A distributed ledger is a type of data structure which resides across multiple computer devices, generally spread across locations or regions.
Distributed Ledger Technology includes blockchain technologies and smart contracts. While distributed ledgers existed prior to Bitcoin, the Bitcoin blockchain marks the convergence of a host of technologies, including timestamping of transactions, Peer-to-Peer (P2P) networks, cryptography, and shared computational power, along with a new consensus algorithm.
In summary, distributed ledger technology generally consists of three basic components:
- A data model that captures the current state of the ledger
- A language of transactions that changes the ledger state
- A protocol used to build consensus among participants around which transactions will be accepted, and in what order, by the ledger.
What is Blockchain?
A blockchain is a peer-to-peer distributed ledger, forged by consensus, combined with a system for smart contracts and other assistive technologies.
Together, these can be used to build a new generation of transactional applications that establish trust, accountability, and transparency at their core, while streamlining business processes and legal constraints.
With all distributed ledgers, there’s an initial record or, in this case, a block, or a genesis block.
Each block will include one or more transactions. Connecting to a blockchain involves people connecting to this distributed ledger via, typically, an application.
So, an example of this would be a wallet.
One person may transfer ownership of a digital asset, like a cryptocurrency, from one person to another, and that asset will move from one person’s wallet to another person’s wallet, and then, that transaction will be shown on a blockchain.
So, this distributed ledger transaction, such as a payment, will move from peer-to-peer throughout the network, and there’s no intermediaries, like a bank, or a payment company, to process this transaction.
Can you give an example of a recent blockchain ?
Sure, Blockchain is actually best known because of Bitcoin. And Bitcoin’s blockchain has been in existence since 2009. It’s a cryptocurrency, but, interestingly, people confuse the two terms. Blockchain is actually not Bitcoin, or vice versa.
Blockchain is a distributed ledger. The blockchain then tracks various assets, other than cryptocurrencies, such as Bitcoin.
Those transactions are grouped into blocks, and there can be any number of transactions per block.
Turns out, nodes or machines on a blockchain network group up these transactions and they send them throughout the network. So, you’ve mentioned how blockchains operate on peer-to-peer nodes.
How do they all sync up?
So, the process of blockchains syncing up have to do with a concept of consensus – an agreement among the network peers.
So, eventually, each machine has an exact copy of the blockchain throughout the network.
What is Smart Contact?
Smart contracts are simply computer programs that execute predefined actions when certain conditions within the system are met.
Consensus refers to a system of ensuring that parties agree to a certain state of the system as the true state.
What is the difference between distributed ledger technology and blockchain technology?
Okay… there actually… I mean, so, the difference between the term distributed ledger and the term blockchain has gotten pretty muddy out there in the broader world.
For me, personally, distributed ledgers are a great, very specific way to talk about this new kind of decentralized database, right,
this system, so that you, and I, and everyone else out there, have a copy of a series of transactions that is kept absolutely in sync.
The specific term for that data structure used to be called blockchain, but now, everybody seems to be applying the term blockchain to anything on the spectrum, from cryptocurrencies to enterprise deployments of DLTs.
So, really, I think blockchain has kind of become like the Internet, right, like a term so broad…
But still, you know, it’s nice to describe this new set of technologies that is inclusive of DLTs and even smart contract functionality.
What is block consists of?
A block commonly consists of four pieces of metadata:
- The reference to the previous block
- The proof of work, also known as a nonce
- The timestamp
- The Merkle tree root for the transactions included in this block.
“Merkle trees are used to summarize all the transactions in a block, producing an overall digital fingerprint of the entire set of transactions, providing a very efficient process to verify whether a transaction is included in a block.”
The Merkle tree, also known as a binary hash tree, is a data structure that is used to store hashes of the individual data in large datasets in a way to make the verification of the dataset efficient. It is an anti-tamper mechanism to ensure that the large dataset has not been changed. The word ‘tree’ is used to refer to a branching data structure in computer science, as seen in the image below. According to Andreas M. Antonopoulos, in the Bitcoin protocol.