What Is A Distributed Ledger And Why It Matters In Business?

A distributed ledger is a ledger that contains a copy of the ledger of all the transactions that are to take place in a shared, virtual database. The main difference between traditional ledgers and DLT is the fact that a distributed ledger uses many participants in a distributed network to process the ledger.

Why Is A Distributed Ledger So Important In Business?

The replicated ledger eliminates the need for a central authority to keep track of the transactions, thus making the creation of digital currencies more accessible. How is DLT used in the crypto economy? Distributed ledger technology is used in cryptocurrencies such as bitcoin. DLT is used to maintain a database of all the transactions that are going on in a market and allow them to be seen simultaneously by all participants.

DLT and its uses

DLT has some major advantages over traditional financial systems.

These include:

  • Safety of transactions Transparency of all transactions
  • Speed and certainty of all transactions
  • Cost of transactions
  • Availability of fast payments

Distributed ledgers gained attention and increased in popularity as they found their application as the core underlying technology of Bitcoin.

The development of the first decentralised application (DApp) by the Ethereum Blockchain is what helped popularise the technology and made it popular within the wider fintech sector.

Ethereum is a cryptocurrency currently ranking at number two in market capitalization after Bitcoin, which is at the top. However, in terms of being used actively, Ethereum is ahead of Bitcoin. While Bitcoin is sent, received, and held only in a singular form, Ethereum allows entities to create different ledgers. These can even be used to create additional cryptocurrencies. The use and transactions using Ethereum have grown consistently over the years ever since it began operations half a decade ago.
Decentralized finance (DeFi) refers to an ecosystem of financial products that do not rely on traditional financial intermediaries such as banks and exchanges. Central to the success of decentralized finance is smart contracts, which are deployed on Ethereum (contracts that two parties can deploy without an intermediary). DeFi also gave rise to dApps (decentralized apps), giving developers the ability to build applications on top of the Ethereum blockchain.
Smart contracts are protocols designed to facilitate, verify, or enforce digital contracts without the need for a credible third party. These contracts work on an “if/when-then” principle and have some similarities to modern escrow services but without a third party involved in guaranteeing the transaction. Instead, it uses blockchain technology to verify the information and increase trust between the transaction participants.
Non-fungible tokens (NFTs) are cryptographic tokens that represent something unique. Non-fungible assets are those that are not mutually interchangeable. Non-fungible tokens contain identifying information that makes them unique. Unlike Bitcoin – which has a supply of 21 million identical coins – they cannot be exchanged like for like.

What commercial applications did distributed ledgers find so far?

Bitcoin was the first digitalized and decentralized cryptocurrency, released as open-source software in 2009. It uses an underlying technology called Blockchain, which works as digital, distributed ledger, that can be used as a mechanism for disintermediating trust in transactions.  

Distributed Ledger is the underlying technology for Bitcoin, one of the first distributed ledger systems with a wide commercial application.

The biggest benefit of DLT is the fact that the information recorded can be updated by multiple parties independently without any administration on their part.

The process is a peer to peer, allowing transactions to be sent to multiple participants and updating each transaction at the same time. The distributed ledger technology in itself has the ability to track money transfers, manage the transfer of assets, and monitor access to payment services.

As the adoption of DLT increases, it has the potential to transform the way transactions are recorded.

Read Next: Blockchain Economics, Bitcoin, Ethereum, DeFI, NFT.

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