What is a distributed ledger?
In simple accounting theory, we know of a ledger as a book of financial accounts which stores transactions.
The concept of ledgers started as early as 3200 BC when quantities were recorded on clay tablets. The double-entry system of accounting emerged over 700 years ago in 1340 AD. Then, in 2009 AD with the inception of Bitcoin, distributed ledger technology (DLT) was introduced.
Imagine a ledger that records transactions happening in the bitcoin network. Instead of this ledger only being in your computer, it is present in everyone’s computer in the bitcoin network. This is called a distributed ledger.
A distributed ledger is a database, the identical copy of which is distributed amongst all nodes (participants) in a network.
The ledger with each node is not updated by any central authority but by the network itself. Each node constructs its own updates to the ledger and adds it to his/her copy of the ledger.
These updates are then voted upon by all the nodes in the network and ensures that the conclusion reached is agreed by the majority of participants. Once this happens, the ledger is updated with the help of a consensus algorithm and the version of the ledger which is decided by the majority is stored by all the nodes as their own copy.
This system establishes trust in the network without the presence of a central authority such as the banks or the governments. This is the most ground-breaking feature of distributed ledgers.
This helps create a new way to record transactions and transfer information and assets between people with trust being built into the system automatically.
This technology has a variety of use cases in different industries. For example in the finance industry, it can revolutionize Loyalty Programs, Stock Trading, Online Identity, Payments, Raising Capital (ICOs) etc. In the automotive industry, it can improve the supply chain, tracking of spare parts, insurance, brand experience, and last but not the last, smart cars.
It can also help artists to regain ownership of their own content, help businesses in database management, help in e-voting, governance, IoT, Real Estate, Ride Sharing etc.
Thus the uses are immense and are almost spread over all industries.