Distributed Ledgers

DEFINITION of 'Distributed Ledgers'

A distributed ledger is a database that is consensually shared and synchronized across network spread across multiple sites, institutions or geographies. It allows transactions to have public "witnesses," thereby making a cyberattack more difficult. The participant at each node of the network can access the recordings shared across that network and can own an identical copy of it. Further, any changes or additions made to the ledger are reflected and copied to all participants in a matter of seconds or minutes. Underlying the distributed ledger technology is the blockchain, which is the technology that underlies bitcoin.

BREAKING DOWN 'Distributed Ledgers'

A distributed ledger can be described as a ledger of any transactions or contracts maintained in decentralized form across different locations and people, eliminating the need of a central authority to keep a check against manipulation. All the information on it is securely and accurately stored using cryptography and can be accessed using keys and cryptographic signatures. Once the information is stored, it becomes an immutable database and is governed by the rules of the network. While centralized ledgers are prone to cyber-attack, distributed ledgers are inherently harder to attack because all the distributed copies need to be attacked simultaneously for an attack to be successful. Further, these records are resistant to malicious changes by a single party.

Since ancient times, ledgers have been at the heart of economic transactions – to record contracts, payments, buy-sell deals or movement of assets or property. The journey which began with recording on clay tablets or papyrus, made a big leap with the invention of paper. Over the last couple of decades, computers provided the process of record keeping and ledger maintenance great convenience and speed. Today, with innovation, the information stored on computers is moving towards much higher forms – which is cryptographically secured, fast and decentralized.

Distributed ledger technology has great potential to revolutionize the way governments, institutions, and corporate work. It can help governments in tax collection, issuance of passports, record land registries, licenses and outlay of social security benefits as well as voting procedures. The technology is making waves in industries such as finance; music and entertainment; diamond and precious assets; artwork; supply chains of various commodities; and more. While the distributed ledger technology has multiple advantages, it’s in a nascent stage and is still being explored to adopt in the best possible ways. The future of centuries old ledgers is decentralized.