Blockchain, cryptocurrency, Bitcoin, Ethereum, smart contracts, cryptography, finance, supply chain management…
These terms have been popularized in the media of late because they are associated with what’s known more broadly as distributed ledger technology.
Distributed Ledger Technology, or DLT, is the catch-all term for a number of platforms that maintain one or more cryptographically-secure algorithms residing on a computing network.
These networks are spread amongst multiple, decentralized hosts, also known as nodes, that secure data so that it is unable to be manipulated by unintended parties. In other words, distributed ledger technology is a more advanced version of the processes currently in existence for protecting data integrity from bad actors and data corruption, while introducing a newer concept of truly distributed computing, without the reliance on traditional servers, and a software stack. This security of data, and distribution of computing power has led many to see the value in utilizing distributed ledgers for various types of data exchange within and between organizations.
The Central Division:
Private, Permissioned vs Public, Permissionless
When analyzing or discussing distributed ledger technology, the first distinction one needs to make is to assess whether they are referring to distributed ledger technology that rests on a public, permissionless ledger or a private, permissioned ledger. The two directly-opposed variations on the ledger can serve to dictate the types of use cases that can be expected for participants utilizing the protocol.
Public, Permissionless Ledgers
Public, permissionless ledgers are the category of ledger that first caught public attention with the emergence of cryptocurrency.
The early interest behind this virtual currency, first from a niche group of supporters and then from the broader public, let people to associate distributed ledgers with certain values like decentralization, open source development, and transparency.
Over time, a combination of factors including cryptocurrency market volatility, long processing lags for clearing transactions, and multiple hacking instances caused many to begin to question this model.
Private, Permissioned Ledgers
Private, permissioned ledgers have begun to emerge as a category of ledger to be utilized for maintaining coordination among a group of people or organizations aligned along the same interests, and with a common use case or application.
The popularization of this platform largely came from the more developed firms and entrepreneurial interests who, while not wanting to associate themselves with the risky nature of cryptocurrencies, saw value in the data integrity secured by the distributed ledgers’ cryptographic protocol; the technology, in other words. In this implementation, they were less interested in making their information widely available (as in on public system) for security purposes and so placed greater focus on establishing values for their technology that were otherwise proprietary, closed source development, and consisting of tiered permissions.
As private ledgers continue to see consistent enterprise-level adoption, proponents for this type of platform seek not the rapid growth and evolution commonly seen with public ledgers, but rather platforms that can assure interoperability and security for the systems established within and between companies.
Primary and Secondary Characteristics of Distributed Ledgers
As distributed ledger technology continues to evolve in different directions, the fundamental defining characteristics of distributed ledgers stand firm. These could largely be subdivided into primary and secondary characteristics, wherein the primary characteristics are largely standardized across all distributed ledgers while secondary characteristics may exist in varying degrees depending on the type of distributed ledger consensus mechanism.
The primary characteristics are:
- Consensus: The ledger needs to be agreed upon by a predetermined number of nodes, consisting of at least greater than half, but varying by platform.
- Immutability: Data on the ledger is unalterable, and can only be appended.
- Provenance: The origin and progression of data can be identified and audited on the ledger.
- Privacy: The ledger data is protected, and permissions can only be extended by the data’s owner.
The secondary characteristics on the other hand are largely subject to the model of the distributed ledger and are therefore more difficult to standardize.
Furthermore, characteristics might exist in one model may not exist in another model at all due to different types of governance. Some secondary characteristics include: low latency on network, cybersecurity levels of nodes against hackers, varying permission privileges of select authority groups when possibility of network exists, level of decentralization in governance models etc.
Application of Distributed Ledgers
While the unanimous standard for distributed ledgers is toward leak-proof data encryption best suited to solidify finality and immutability of data exchanges, the many different forms of distributed ledgers have resulted in prioritized-use-case variation, often forcing a trade-off for some degree of select secondary characteristics.
For example, pharmaceutical researchers would be more likely to favor a distributed ledger system that prioritizes node security (for patient data) over low network latency, while a stock exchange with government oversight might prefer an equal measure of both.
At this time, distributed ledgers, while still certainly early to the marketplace, have seen actual implementation and utilization in a number of industries including finance, manufacturing, and supply chain.
While theory and conjecture still make up the vast amount of distributed ledger’s coverage in our world at this time, bigger players are becoming more coordinated in their proactive approach toward future use-case planning and network consolidation.