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  • Julie McKenna

From Paper to Blockchain: The Advancement of Distributed Ledger Technology

Almost every time you Google "what is blockchain," you'll come across a definition calling it a distributed ledger. This definition assumes that "distributed ledger" is an intuitive concept, but for most people, it's just more jargon. In today’s post, we’re going to dive deep into Distributed Ledger Technology (DLT) to help you better understand what blockchain really is.


What is a Ledger?

A ledger is a record-keeping system for tracking financial transactions. Traditionally, ledgers were physical books where transactions were manually recorded, including details like dates, descriptions, and amounts. With technology, ledgers have evolved into digital formats, enabling automated and efficient management of financial data (Modern Treasury).


What is a Distributed Ledger?

In Distributed Ledger Technology (DLT), the concept of a ledger is further advanced. Decentralization is a core principle of DLT. Instead of a single central authority managing the ledger, it is maintained by multiple nodes (computers or servers) spread across different locations. Each node has an identical copy of the ledger, and once a transaction is recorded on a distributed ledger, it cannot be altered or deleted.


Is DLT the same as blockchain?

Distributed Ledgers are not a new concept. In fact, DLT was around long before blockchain. However, blockchain introduced several key innovations that set it apart from earlier forms of DLT. 


Traditional distributed ledgers record transactions in a decentralized manner, but they do not necessarily link transactions in a sequential, immutable chain. In blockchain, each block contains a list of transactions and a reference to the previous block, creating an unbroken chain of data. This chain structure means that to alter any single block, a malicious actor would need to alter every subsequent block, making fraud extremely difficult. This organization of data into linked blocks provides a higher level of security and integrity that traditional distributed ledgers lack.


When Satoshi Nakamoto created Bitcoin, he made a significant advancement in consensus protocols. A consensus protocol is a set of rules written in code that dictates how nodes in a network agree on which transactions are valid and keep the ledger consistent. Satoshi advanced these protocols to operate in a trusted, decentralized manner. By introducing an incentive mechanism into the protocol (BTC), he innovated the Proof of Work (PoW) consensus mechanism.


This integration of an incentive mechanism into the consensus protocol was groundbreaking. By rewarding nodes for their efforts, Satoshi ensured that participants had a financial stake in maintaining the security and integrity of the blockchain. This decentralized approach allowed Bitcoin to operate without the need for a central authority, making it a true peer-to-peer digital network. Satoshi's innovation in consensus has birthed new security for decentralized ledgers.


Conclusion: 

This is just another story highlighting the advancement of technology over time. We started with old school, paper ledgers. From there, we advanced to distributed ledger technology, and of course, the newest iteration of this technology is the blockchain. As you can imagine, there are a lot of use cases for DLT, which we highlight a new one each week on our LinkedIn. Be sure to follow us there if you’re interested in learning how blockchain technology is being used to transform various industries.




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