The concept of a distributed ledger is fundamental to a blockchain and how it works. The databases allow for consensus operations and sharing among the users on a network. Transactions in a distributed ledger are verified by a witness process. This makes any effort to alter transactions or hack data much more difficult. Anyone that is on the network can essentially have their own copy of the distributed ledger. Blockchain technology is what underpins the concept of a distributed ledger and cryptocurrencies like Bitcoin.
What are Ledgers?
Ledgers have been used for accounting since almost the dawn of time. From the clay tablets kept by our ancestors to the digital ledgers of today, these tools are essential for tracking financial transactions. The computer revolution in the 1980’s opened up new methods of maintaining ledgers. It was first necessary to input mounds of data kept in normal ledgers by hand.
Today, our digital world has become very advanced. We are able to use things like cryptography and other tools to create, secure, and maintain distributed ledgers. Society still moves a lot of paper in the world today. Many financial institutions are finding out they can benefit from eliminating paper documents. This is the promise of the distributed ledger.
A Dynamic Independently Maintained Database
The best way to describe a distributed ledger is in terms of a database. It functions in much the same way. This type of database is designed so that it can be updated by multiple users. These participants in the updating of a distributed ledger are sometimes referred to as nodes on the network. Each node is responsible for verifying all of the data on the ledger. The nodes share their conclusions and essentially vote on whether or not the data is correct. This is a concept known as consensus, and it is called Proof of Work in the Bitcoin distributed ledger framework.
What we have just described in the above text block is a very basic example of how a blockchain functions. Consensus is what creates an ongoing update of the ledger. Each time the distributed ledger is updated, all nodes have a correct copy. This process is ongoing. It is this procedure which makes a distributed ledger different from a regular database.
A Dynamic Form of Media
There is a dynamic aspect to distributed ledgers which also makes them different from regular databases. There are properties to the ledger that make it possible for individuals to create binding agreements, make applications, ans more. A static database can only preserve a record of data. A distributed ledger can change the way information is collected and shared.
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