they can be private, limited to authorized users who agree to use it in a certain way.

Blockchain consists of blocks of data connected to each other/stacked together for creating a distributed ledger. To add to that, DLT also uses technologies for other design principles to make a distributed ledger. In order to qualify it to be a DLT, it’s not necessary to structure its data in blocks.

What does the future hold for Distributed Ledger technology? 

If distributed ledger technology like blockchain will be able to transform governments, institutions, and sectors or industries’ work is open for debate. Experts in these sectors advocate for DLT to be an important technology that holds the potential to drastically better the existing processes but could also construct new innovative applications.

On top of that, they see DLT as part of the value created by the internet, where transactions take place globally across networks. In fact, the digital ledger purely exists because the internet is so prevalent today. 

However, specialists predict that supporting DLT will come with a typical technology curve, with some of the leaders leading the way, and others adopting it quickly. They have also found out that enterprises face challenges in terms of implementation and expansions when it comes to DLT.  

To keep up with the challenges, Senior enterprise execs or visionaries have the need to establish networks of entities that can sync well with DLT to transform how they track or share records, and transform where DLT can allow/ give space for new processes or business models. 

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