Distributed Ledger Definition
A distributed ledger is a database that is consensually shared and synchronized across multiple sites, institutions, or geographies, accessible by multiple people. It allows transactions to have public “witnesses,” thereby making a cyberattack more difficult. The participant at each node of the network can access the recordings shared across that network and can own an identical copy of it.
Distributed Ledger Key Points
- A distributed ledger is a database that is spread across several nodes or computing devices.
- Each node in the distributed ledger records and replicates the data independently.
- It eliminates the need for a central authority or intermediary to process, validate or authenticate transactions.
- Blockchain is a type of distributed ledger, but not all distributed ledgers employ a chain of blocks to provide a secure and valid distributed consensus.
What is a Distributed Ledger?
A distributed ledger is a type of database that is spread across multiple sites, countries, or institutions. Each participant within the network processes, validates, and records every transaction, eliminating the need for a central authority or middleman. The data is stored in numerous places at the same time, and transactions are recorded in multiple, identical ledgers.
Why is a Distributed Ledger Important?
Distributed ledgers are important because they change the way information is gathered and communicated. They eliminate the need for a central authority, making it possible for digital transactions to be more secure, faster, and less expensive. They also provide a high level of transparency, as all participants can view all transactions.
Who uses a Distributed Ledger?
Distributed ledgers are used by a wide range of entities, from private businesses to public organizations. They are particularly popular in the financial services sector, where they can streamline processes, reduce fraud, and lower operational costs. They are also used in supply chain management, healthcare, and government services.
When is a Distributed Ledger used?
A distributed ledger is used whenever there is a need for a secure, transparent, and tamper-resistant system for recording transactions and tracking assets. This can be in a financial context, such as for recording payments or managing assets, or in a non-financial context, such as for tracking the provenance of goods in a supply chain.
How does a Distributed Ledger work?
In a distributed ledger, each node or participant maintains a copy of the ledger and updates it independently. When a transaction is made, it is independently verified by a majority of the participants. Once the transaction is validated, it is recorded on the ledger. The copies of the ledger are then updated across all nodes, ensuring that all participants have an identical copy of the ledger. This process ensures that the ledger is transparent, secure, and cannot be altered retrospectively.
