Distribution of ledger among all nodes in the network makes the system fault-tolerant
Traditionally, ledgers, which record our transactions and help keep our transactional society operational in an orderly manner, are centralized by nature. There are appointed record keepers to upkeep different types of transaction records that map the various activities of the population in general.
Decentralized Ledger Technology: Empowering Users and Breaking Free from Central Authority
We consider these centralized ledgers as the single sources of truth. These are used to settle disputes arising between participating individuals or institutions.
The record-keepers or the institutions which maintain these reference ledgers or records on our behalf are commonly known as the ‘Trusted Third Party’ — whom, both parties to a transaction place their trust upon. And since this trusted third party provides this invaluable service, a transaction fee is levied on the transacting parties.
These ledgers are maintained by these institutions and it is expected that the information privacy of the transacting parties would be maintained. So, in the present system — the trust comes from the involvement of this trusted third party.
In 2009, with its advent, the bitcoin protocol proved that trust can also be achieved through cryptographic proof of transaction allowing disintermediation in the process of keeping records. The ledger thus created could achieve security by using encrypted immutability and distributed storage.
Encrypted immutability renders the data which are recorded immutable (non-changeable) and distributed storage essentially means that the ledger is a public one and every node or participant has an up-to-date copy of the same ledger. Thus, the ledger that would be created would be non-changeable, therefore tamper free and would be public for all to view.
This distribution of the ledger among all nodes in the network makes the system fault-tolerant. It also necessitates a consensus to be achieved among the network participants to append the ledger simultaneously. This also ensures larger participation — which translates to robustness in terms of security of the network.
So, we see there are two components to any DLT
The first tech structure that we experienced in the DLT digisphere was blockchain — the bitcoin protocol to be precise. Although improvements have been brought about the bitcoin blockchain protocol — blockchain remains with the core principle of recording data in blocks and thereafter creating a chain of hashes (to make understanding easy hashes are passwords) linking the blocks one after another in a chain.
However, there have been significant improvements in the tech side research of DLT. So, today, along with blockchain we also find advanced technology protocols like Hashgraph, Directed Acrylic Graph or DAG, Holochain and Tempo to name a few. The major differences in these technologies are their data structure. While Hashgraph stores all transactions in a parallel structure, DAG uses a topological structure to record transactions in a directed manner.
Holochain moves away from a data-centric structure to a participant-centric structure where every node (participant) has its ledger and they maintain it in real-time. The network demands cryptographic proof of the previous two transactions from every agent to record a new transaction. In Tempo, the transactions are recorded as events and these are ordered sequentially rather than through timestamps — allowing nodes to easily follow the sequence while validating further transactions. Tangle is an improvement of the DAG and is suitable for the heavy traffic of transactions.
As industry 4.0 takes shape in our society with cyber systems evolving continuously, the tech and the consensus algorithms used to achieve decentralized consensus protocols are also evolving. We are witnessing a transformation in the way we do things as our limitations of centralization are shedding apart and providing us with increased efficiency, reduced cost, better control over user privacy and wider inclusion of the society.
DLT plays a very important role to support this change in a systematic manner and as the ledgers have been the backbone of our development, DLTs will prove to be the backbone of our digital evolution.
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