Distributed Ledger

A distributed ledger is a database used to store, share, and replicate information. The ledger is used to record transactions based on the exchange of data or assets between network participants. This network is free of any central authority or third-party mediators.

The ledger works by having timestamps and cryptographic signatures to ensure authenticity. They help track transactions and related business data across national and geographical boundaries. In this particular ledger, there is no control by a central authority, and autonomy empowers decisions. This allows the participants to exercise their rights, control, and privileges without a monopoly.

Distributed ledgers use nodes or independent computers to record, synchronize, and share transactional data in electronic ledgers. "Nodes" that are a part of the network can access the ledger. Depending on the architecture and governance arrangements supporting the business model, these nodes may or may not need authorization to access the ledger. 

Each node individually builds and records updates to the ledger. The nodes later vote on the modifications to confirm that the majority agree with the result achieved. This process is known as consensus. It is the automatic agreement and voting on a single copy of the ledger. The distributed ledger automatically updates itself after a consensus has been reached, and the most recent version agreed upon is saved independently on each node.

The ledger keeps track of all interactions between network participants, such as exchanging goods, assets, or information. The ledger's records are updated by consensus among network participants, who regulate the system. Therefore, there is no involvement from a centralized authority or a neutral third party, such as a clearinghouse or financial institution. The distributed ledger is an auditable record of all network transactions since each includes a time stamp and distinctive cryptographic signature. They may be permitted (public or private) or not and can be used in many fields.
Blockchain distributed ledger differs from a traditional ledger, where the data is kept centralized. It can be more secure than conventional methods. It is an append-only information storage technique that can offer high levels of availability, transparency, and integrity in a decentralized setting.

Let's understand the concept with the help of hypothetical and real-world examples.

Example #1

In a hypothetical scenario, consider a healthcare network where patient records are securely stored and shared among healthcare providers. Each time a patient visits a doctor or undergoes a medical procedure, the details are recorded on a distributed ledger accessible to authorized healthcare professionals. This ledger ensures the integrity and confidentiality of patient data while facilitating seamless coordination and continuity of care across different medical facilities.
Similarly, in a financial setting, imagine a consortium of banks using a distributed ledger to process cross-border transactions. Instead of relying on intermediaries and facing delays and fees, banks can directly access the ledger to verify transactions, confirm account balances, and settle payments in real time. This transparent and efficient system reduces friction in financial transactions, enhances security, and lowers costs for both banks and their customers.

Example #2

Blockchain is an application of distributed ledger technology. In this system, there are no intermediaries (banks and other financial institutions); the computers take over the function here by providing cryptographic proof. The system operates with a few significant components. In the case of Bitcoin, a cryptocurrency based on the blockchain, it has a wallet with a public and private key. A wallet is where the coins are stored digitally, and transactions are validated; they have a public and a private key. Private keys act as digital signatures and are held only by their owners. A public key, on the other hand, is shared with everyone who receives a Bitcoin. Transactions are recorded after nodes of a telecommunications network have cryptographically confirmed them.

Example #3

ConsenSys announced the acquisition of Quorum, the blockchain developed by J.P. Morgan (2020). ConsenSys planned to combine Quorum with its current protocol engineering strategy, utilizing the strengths of both codebases. Developers were given a choice to select their underlying technology stack, and all Enterprise Ethereum protocol technology within ConsenSys shall come under the ConsenSys Quorum brand. It was announced that Quorum would continue to be open source and integrate with other top blockchain technologies from ConsenSys, such as the banking and commerce application suite from Codefi.

Advantages 

• Blockchain distributed ledgers offer security; they are transparent and decentralized.
• They are centralized, and each node has its copy of the ledgers, so failures are less likely to happen.
• They have fewer chances of being altered as changes in one ledger must be made across all ledgers.

Disadvantages

• The transactions made are non-reversible; hence, chances of loss through mistakes and fraud are possible. Improper cryptographic use or implementation may jeopardize the ledger's security, especially in smaller networks.
• There can be expensive transaction fees.
• It can have negative environmental consequences. This is because it frequently uses energy-intensive consensus processes necessary to maintain consistent copies of the ledger across various storage locations.

Highlighting variances between Distributed Ledger, Blockchain, and Centralized Ledger: A Comparative Analysis.