Related Articles

What is a Distributed Ledger?

BitForex Editor
Sep 14, 2020

Blockchain, bitcoin, cryptocurrencies, and distributed ledges are some of the buzzwords we hear when blockchain technology is being referenced. While these terms relate to one another, there is a glaring difference between all of them but for the sake of this article, we would be focusing on distributed ledger technology.

Not too many people are familiar with what goes in the DLT (short for distributed ledger technology) but they use the term anyways. For some reason, it is not as popular as the other terms associated with blockchain technology but it is no doubt, highly relevant. For some others, blockchain and distributed ledgers are pretty much the same and if there be any difference, then it is subtle. All of these stem from the little attention that the system gets despite its importance in the industry.

What Exactly is a Distributed Ledger?

A quick search for the phrase “distributed ledger” would produce words like “consensual”, “synchronized” and “geography”. This definition may sound too bogus for someone who never even knew that distributed ledgers were a thing. However, the real concept is not as difficult as the definition goes.

Distributed ledgers are simply bodies of information that are shared amongst different participants in different locations. A typical database like the ones used in many transactions looks similar to a distributed ledger but one characteristic of the distributed ledger is that it is decentralized. The typical distributed database can be shared amongst different participants but there must be a central identity to tie everything up. All participants would be linked to the central entity and decisions cannot be made without the entity’s permission.

In a distributed ledger, there is no entity in charge of the information being shared. This way, the database can be accessed by participants without having to go through any process to apply for authentication or permission. All the participants involved can view the information being collected without anyone being privy to more information than the other.

This however does not mean that a distributed ledger is always open to the public. The DLT can be secured or open which means that one may have to require permission to access it in some cases. If it is secured, then it is usually upon agreement of all the participants. Therefore, each participant can have permission to authenticate transactions. Nonetheless, the ledger remains decentralized.

For a distributed ledger to be initiated, all the parties involved have to reach an agreement. This is where the “consensual” aspect of the definition comes in. When all parties agree upon the details in a transaction, they can proceed to compile the information in a decentralized database. After this is done, all entities are granted access to the ledger so that there is hardly any room for suspicion. This is why financial institutions and other multi-million businesses use this system of information storage and sharing.

When the ledger has been initiated and the data recorded, it is then assigned a specific signature similar to what goes in the Blockchain hashing. The data stored in the ledgers are time-stamped, signed, and made available for sharing. With this, all parties involved are confident in the transaction as no one would want to attempt anything fishy. If any participant decides to cause a ruckus, all details stored can be pulled up for verification. This stresses the importance of “consensual” in any ledger. When all the parties are on the same page, there would hardly be any need to retract details for clearance of doubts.

A ledger makes use of numerous nodes for distributing the data being updated to the ledger. So, when a ledger is set for distribution, all nodes are individually “contacted” to effect the sharing process.

The method of sharing this database is what is known as “peer-to-peer network” – with each participant being a “peer”. Each peer has a copy of the ledge which is synchronized across the database so no peers copy appears different from the others. When there is a new agreement, the status of the ledger is altered to suit the new agreement. This happens across the entire network so each participant gets to see the update.

What Differentiates a Distributed Ledger from the Blockchain?

We already said that many people wrongly interchange the terms “blockchain” and “distributed ledgers” and although we have simplified what goes on in a distributed ledger, it is necessary we clearly outline the differences between both concepts.

Blockchain is a type of shared database just like a distributed ledger. It is also a decentralized system similar to a distributed ledger. We also mentioned that distributed ledgers get assigned a cryptographic signature which is similar to the hashing technology in a Blockchain. So what is the difference?

Although Blockchains get all the buzz, they are only a type of distributed ledger. Yes, the distributed ledger is the “mother” of decentralized databases of which Blockchain is one of them. Besides being a group under the DLT, another contrasting characteristic between these two systems is that a Blockchain cannot be updated without agreement across all the nodes whereas a distributed ledger only needs one node to authenticate transactions.

It is for this reason that Blockchains are hardly ever altered because it is almost impossible to change the data on all nodes. Distributed ledgers do not function with the chain technology being used in Blockchains and this makes it easy for updates to be done.

About BitForex:

BitForex is an exchange service platform that can be classified as one of the Top 10 cryptocurrency exchange services. It is focused on providing millions of users with a digital currency trading and investment tool that is not only safe but also professional and convenient. BitForex has a high customer-oriented culture and state-of-the-art financial technology.

BitForex is programmed in a way that it can quickly adapt to the changes of the Crypto market while introducing new features like margin trading, enhanced trading charts,  derivatives, and a host of others. The headquarter of BitForex is located in Hong Kong, while there are branch offices in countries like the United States, South Korea, and Singapore.

More details:

BitForex / Social Trading / CAPP Town

Scan to download for iOS or Android