Chain Reaction: Distributed Ledger Technologies (DLT) explained

Chain Reaction: Distributed Ledger Technologies (DLT) explained


Is it a revolution? Or just hype? Perhaps something in between? One thing is clear, Blockchain is one of today’s
big talking points. Experts see a technology that will in-fluence
our life, a new phase of the internet. But what is the belief based on? Blockchain is momentarily the best-known Distributed
Ledger Technology, or in short DLT. This is primarily due to the hype surrounding
the Bitcoin cryptocurrency which is based on Blockchain technology. DLTs describe digital databases in which every
member can supplement the data stored there – not centrally in a cloud, but locally
on each computer on the net-work, functioning as a decentral peer-to-peer network. One of the features: The decentral consensus
mechanisms that are implemented through algorithms on the participating computers. This so-called mining verifies the data in
the decentral network – makes DLTs transparent, safe and decentral, and by that the backbone
for future transactions and verification processes. In the case of Blockchain, a new digital block
with a distinctive signature containing the hash value of the preceding block is written
for every new set of information. The members check the new information using
a consensus protocol before it is in-corporated as a block within the chain and becomes immutable
from then on. “Proof-of-work,” which is the best-known
consensus mechanism, uses computing capacity of the members to validate the transactions. This form of mining is very resource-intensive
due to the laborious computing caused by complex calcula-tions. However, this effort is part of the secure
consensus protocol’s design and protects the network from being manipulated as it renders
attacks uneconomic. At the same time, there are more flexible
ways to secure the consensus, such as “proof of stake”, for use cases where the safety
requirements are not as high. In proof of stake, users with more tokens
have more power in the consensus-finding process. This happens with the assumption that the
user has no interest in damag-ing his token value and his influence by harming this system. If one has significantly higher speed requirements,
then one can use DLT for framework contracts and perform the exchange of information by
a so called sec-ond layer mechanism. On this second layer transactions are processed
at higher rates. An alternative approach for uses cases with
higher transaction rate requirements, could be making use of the DLT variant Directed
Acyclic Graph (DAG). In contrast to blockchain, consensus finding
in DAGs is achieved if the user validates, for each new transaction, at least two previously
not validated transactions. With every user participating in the network
the transaction rate is increased – at least in theory. However, this advantage of scalability is
at a research stage and is not yet completely proven in practice. Distributed ledger technologies are highly
relevant in the future, because they en-able an Economy of Things. Safe transactions between humans and machines,
immutable, indisputable in-formation – and as a consequence the capability for smart
contracts, embedded in a program code to be able to guarantee decentral automated contractual
transac-tions. Intermediaries will become redundant, businesses
will be decentralized – and ul-timately be performed between machine and machine. Cars charge themselves, negotiate the prices
at the charging station – and settle the bill. In an Economy of Things, Distributed Ledger
Technologies create and ensure the basis for trust, fairness, and participation in the
decision-making process. As a result DLT enable intersectoral value
creating networks.

Danny Hutson

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