In the same way that most people who use the internet seem to be more interested in what it does rather than how it does it, the technological genius behind Bitcoin and other cryptocurrencies often goes unexplored.
While understanding the way DLT works isn’t essential to one’s ability to use applications built on it— having a basic knowledge on how it works will help you understand why it’s considered to be revolutionary and why the hype surrounding Distributed Ledger Technology is well-founded.
What’s a ledger and why are we distributing it?
Ledgers are the foundations of accounting — a system by which people establish who owns what, who has what, and who owes what to whom. While the concept has remained the same, the medium used to record transactions has varied over time and through technological advances. From cowry shells to papyrus, books to computers — the goal has always been to keep records as efficiently and effectively as possible.
Humans have been maintaining ledgers for thousands of years, and while the medium and methods have changed over time, one element of ledger-keeping has not. From Mesopotamia to McGladrey, a third party has always had to register and oversee transactions and maintain accounts. This makes sense as it provides a basis for validation, and allows people conducting a trade of value to trust one another.
The growth of global trade and commerce has led to the creation of a vast network of ledger systems, which are vulnerable to downtime, misinterpretation and fraud, the repercussions of which can be catastrophic and far-reaching — just think back to the 2008 Financial Crisis.
Distributed Ledger Technology is the first form of ledger to eliminate the need for a third party. It makes it possible for a ledger to be distributed among all those using it, putting the responsibility to maintain and validate it in the hands of those using it. The result is a decentralized system of data registry where transactions are instant, transparent, reliable and incorruptible.
DLT is the first system to bypass the need to trust one another when conducting transactions of value — the implications of which will be profound and far-reaching.
Note: DLT do not have to be decentralized or public, they are malleable systems and can exist in many states, including centralized and private. This article focused more on the decentralized aspect as achieving digital decentralization is a huge breakthrough in itself.
This was the first blog in an on-going series of educational posts about Distributed Ledger Technology. It represents the tip of the iceberg.