Introduction of DLT
DLT- Distributed Ledger Technology, provides a universal data structure by combining a group of untrusted nodes in a distributed environment. It provides an immutable ledger that cannot be changed or altered and eliminates the need for a centralized, trusted third party. So, a centralized server is not required to manage operations and ensures trust between communicating parties; instead, a distributed ledger is responsible for maintaining the trust by tracking the ownership of different nodes in the network. DLT has a considerable potential to change how governments, organizations, and institutions work. It can bring countless benefits to government activities such as tax collection, benefits associated with social security, passport issuance, licenses, and voting. It can also provide several advantages to other applications such as music, finance, cybersecurity, public services, healthcare, etc.
2. Components of DLT
Several governments started to adopt DLTs to provide various types of public services. This technology allows nodes to update their records in a shared database without the need for a central authority to validate the operation or even enforce their standards. Also, this technology eliminates the issue of a single point of failure through the decentralization feature, which provides a significant increase in security regarding storing transactions and ensuring their integrity.
There are four components to implement a DLT, these components, as summarized below:
• Shared ledger: It is a shared database for storing all transactions that belong to nodes participating in the network. Since the accounting can be deployed at different locations, it has to be updated and synchronized with other copies of the ledger on the web in a short time without noticeable latency.
• Cryptography: Transactions between two communicating nodes are recorded, maintained, and secured cryptographically. Every node participating in the network can securely create a transaction without the need for a central authority. Cryptography plays a vital part in the DLT through authenticating approved nodes, validating records, and facilitating consensus on the ledger update. In other words, there is a cryptographic digital signature for each participating node to authenticate himself before adding or changing a transaction.
• Consensus Mechanism: This is the process used by all participating nodes in the network to validate the contents of the ledger. Consensus generally includes two aspects: validation and agreement on ledger update. There are multiple consensus mechanisms. However, the most common arrangements are Proof of Stake (PoS) and Proof of Work (PoW). The critical difference between various consensus mechanisms is the way they delegate and reward the verification of a transaction.
• Nodes: They represent the participating users in the network. Nodes have different roles in the network, including system administrator, asset issuer, proposer, validator, and auditor. The system administrator role used to control access to the system and provides certain management services. While the asset issuer role is permission to issue new assets. The proposer role used to propose updates to the ledger, whereas the validator role confirms the validity of a proposed change in accounting. The lowest purpose is an auditor, which allows the user to only view the ledger without the ability to make changes or updates.
3. Why DLT is the trendiest technology
DLT allows the participating nodes to store transactions during a shared database, which will be accessed securely. These transactions are distributed between nodes within the network to access and use it without counting on a trusted central system. DLT, as new technology, can add enormous advantages to different applications over the centralized ledger and other forms of shared_ledgers.
Let’s see the potential benefits of the DLT below:
• Availability: Theoretically, DLT delivers a high level of availability because it can run continuously. The Shared and distributed nature of the system facilitates the recovery of data efficiently. It processes within the case of an attack, which may reduce the necessity for expensive recovery plans. However, the supply of the DLT remains untested, especially when large volumes are involved.
• Automation & Programmability: DTL supports automation in programming, so when a specific condition is verified, the programming actions are executed automatically. This feature relies on smart contracts that build digital contracts as a software code by implementing contract terms as programming conditions and operations. The consequences are automatically executed as soon as conditions were verified. Although smart contracts are often built on the centralized system, the actions cannot only performed if they approved by the central system, which may take an extended time.
• Immutability and verifiability: One of the primary points of interest of the DLT is the capacity to ensure the respectability of exchanges by making changeless and apparent records. During a traditional centralized architecture, a trusted third party must exist for ensuring information integrity. Whereas within the DLT, the info can’t be changed until the bulk of participating nodes within the network approve it.
• Decentralization: DTL may be a decentralized technology in nature. It’s a shared ledger giving all participating nodes the power to carry an original copy of the ledger without the necessity to be controlled or managed through one central authority. This mechanism allows all nodes to participate and transact equally. It also converted to a lower cost, better scalability, and faster time for creating and validating a transaction.
• Transparency: DLT offers a significant level of transparency by sharing transaction details between all participants nodes involved in all transactions. Also, there’s no need for a central authority which improves business friendliness and guarantees a trusted workflow.
• Efficiency: DLT reduces the efforts needed to try to reconciliation and handle disputes manually. The prevailing systems with separate ledgers can cause inconsistent master and transaction data leading to erroneous and data double-dealing. Also, identifying and correcting these data will consume a significant loss of your time. This technology not only slows down the method but also forms a source of contract uncertainty. While the DLT is predicted to bring tremendous efficiencies to the present process through distributed and immutability features.
• Security and Resilience: DLT delivers the proper level of security since it uses a critical public infrastructure. It protects against unethical activities. The participating nodes of the network hold their trust within the integrity and security measures of the consensus mechanism. Besides, the utilization of distributed and decentralized ledger eliminates the only point of failure, which affects system resilience.
• Cost Reduction: DTL supported a shared ledger that shares its contents with the participating nodes within the network during which each participating user holds a replica of the first ledger without the necessity for a central authority. It reduces costs related to distributing and maintaining the ledger. In other words, the utilization of a distributed ledger eliminates the upkeep costs of individual ledgers and minimizes the necessity for costly business continuity plans. Also, it reduces expenses spent to make sure data integrity because the DLT is an immutable system in nature. Consistent with Natarajan et al. , DLT could save about $15–20 billion per annum for the financial industry only.
Conclusion: Future of DLT
We can foresee that Distributed Ledger Technology (DLT) is the best approach; however, whether it will be Blockchain or Hashgraph or Tangle or some other DLT, no one but time can tell. They are mainly advancing and developing exceptionally quickly. As Distributed Ledger Technologies move with the IoT stage to the sound execution stage, we will see considerably quicker advancement. So it’s difficult to anticipate which DLT is digging in for the long haul since tomorrow is genuinely one more day!