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Academy Blockchain Concept Article

Distributed ledger technology

2021.07.22 OKX

A type of database shared among scattered network participants that lacks a central point of failure 

Distributed ledgers can represent an improvement over traditional databases that typically store all data on a single server. In a centralized system, those referencing the data must trust the central authority to update their records accurately and protect the database from compromise. Distributed ledgers do not require a central trusted authority and can offer much greater data security assurances.   

Although the terms “distributed ledger” and “blockchain” are often used interchangeably, there is a distinction. 

Blockchains are a form of a distributed ledger. In a blockchain system, data must be organized into blocks before being cryptographically linked to the previous block in the chain. By contrast, a distributed ledger does not require such a structure. 

Public blockchains use open-source software, which anyone can run to participate in the network’s operation. To bring order to the potential chaos of a genuinely permissionless system supported by possibly adversarial participants, blockchains require some form of consensus mechanism. Examples like proof-of-work and proof-of-stake — used in many cryptocurrencies — determine which network participant is selected to update the database next. 

By contrast, distributed ledgers are often private and operated by enterprises for their own exclusive use. Usually consisting of only trusted network participants, distributed ledgers do not require elaborate consensus mechanisms for security.

Disclaimer: This material should not be taken as the basis for making investment decisions, nor be construed as a recommendation to engage in investment transactions. Trading digital assets involve significant risk and can result in the loss of your invested capital. You should ensure that you fully understand the risk involved and take into consideration your level of experience, investment objectives and seek independent financial advice if necessary.