What is a Distributed Ledger System?

3 min reading

Ledgers are the foundation of accounting. They were based on wooden, clay, and stone tablets and were used commonly, but then computers got invented in the 1980s and 1990s, and paper records were digitized, often by entering data manually.

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What are Ledgers made for?

These early digital ledgers imitated cataloguing and accounting from when paper was used by default, and it can be said that digitization was more convenient not when it came to the creation of the documents, but for their organization. Paper-based institutions remain the foundation of our society: we use bills, seals, signatures, certificates and the double-entry bookkeeping system all the time. Nevertheless, the computing power and breakthroughs in cryptography, along with the discovery of the use of new algorithms, allowed us to create a distributed ledger system.

Distributed ledger

In short, a distributed ledger is a database which is stored and updated independently by each user (or node) in a large network. Its distribution is pretty unique: records are not transferred to different nodes by a central authority but are constructed and stored separately in every node. It means that every single node in a network processes each transaction, reaches its own conclusions, and then votes for that conclusion in order to make sure that the majority agrees with its conclusions. After the consensus is reached, the distributed ledger system gets updated, and every node keeps an identical copy of the ledger. Such structure of a storage system allows it to be more flexible and become something better than just a simple database. Distributed ledgers are very dynamic and have properties and capabilities that go far beyond normal accounting books. In a nutshell, they allow us to formalize and secure new types of digital relationships. These relationships' crucial quality is that their cost of trust, normally provided by lawyers, banks, notaries etc., can be avoided as a result of distributed ledgers' properties and structure. The invention of a distributed ledger system is a revolution when it comes to the way in which information is collected and transmitted. It applies to both static data (a registry) and dynamic data (transactions). Distributed ledgers allow users to go beyond simple storage of databases - they focus on managing a system of record instead of just running a database. Want to learn more on this topic? Be sure to read our guides "What is the Use of Blockchain Technology?" and "What is Blockchain Technology?".

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