The term “distributed ledger” seems hopelessly complex and technical for many people, something that no mere mortal (or technologically challenged person) could understand. But once you come to grips with the principles involved, it’s actually surprisingly straightforward.
Distributed ledger technology is essentially the driving force that makes smart contracts and cryptocurrencies, like bitcoin, possible. It’s a way of updating records in an immutable manner without the need for an official gatekeeper, like the government or a bank, presiding over every transaction.
For instance, imagine if there were no banks today and you wanted to transfer money from your holdings to somebody else’s. Without distributed ledger technology, you wouldn’t be able to do it because you wouldn’t have a trusted third-party debiting your account and crediting the other person’s, ensuring that the numbers balanced out.
But with distributed ledger technology, you don’t need a bank or third party to verify the transaction. The rules of the network itself verify that all the money is accounted for. And that means that you can carry out complex and high-value transactions peer-to-peer.
At its root, distributed ledger technology is a system that allows decentralized digital databases to function securely. Because of how the system is set up, there is no need for any central authority to act as a check against manipulation.
Distributed ledger technology allows networks, like the bitcoin market, to accurately and securely store information on who owns what using cryptography. Users access their digital assets (for example, their coins) by typing in a key that identifies them.
Once a distributed ledger stores information (called blocks), nobody can change it. That’s because, at the formation of each new tranche of information, all computers in the network must agree on its contents. To change the content of the information in a block, more than 50 percent of the network’s computers must agree to do it. And organizing that in a decentralized system is impossible since users’ of the network are incentivized to maintain its integrity. Thus, ultimately, the network rules govern the contents of the database, not any individual or gatekeeper charged with overseeing it.
Distributed ledgers are not new technology. Organizations have been using them to maintain data in remote locations for many years. However, under the old paradigm, each local hub connected to a central system that updated them, creating problems. For instance, having a degree of centralization made these old distributed ledger technology networks vulnerable to hackers. It also slowed the speed of updates since the central server had to issue remote commands to each distant node individually.
Modern decentralized ledgers, though, appear almost immune to cybercrime. That’s because hackers need to attack all copies of information across the network simultaneously to be successful. Furthermore, sharing information is faster because it can happen peer-to-peer, not through a central server. So updating records is more efficient than under more centralized paradigms.
Distributed ledger technology has the power to reshape the way society functions fundamentally. It will impact any situation in which a person or entity needs to create a permanent record.
For instance, the government might start using distributed ledger technology for tax collection, ensuring that people pay the correct amount owed on their income or capital gains. It may also decide to use it for the issuance of passports. This way, it can create a permanent record of who has a passport and who doesn’t.
Governments may also use distributed ledger technology to distribute welfare payments. For instance, having an immutable record of social security payments will make it easy to see who has received what across the network.
There are benefits for property owners, as well. For instance, somebody could set up a land registry that uses distributed ledger technology to define ownership. These records could never be changed without the consent of the landowners, potentially eliminating record mix-ups and other legal issues.
In the private sector, distributed ledger technology is already having a significant impact on how companies do business. For instance:
Distributed ledger technology is not in its infancy anymore. However, the industry is still getting up to speed with how to apply it. It is clear that the potential is there. But industries still need to establish networks for it to flourish.
In today’s world, the value of data is increasing over time. Unfortunately, it is also becoming more and more concentrated in the hands of a few large governments and corporations, many of whom collect it without individuals’ consent. When organizations monopolize data, they gain tremendous power over everyone else in society.
Distributed ledger technology, however, has the potential to eliminate the disparity of power over control of data. It has the potential to make the collection, storing, and transfer of information transparent, allowing anyone to access and see changes being made. Essentially, it makes it possible to get rid of data tampering and manipulation, reducing the power of gatekeepers.
Ultimately, therefore, distributed ledger technology is something that is worth learning about and investigating. At Unblocktalent, we offer a range of courses designed to help learn more about this critical topic for both now and the future.