The web is filled with abbreviated phrases and acronyms. Everyone online loves a shortcut, and if they can prevent themselves from typing extra letters or words while surfing the web, then so be it.
DLT is no different, and if you are learning the tricks of the crypto trade, understanding its meaning is key to understanding cryptocurrency. Technically speaking, DLT stands for Distributed Ledger Technology.
To further understand distributed ledger technology further, it is crucial to first understand what a distributed ledger is. It is not likely shocking to know that the words break down to their usual meanings. A ledger is a method of transcribing transactions. It is a way to track financial comings and goings. Distributing also is as it sounds: to spread something about, to give out shares, or to dole out amongst many.
When it comes to cryptocurrency, it is the method in which things are kept secure. The ledger in these cases takes the form of a blockchain. All users of the blockchain are given access to the ledger, which means no single entity is neither in charge of nor overseeing the transactions individually.
Goals of a DLT
The security of crypto is designed around this distribution method. One of the primary goals of the entire crypto ecosystem is to not have to oversee banks nor any government agencies in charge of its system. Yet, the users of a blockchain realize there is also a need for transaction accuracy, transcription, tracking, and recording.
To do so securely, the system relies on distribution. Many users are able to access the blockchain. While the method of who is permitted to “mine” the blockchain varies, the goal is the same: to keep an accurate, safe, and distributed ledger of the financial transactions made on the system.
The ledger itself is made open to the public. Not everyone, however, can alter or “mine” on the blockchain. Identities remain anonymous on the ledger, and no central authority has the ability to delve into the system’s users.
Distributed Ledger Technology
In terms of cryptocurrency, distributed ledger technology is the technology, or software, behind these processes. It is more commonly called the blockchain when it comes to the online world of crypto. Traded currency such as Bitcoin operates on such a technology.
The term “blockchain” is another fun term that sounds very unique but is very precise in its word usage. A blockchain is … wait for it … a chain of blocks. Shocking news, isn’t it?
A block is a digital “container” holding information. That block is linked to the other blocks on the system. That linking occurs in the same way that a real-life chain or string of units joins together. Information in each block is cryptographically secured (another shocking definition, right? cryptographically secure … or crypto for short).
Each block will also contain:
- A hash ID
- The time stamp
- Transactional data
A Peer-To-Peer System
Because there is no single ownership of the blockchain, these operations continue on a peer-to-peer structure. It relies on multiple people to validate its information. These technologies are the solutions to keeping the online world of finance safe.
In blockchain technology, transactions are only recorded once, despite many miners operating on the same distributed ledger. This technology ensures that once on the distributed ledger, there are no repeated efforts being made (i.e. wasting time and efforts), but also to be sure an item is only entered one time in the ledger. The blockchain allows for decentralization, which in turn creates are a more reliable form of security.
Ledger technology allows multiple participants simultaneous access to the blockchain in order to record transactions. There is no one central server or single database of storage. Instead, when changes are made on the ledger, they are copied to all members of the system.
Decentralized database use is key to the financial markets online. Crypto could not exist with its current goals in mind without it. The immutable database relies on a technological infrastructure to keep its peer-to-peer network of the shared database efficient and secure. By having many eyes on a public ledger, the chances of fraud are far less and nearly impossible.
The goal of distributed ledger technology is to remain transparent, be distributed, and maintain data integrity. The distributed ledger technology makes the buying, selling, and trading of crypto possible.
The Pros of DLT Systems
The benefits of operating on a distributed ledger technology such as a blockchain include:
- Efficient and accurate transactions are made quickly.
- The system is powered by its users.
- No central authority oversees the blockchain.
- DLTs offer a high level of integrity and security.
- DLT is a the core of a simplistic ecosystem.
- It is durable, traceable, and long-lasting.
- Ledger technologies lower the cost of business.
Overall, it is the DLT system that makes the crypto universe possible, which most in the business of finances will call a major positive. In short, the DLT concept has created solutions for the use of crypto, allowing records to be kept within the network, without a single point of authority.
The Cons of DLT Systems
Where it is good, you can also assume it is bad. Of course, the digital ledger technology system is not a perfect science. Nothing truly is without fault or problem, and the crypto universe is not without its challenges.
When it comes to DLT, some of the cons include:
- A complex signature verification process
- Unclear and unproven legality
- Private keys (operated by individuals)
- An (intended but complicated) lack of authority
- Privacy concerns with the public ledger
- Uncertain rules and regulations
In short, the DLT systems have largely been created and improved upon in the past few years. The judge is still out, and with any unproven entity, there is trepidation especially of newcomers when the future is unclear.
And, when you are handling funds, no matter their catch name, there is always concern in the value or bottom line of the process. In short, the future remains to be seen, and for many, that is con enough to steer clear until more data is collected. Distributed ledgers have a long way to go to prove their value to all.
The Future of DLT
Like most tech, the future may be bright for DLT, but is, at minimum, unclear. The cons are still being addressed, but at the same time, new challenges arise constantly, too. The distributed ledger will surely transform the world of crypto, but it is still being studied and understood by most.
We don’t have a tried and true example, no control group to follow. Instead, DLT is being written as we speak. It is an ever-changing world of finances and business, and, like most of the Internet, is being rewritten regularly.
The best advice is to stay on top of the changes and stay tuned to the newest information on the industry. Records will continue to be broken. Common standards will continue to change. Efficiency will improve. New services may be offered. Even that data stored in blocks can change as the technology continues to be developed. DLT adoption is continually added to other cryptocurrencies outside of units like Bitcoin or Ether.
Watching the latest insights and staying abreast of reference data, while time-consuming, is the best way to keep up with technology such as this. One thing is for sure, it is an exciting and interesting course of study.