BCSE324L - FOUNDATIONS OF BLOCKCHAIN TECHNOLOGY

Module 2: DISTRIBUTED LEDGER TECHNOLOGY

BCSE324L - Foundations of Blockchain Technology

Assistant Professor Senior Grade 1,
School of Computer Science and Engineering,
Vellore Institute of Technology,
Chennai – 600127
Distributed Ledger Technology
• DLT stands for Distributed Ledger Technology. It is also known as a “shared ledger” or
simply distributed ledger.

• It is a digital system that lets users and systems record transactions related to assets. A
distributed ledger technology stores the information at multiple locations at any given point
of time.

• DLT, unlike traditional databases, does not have any central place to store information.

• The decentralization feature also provides better security, transparency, and trust among
parties using it.
Origin of Ledger
• DLT originates from the peer-to-peer(P2P) network. In any P2P network, peers
communicate with each other without the need for a centralized entity. Technically, a
distributed ledger technology is possible through a peer-to-peer network.

• A consensus algorithm is utilized to make decentralization work.

Types of Distributed Ledger Technology
• Centralized Ledger: All parties reconcile their local databases with a centralized electronic
ledger that is maintained and controlled by a trusted central party.

Centralized Ledger
Types of Distributed Ledger Technology
• Distributed Ledger (Permissionless): Each node in a P2P network owns a full and up-to-
date copy of the entire ledger. Every proposed local addition to the ledger by a network
participant is communicated across the network to all nodes. Nodes collectively validate the
change through an algorithmic consensus mechanism. After validation is accepted, the new
addition is added to all respective ledgers to ensure data consistency across the entire
network.

Distributed Ledger (Permissionless)

Types of Distributed Ledger Technology
• Distributed Ledger (Permissioned): In a permissioned system, nodes need permission
from a central entity to access the network and make changes to the ledger. Access controls
can include identity verification.

Distributed Ledger (Permissioned)

Features of Distributed Ledger Technology
Distributed Nature of the Ledger:

• Recordkeeping has always been a centralized process that requires trust in the record
keeper. The most important innovation of DLT is that control over the ledger does not lie
with any one entity but is with several or all network participants – depending on the type
of Distributed Ledger.

• The removal of the central party can increase speed and potentially remove costs and
inefficiencies associated with maintaining the ledger and subsequent reconciliations.
Features of Distributed Ledger Technology
Consensus Mechanism:

• The distributed nature of the DL requires the participants in the network (‘nodes’) to reach
a consensus regarding the validity of new data entries by following a set of rules.

• A consensus mechanism is necessary to establish whether a particular transaction is

legitimate or not.

• The consensus mechanism is also important to handle conflicts between multiple

simultaneous competing entries - for example, different transactions on same asset are
proposed by different nodes.
Features of Distributed Ledger Technology
Cryptographic Hash Functions and Digital Signatures:

• Cryptography is at the core of DLT, in particular for blockchain implementations.

• Each new data entry, i.e. a transaction record, is “hashed”, which means that a cryptographic
hash function is applied to the original message.

• The blocks are signed with a digital signature, which binds the sender to the contents of the
block, akin to a signature on a contract. DLT uses ‘public key cryptography’ for digital
signatures
Features of Distributed Ledger Technology
Cryptographic Hash Functions and Digital Signatures:
Ecosystem of Distributed Ledger Technology
An ecosystem is a collection of stakeholders such as organizations and users in conjunction
with other entities, performing separate roles. There are four aspects of DLT ecosystems:
• Hardware aspect,

• Business aspect,

• Software development aspect and

• Protocol development aspect

To get a better understanding of distributed ledger technologies, we also need to learn about
its ecosystem.
Ecosystem of Distributed Ledger Technology
Hardware aspect of the DLT ecosystem:

The hardware aspect of DLT ecosystems is comprised of a large number of nodes where each
node could either be a computer, server, or storage device. Three modalities of nodes can
exist:

• block producing full validating nodes: participates in a consensus process and contains
an entire replica of the distributed ledger

• non-block producing full validating nodes: does not participate in a consensus process
and contains an entire replica of the distributed ledger

• partial/light nodes: only a partial transaction list but must be connected in some way to a
Ecosystem of Distributed Ledger Technology
Business aspect of the DLT ecosystem:

The business aspect of the DLT ecosystem consists of users, investors, block producers,
corporations, and developers.

