Blockchain and the distributed ledger
Published 2 years ago
Blockchain can be implemented as a distributed public ledger. Ledgers are the foundation of accounting. The definition of word ledger is an account book of final entry, in which business transactions are recorded. Today thanks to the evolution of the internet and all the technology there is a possibility to make all this accounting distributed where all the parties involved in the transaction can trust each other. If that sounds confusing to you let's start with a little history in order to understand what we have today.
Ledgers start their existence in human evolution since people who were writing on stones, pieces of wood and later paper. Accounting evolved to a profession later on because it became complex. This process involved huge bookkeeping work for managing economic transactions. With the development of informational technologies, this process was drastically automated but the need for a middleman in the form of accountants and banks was required. Advancements in computing power and cryptography have allowed the creation of distributed ledgers. And this technology is here to stay as the next step in our development as humankind.
A distributed ledger is a database held and synchronized by each participant in a large network. This definition is short and can be confusing when you hear it for the first time. So let's try to explain each part of the definition. Imagine a large network as a huge amount of nodes (computers) connected together as the internet is. All these nodes which we called participants retain an exact copy of the database. And when a change is made to the database all the participants are informed about this and if the majority of the participants agree on the transaction it is updated over all copies of the databases. Underlying the distributed ledger technology is the blockchain which we introduced in previous articles.
These capabilities of a distributed ledger bring opportunities far beyond our current centralized databases. Decentralization of the operations not only exclude the need for a central authority to regulate the transactions between participants, it also excludes possible manipulations or corrupt behavior. Once the information is stored it becomes immutable, meaning that it is impossible to do any change thanks to the distributed behavior of the ledger.
Another benefit from distributed ledger is the security. Distributed means there no possibility for a single party to attack and make changes to the database because all the rest of the participants will not agree on the new changes that are malicious. Centralized systems are prone to hacker attacks since if you can make a change in that system, all the underlying participants will be affected. In distributed ledger, there is no such possibility since there is not only one point of failure. If a hacker would try to attack a distributed ledger he would need to do it for a majority of the nodes on the system and do it simultaneously which is theoretically impossible.
A very important benefit from this technology is building trust between participants. And this one I personally like the most. Thanks to the public witness of the agreements once the consensus was made, the database was updated and all the participants were informed. And the agreement is stored on the ledger without any possibility to change it and everybody knows about this. If you want to change agreements you would have to do a new entry in the ledger and follow the process again. In practice it looks like this: if you send 10 coins to your friend it's impossible to revert this transaction back, the only way is if your friend will send this money back to you.
Distributed ledger was first introduced in cryptocurrencies like bitcoin but the possibilities will go far beyond this. There are other implementations of smart contracts which allows involved parties to sign digital contracts stored on the distributed ledger and witnessed by all the participants in the network. It will revolutionize governments, existent financial institutions, corporations, insurance institutions and basically all the existent institutions that we can imagine. I think we live in an exceptional time where big changes are going to happen in a relatively short period of time. And we should be prepared for this changes and embrace them and use technology to make our lives better and we should all participate in this process.