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DLT is an abbreviation for Distributed Ledger Technology. Blockchain technology which works as the network on which several cryptocurrencies are based is a class of DLTs. Not every DLT is a blockchain, but every blockchain is a DLT. But how do we define DLT and why do we need them?

What is the meaning of DLT?

DLT is a form of distributed database. If you have been familiar with computer networks, behind every site or internet service there is a database that is saving data for later use. This data can include usernames, phone numbers, login history, your followers on Instagram and bank account data, and so on. Databases exist in a central computer we call a server.

When the Internet had widespread and users started reaching for databases from different geographical positions, computer scientists found out that saving data on a central computer is not optimal. For example, if you save all data in a Silicon Valley server and users have to reach this data to use their Instagram from Europe, Emirates, China, etc this would be a drawback for users because of low internet speeds and high latency. The solution was simple; clone the database to several servers around the world and synchronize the data of this server with a central server, which can be controlled by internet service owners. This was the history of distributed databases.

In a 2008 paper, an anonymous came out with the idea of a new type of distributed database, called blockchain now, and as you can guess the writer’s name was Satoshi Nakamoto. In Blockchain, there is not a central server or entity with which all servers have to synchronize. Instead, all servers will be synchronized in a peer-to-peer (p2p) manner with each other. Bitcoin Blockchain was the first Distributed Ledger Technology. It is named “Ledger” because the bitcoin blockchain stores financial transaction data like a ledger in accounting. But this ledger is distributed on different servers which are controlled by different entities. This architecture makes it extremely hard to be cyber attacked and eliminates control of central governments and banks control on financial and economical life of bitcoin users. Moreover, Blockchain is a type of DLT where transactions are recorded with an immutable cryptographic signature called a hash. The transactions are then grouped in blocks and each new block includes a hash of the previous one, chaining all blocks together.

For the data to be identical across all ledgers in a DLT, we need a peer-to-peer network and a consensus mechanism. This ensures that each replica saves an identical copy of the ledger and updates itself independently so DLT did not need a central authority.

What are the Types of DLTs?

In a rough classification, we can categorize DLTs based on access right permissions. Like files and folders in your computer which has different types of access rights based on the user who tries to access them, we can categorize DLTs based on user rights to read and write data.

Based on written data we can categorize DLTs into permissioned and permissionless DLTs. In permissionless DLTs, everyone can run a node and (at least try to) confirm transactions and write them into a ledger. In a permissioned DLT or blockchain, there is a list of pre-requisites, which every new node had to achieve before joining the network which includes the permission from older nodes to join.

Based on reading the data, DLTs can be categorized into private and public DLTs. In a public blockchain, everyone can reach and read all the data that was saved in Ledger. In a Private Blockchain, you need to be part of the network to read the data.

For example, the bitcoin blockchain and Ethereum blockchain are Permissionless Public Blockchains. Everyone could read the transactions and smart contracts data, while everyone can join the mining mechanism which is a part of the consensus mechanism that checks transactions availability and puts them in blocks, and confirms them. Currently, Both Ethereum and Bitcoin Blockchain use the Proof of Work (PoW) consensus mechanism but Ethereum will migrate to the Proof of Stakes (PoS) mechanism soon.

Besides Blockchain, another type of DLT exists. Tangles and Hashgraphs are 2 other DLT types that do not use blocks and so they are not blockchains. Instead, they chain transactions to each other by cryptographical means. For example, IOTA DLT uses Tangles in a public, permissionless way, and visioned use of DLTs in IoT (Internet of Things) gadgets. Hedera Hashgraph uses a gossip Protocol to distribute data and its idea is patented. So the only case where Hashgraphs are used is in HBAR DLT. Though, the owners of the patent may make it public in 2022 under Apache License.

For more information on DLTs, blockchain technology, and the world of cryptocurrencies, keep visiting Cryptodesk, the leading crypto exchange in Dubai.

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