• DLT users: engage with a DLT by using a DLT application, product or service.

• Investors: the people or organizations that provide capital to create the DLT ecosystem.

• Block producers: full validating nodes that actively participate in a given DLT network's
consensus mechanism.

• Corporations: utilize DLT for business activities and deliver technologies to a large group of
customers or end-users.
Ecosystem of Distributed Ledger Technology
Software aspect of the DLT ecosystem:

• DLT leverages various types of software applications.

• DLT applications can be written in a variety of languages including C++, Java, Go, Rust,
Solidity, JavaScript, Python, and many others.

• DLTs are not language-specific and can work with any programming language or tools based
on the requirement. The choice of the programming language depends on the language’s
weakness and strength.

• These applications generally fall into three categories: financial, semi-financial, and non-
financial applications.
Ecosystem of Distributed Ledger Technology
Protocol aspect of the DLT ecosystem:

• The protocol aspect of DLT ecosystems consists of developers and academia.

• Developers are involved with setting up DLT protocols that serve networks. The protocol
layer is concerned mostly with how cryptographic keys interact with the network.

• There are two kinds of protocols: open-source and closed-source.

• Researchers and academia aid in educating others on the implications of DLT systems and
defining its limitations.
Ecosystem of Distributed Ledger Technology
Implementation of Distributed Ledger Technology

Distributed ledger technology has seen multiple implementations over the years. However, there
are a few implementations that have more impact than others.

Blockchain:

• One of the prime examples of distributed ledger implementations is the blockchain!

• In 2008, Satoshi Nakamoto introduced bitcoin to the world. It utilizes blockchain technology to
the world, which enables peers to send and receive digital currency without the need for a
centralized entity.

• Immutability is one of the key features of blockchain.

• Another feature that makes blockchain so amazing is transparency. The transactions that are
Implementation of Distributed Ledger Technology

Distributed ledger technology has seen multiple implementations over the years. However,
there are a few implementations that have more impact than others.

Ethereum:

• Ethereum is another amazing example of a distributed ledger technology implementation.

• One of the limitation of bitcoin is the use of the Proof of Work consensus algorithm as it
required a lot of energy to compute and validate transactions.

• Ethereum fixed it by providing an alternative consensus method known as Proof of Stake.

• It also introduced smart contracts, a way to automate tasks within the network. This also
gave rise to decentralized apps which can automate a large aspect of the requirement.
Implementation of Distributed Ledger Technology

Distributed ledger technology has seen multiple implementations over the years. However,
there are a few implementations that have more impact than others.

Corda:

• Corda is an open source blockchain project, designed for business from the start. Only Corda
allows you to build interoperable blockchain networks that transact in strict privacy. Corda's
smart contract technology allows businesses to transact directly, with value.

• Smart contracts that can be written in Java and other JVM languages.

• Enables the development of distributed apps called CorDapps.

Implementation of Distributed Ledger Technology

Distributed ledger technology has seen multiple implementations over the years. However,
there are a few implementations that have more impact than others.

Hashgraph:

• Hashgraphs don’t bundle data into blocks as blockchains do. Instead, hashgraph nodes use a
“gossip about gossip” system, wherein they organically transmit messages.

• Gossip protocol-In hashgraph, when sending information between nodes, "Alice" will choose
another member at random, such as "Bob". Then Alice will tell Bob all of the information she
knows so far. Alice then repeats this information with a different random member.

• The synchronization of information between two members through the gossip protocol is
Implementation of Distributed Ledger Technology

Hashgraph: Cont…

Upon completion of a gossip sync, each participating member commemorates the gossip sync
with an event.

Each event on hashgraph contains the following:

• Timestamp

• Two hashes

 Self-parent

 Other-parent

• Transactions
Implementation of Distributed Ledger Technology

DAGs:

• A directed acyclic graph (DAG) is a graphical representation of a series of activities. A series

of nodes and edges visually represent the order of these activities.

• Vertex (node), represents an activity that needs to be added to the decentralized network.
An edge, shows that a DAG moves only in a forward direction. There is no path back to a
previous vertex.

• Each new transaction must reference a previous one before getting into the network. Each
vertex represents a transaction. Each transaction is built on top of the other.

• Unlike a blockchain, transaction data is not collected and added to a block. Nodes must link
Dapps
All the best . . .