Distributed Ledger

What is a Distributed Ledger?

Distributed ledger technology (DLT) is the technological infrastructure that allows for distributed ledgers. A distributed ledger is a type of electronic database that is shared among computers spread out in different locations.

The Long Definition

Distributed ledger technology (DLT) is a database spread across multiple computers in a peer-to-peer (P2P) network. Each computer contains an exact copy of the data/information. This makes such a database decentralized. There is also a secure mechanism to update and validate the ledger across the network.

Today, blockchains are the most popular application of this technology.

Understanding Distributed Ledgers

Traditional databases are centralized. Here, data is stored in servers located in one room/building. Some companies try to “distribute” things by having servers in different locations.

But this doesn’t exactly create a distributed ledger. The servers are usually not linked to one another. Instead, they are connected to a central system and controlled from there.

Overall, such centralization creates a single point of failure. Hackers can cripple the system by attacking the central server. Also, the network will be affected if the building hosting the servers is damaged by water, fire, or an earthquake.

The best way to avoid such scenarios is to remove the central point of failure. And this is where distributed ledger technology comes in.

A distributed ledger stores the data in a P2P network. This network consists of nodes (servers, computers, clients, etc.) spread out across different locations. Each node stores an exact copy of the information/data. The nodes are cryptographically linked and regularly synchronized to update the data and ensure its integrity.

In this ledger, there is no central main point. Data storage is distributed and decentralized, meaning any damage done to one computer does not affect the network as a whole.

So, to take down a distributed ledger, a hacker will have to attack and hijack the majority of computers (at least 51%) in the network at the same time. Such an attack is known as a 51% attack.

How is DLT Different from Blockchain Technology

The term blockchain is often used synonymously with distributed ledger technology. But the two aren’t exactly the same. This is because blockchains are just one implementation of DLT.

In this case, a blockchain is a distributed ledger of cryptocurrency transactions. The best example of this is the Bitcoin blockchain. Launched in 2009, it was created as an immutable record of bitcoin (BTC) transactions.

Each public blockchain since then has served the same function for its native cryptocurrency. For instance, Ethereum records ether transactions, Binance Smart Chain (BSC) records Binance Coin (BNB) transactions, etc.

But even with this in mind, it’s not always accurate to describe a blockchain solely as DLT. Thanks to smart contracts, modern blockchains have become more than ledgers of transactions. They are now platforms for building decentralized applications (dApps).

Take Ethereum, for example. With its Ethereum Virtual Machine (EVM), the blockchain can also be described as a distributed state machine. The EVM is a worldwide virtual computer that’s maintained by full nodes on the Ethereum network. It provides smart contracts and decentralized applications to run.