Understanding Blockchain and Distributed Ledger Technology

Distributed Ledger Technologies provide an opportunity to address multi-faceted issues with wide-ranging solutions to data and device management, security, privacy, and payment systems.

Bitcoin started the Blockchain and Distributed Ledger Technology (DLT) movement in 2009. According to Satoshi Nakamoto (anonymous and alleged creator), “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution”. As an open-source solution, it forked into many other digital currencies and distributed ledger technologies to solve a variety of financial and non-finance issues. Crypto currency has an aggregate value of around $214 billion as of early 2020; the value of non-currency transactions qualifies a value far beyond in terms of security and privacy.

 

What Is Blockchain?

Blockchain is a DLT, similar to how Clorox is a brand of bleach, and Kleenex is a brand of tissues. It is a shared database where transactions are grouped into a block and encrypted with a hash. Blocks are chained together; hashes confirm the files in their block, and the blocks before. Altering a block requires updates to all blocks after the change. Hashes are one-way functions and only verify data matching the original hash. They only encrypt authentication and cannot obtain original data.

Network participants must prove their trustworthiness to be a part of the chain. Proof of work requires processing a sophisticated algorithm before a participant can add information to a block. Once the computer reaches the consensus model, it can participate in a blockchain network.

Blockchain solutions offer secure, reliable, accurate, andreal-time. Intermediaries (clearing houses or payment processors) are not necessary to reconcile transactions. Errors are non-existent, and data movement is securely encrypted. They are data-driven and automated, often using digital currency for transactions (Ethereum, Bitcoin, Ripple, et al.) Blockchain is a small, but not insignificant part of Distributed Ledger Technology.

 

What is a Distributed Ledger?

Distributed Ledger Technologies are databases accessible across many locations or by multiple participants. All blockchains are distributed ledgers, but not all distributed ledgers are blockchains. Data is decentralized, and participants process, share and synchronize transactions within the ledger. Every transaction receives a timestamp, authentication, and verification. Every transaction is auditable and viewable by participants.

DLT improves efficiency, transparency, reconciliation, and reduce risk. They do not require chaining, do not need proof of work to participate, and provide controllable options to scale. Distributed Ledgers are decentralized, transparent, error-free, secure, and immutable.

Uses

The Internet of things (IoT) requires increasing device-to-device communication. It is difficult to define what kinds of devices, operating systems, applications, and interactions a system will use as technologies expand and fragment. DLTs build trusted networks, regardless of segmentation or unpredictability.

Finance and fin-tech were early adopters of blockchain and DLTs. Data immutability, auditability, and transparency provide reliable systemic anti-counterfeiting, traceability, and automation. Real-time payments also drive business change as clients move from traditional SWIFT and poll-based reconciliation.

Healthcare systems manage vast amounts of datacontaining PII (Personally Identifiable Information) and regulated by HIPAA (Health Insurance Portability and Accountability Act). Security and privacy are critical. DLT auditability and traceability facilitate data quality, reliability, error-detection, and tracking.

Logistics and Supply chain management also presents opportunities to benefit from DLT. Data reliability, real-time transactions, auditability, and automation create efficiencies to drive lower-cost solutionsand higher quality products. DLT facilitates speed to market by promotingshared and transparent data-driven decisions.

In summary, Distributed Ledger Technologies provide an opportunity to address multi-faceted issues with wide-ranging solutions to data and device management, security, privacy, and payment systems. The increase of data security is becoming paramount with the rapid growth of distributed teams, world-widemarket segmentation of devices, and de-centralization of data storage. Moving beyond crypto currency, DLT solutions give data transparency and auditability, security, and real-time transactional saving to many markets.

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