The use of cryptocurrencies not only brought with it an alternative payment method but also generated the adoption of new financial technologies and terms, such as blockchain and distributed ledger technology (DLT). Below, we’ll learn about distributed ledger technology.
Distributed Ledger Technology (DLT)
DLT refers to a decentralized digital system designed to securely record databases and transactions across different participants, locations, sites, or regions without the need for a central authority, using cryptographic methods to validate and synchronize records across the network.
DLT Applications
Currently, distributed ledger technology (DLT) has a wide variety of applications in different sectors, since, unlike traditional systems, DLT allows data and transactions to be managed in a more secure, transparent, and decentralized manner.
It is worth noting that one of the best-known types of DLT is the blockchain, which is characterized by having the ability to organize data in a series of blocks that are cryptographically linked. However, among the most notable applications of DLT are supply chain management for companies, healthcare providers, data management in companies in the healthcare sector, the Internet of Things (IoT), security, and efficiency of financial services, among others.
Why is DLT more reliable and efficient than traditional systems?
Although traditional database systems perform similar functions (storing and managing data), many companies and businesses across different sectors prefer to use DLT for the following reasons:
Decentralization
Traditional database systems are typically managed by a single authority, such as a bank or company. DLT, on the other hand, is a decentralized system designed to distribute data across multiple nodes in a network, eliminating the need for a central authority.
Immutable data
In most traditional database systems, data can be modified and even deleted by authorized users. On the other hand, DLT provides immutable data records, as it uses cryptographic methods and consensus mechanisms.
Security level
Traditional database systems are more vulnerable to failures, data loss, and cyberattacks, especially due to their centralized nature. On the other hand, distributed ledger technology offers a higher level of security, since by distributing data across multiple nodes (users), it becomes more difficult for data manipulation by agents external to the network nodes.
Transparency
Most traditional database systems base transparency and trust on the authority or ethics of the individuals authorized to manage the data. On the other hand, DLT guarantees transparency and trust, as all participants can independently verify and validate transactions, which reduces the risk of fraud or manipulation. This is thanks to the fact that DLT implements consensus protocols, such as proof-of-stake (PoS), proof-of-work (PoW), and others.
What do you think about this topic? Would you like to learn more about this type of technology?
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