What is Distributed Ledger Technology?
When discussing blockchain technology and the web3 industry, it is easy to get confused by an overwhelming level of technical complexity that most ordinary investors might not have the interest or time to understand. Regardless of that, it is still important to explore what makes blockchain such a fascinating technology.
Web3 is different things to many people, so we need to take a closer look at the technical framework and how it allows web3 to operate differently than web2. At the core of it is Distributed ledger technology (DLT), a large database that stores information across a network of computer nodes instead of in web2 data silos.
What is Distributed Ledger Technology?
Distributed ledger technology is a digital framework that allows data to exist in new ways online by removing the need for server databases. Instead, DLT utilizes a large series of computer nodes that contain fragmented pieces of data. When a user needs a complete piece of data from the DLT, every node will supply the relevant data they need, and is then turned into the complete file or folder that the user requests.
To ensure that data is provided accurately, the DLT uses a consensus mechanism that validates and approves each transaction as they are requested. When a transaction is submitted, a broadcast is sent out to each node on the network and the consensus mechanism will determine if the data is correct or not.
DLT exists in many forms in web3 and is not one singular system. Blockchains like Ethereum use DLT to help operate the different facets of web3 such as smart contracts and data retrieval from the blockchain. Other businesses like Protocol Labs also use DLT with IPFS which is used to host a majority of NFT metadata.
What is Blockchain?
Although Ethereum uses DLT, there are some key differences between a blockchain and DLT. The biggest difference is how blockchains utilize asymmetrical cryptography which allows users to create public and private keys.
The inclusion of cryptography in popular blockchains like Ethereum and Bitcoin means that users can access their personal data (Ether and bitcoin in this example) without anyone else having the same ability without the appropriate private key.
As stated before, this is a big difference compared to web2, which relies on server databases to store personal data and can be accessed by anyone in control of these data silos. Further, online privacy concerns have become a growing issue for social media companies because they use this data as a product to sell to other companies.
Applications of Distributed Ledger Technology and Blockchain
Many people tend to question the need for blockchains, but DLT itself is a fairly useful innovation in data storage solutions that could eventually rival cloud storage as the next best way of storing and retrieving data because of its cost.
DLT can be used in any instance where data storage is necessary, but is most beneficial to cross-border payments and remittances because DLT does not operate within any borders. Instead, the technology is hosted online where it can transcend national boundaries.
Other applications such as digital identities, healthcare record keeping, and real estate ownership rights are also potential use cases that could benefit from DLT, but the technology is still fairly new and could create more challenges in something like a hospital environment if left unchecked or misused.
