No need to feel alone if you count yourself among those who find themselves a little lost when talk about Distributed Ledger Technology (DLT), Blockchain, and Crypto enters the conversation. It may even be that you’re reading about DLT for the first time here.
DLT is driving huge innovation in the future of how information is stored and shared. It’s likely that there will be a large shift towards this technology in the near future. Here’s a good look at what these things are and how they will impact business.
Distributed Ledger Technology
The concept of DLT simply put is a database of information spread throughout its network of users and the consensus of this information is updated immediately. This takes the idea of removing a trusted third party (such as a bank or government).
William Mougayar illustrates the idea of this technology really well by comparing Word to Google Docs, “The traditional way of sharing documents with collaboration is to send a Microsoft Word document to another recipient, and ask them to make revisions to it. The problem with that scenario is that you need to wait until receiving a return copy before you can see or make other changes, because you are locked out of editing it until the other person is done with it. That’s how databases work today. Two owners can’t be messing with the same record at once. That’s how banks maintain money balances and transfers; they briefly lock access (or decrease the balance) while they make a transfer, then update the other side, then re-open access (or update again).”
Now with Google Docs there is only one document that can be seen by both parties at the same time. Blockchain technology operates in a similar fashion to the Google Doc. There is one single ledger that is public to all the users. Remember, candor is key here. Every single transaction is viewable, everything can be accounted for and traced back to where it came from. The only difference between DLT and Google Doc is once a transaction has been recorded and timestamped, it cannot be edited or altered in any way. It just became more permanent than your favorite sharpie.
The applications of this technology bring with it a new level of trust among parties involved. Documents of ownership and contracts are being stored using DLT. The deed to a property can’t be sold twice, because the only copy exists in the distributed ledger. Worries of losing your passport would no longer exist because it could be found in the ledger.
Leeman Baird, Cofounder of Hashgraph a consensus algorithm (a mathematical approach to validating transactions in a DLT). With his consensus method, all entries and transactions are verified by nodes (computers) in the network. He discusses in this video the required elements of a good DLT. Those being the ledger must be fast, secure, and fair.
● Fast — in the sense that system can handle thousands of transactions and verify them quickly.
● Secure — You know when you’ve agreed, It would require 1/3rd of the whole network comprise an entry in the ledger.
● Fair — Anyone has access, everything is in the order it occurred, and there is a timestamp dating its entry.
Is one type of DLT and most well-known for being the technology used for cryptocurrencies (we’ll get into those a little later) like Bitcoin (BTC), Ethereum, and Litecoin. Blockchain is series of blocks “chained” together containing transactional history.
These transactions are validated and verified by other users in the network through proof-of-work. This process is referred to as cryptocurrency mining. “Mining” or auditing these transaction results in the miners being paid in BTC, giving them incentive to perform the task.
This entire process keeps users honest and prevents them from trying to “double-spend” their cryptocurrencies.
It’s is ultra-secure, but don’t think it doesn’t come without its deficiencies. With every transaction verified by the users, it has implemented a serious bottleneck upon itself in regards to the number of transactions it can handle.
Scalability is a large issue for blockchain. Piers Ridyard of Radix (a DLT that doesn’t use blockchain) addresses the outcomes of this problem. Limited to about 700 transactions per second, there is little bandwidth for large amounts of commercial use on top of regular transactions from peer-to-peer.
Piers has a lot more to say about DLT’s and the value they offer here.
Simply put, cryptocurrency is a digital currency. What makes cryptocurrency special is its control is decentralized, meaning no one entity or government controls this currency. This has made it global and completely anonymous to its users.
There are many other cryptocurrencies referred to as Altcoins which have tried to improve upon BTC and are springing up right and left. For now, we’ll keep our focus on BTC.
What good does it do me, you ask? BTC is being accepted by more and companies as an acceptable form of payment. As a business owner, you can take orders from people across the world who formerly weren’t accessible due to lack of means of payment.
Others are using cryptocurrency as means to invest their money, albeit a very volatile market. It is very much a high risk, high reward scenario.
Storing your crypto is quite easy as it is kept in a digital “wallet”. Lucky for you, losing that won’t be nearly as easy as losing your current wallet. Each wallet is tied to an address that can be given out to receive a payment. Most wallets are used online through an app or website. Those who really care about keeping an eye on their crypto can download it to hard drive and keep it offline.
What is it all anyway?
Well, it’s the future. Distributed ledger technology is changing how business is done. Don’t be surprised on your next trip halfway around the world if you’re able to purchase souvenirs using a cryptocurrency. The house you buy with all the legal documents associated will likely be held in smart contract on a distributed ledger in the not-so-far future. Keep an eye out, DLT will disrupt business as we know it now.