A distributed ledger consists of a network of computers spread around the world that record, share, and synchronize a database of transactions.By having each user of the distributed ledger witness a Bitcoin transaction (through Bitcoin Wallet) over the blockchain, people with malicious intentions cannot alter the data.
Distributed ledgers are similar to posters of wanted criminals in the Wild West. Posters were distributed to all sheriffs’ offices across the country so lawmen knew who to watch out for. When a criminal is caught, the updated information is sent to all sheriffs so they wouldn’t waste their time looking for someone who is no longer on the list. Distributed ledgers basically work like that.
Where Did Distributed Ledgers Come From?
Satoshi Nakamoto released a white paper on the blockchain titled “Bitcoin: A Peer-to-Peer (P2P) Electronic Cash System” in 2008. Until 2010, he actively worked on the Bitcoin source code with several Bitcoin enthusiasts. Then, he transferred Bitcoin-related domains, his network key, and source code repository to other Bitcoin developers and disappeared.
Nakamoto may be a real person or a group of people, but no one knows for sure. In any case, he is the 15th richest person in the world, with an estimated net worth of US$73 billion (using the exchange rate US$750,000 to 1.1 million BTC).
Vitalik Buterin published a white paper on Ethereum in 2014, adjusting Nakamoto’s blockchain concept to make it more marketable and inclusive. Additionally, the paper improved the technology’s speed since the original blockchain protocol was very slow and energy-intensive.
Since then, a number of people and institutions have made improvements to the improved blockchain technology, paving the way for distributed ledger technologies (DLTs). Thus, the legacy of the original distributed ledger cannot be forgotten. Around September 2021, a monument honoring Nakamoto was unveiled in Hungary.
Categories of Distributed Ledgers
A variety of blockchain technologies have been developed over the years. Let’s distinguish between public and private distributed ledgers as well as permissioned and permissionless distributed ledgers.
Public versus Private Distributed Ledgers: What’s the difference?
The operator of a private distributed ledger has sole control over entries. They can delete, edit or override any entry on the ledger. It is also the operator who decides who has access to the distributed ledger, which often requires member verification. In my opinion, blockchains built on private distributed ledgers are not completely decentralized, and are more suitable for companies developing internal applications. The Ripple blockchain is a good example.
Public distributed ledgers, on the other hand, are freely accessible to everyone, making them completely decentralized. Network contributors can write, read and validate entries. Ethereum is a blockchain built on a public distributed ledger.
Permissioned and Permissionless distributed ledgers?
Participation in permissioned distributed ledgers is restricted to a select group of participants within the network, whereas permissionless ledgers are open to everyone. It may sound like private and public distributed ledgers are synonymous, but they are not. Private blockchains are not the only ones that are permissioned, and public blockchains are not the only ones that are permissionless.
There are public-permissioned ledgers that combine the best of both worlds — permissioning for private ledgers and the decentralized nature of public ledgers. After proper identity verification, anyone can participate in a public-permissioned network. Each user is assigned permissions that allow them to perform specific tasks. Network operation and governance still rely on the participants, making public-permissioned ledgers completely decentralized.
Distributed Ledger Technologies are Useful
Distributed ledgers are useful for smart contracts due to their immutability or resiliency to change. This inherent feature of distributed ledgers allows them to serve many practical applications regardless of whether they are private, public, or permissioned.