Chain Reaction: Distributed Ledger Technologies (DLT) explained - YouTube

Is it a revolution?

Or just hype?

Perhaps something in between?

One thing is clear, Blockchain is one of today’s big talking points.

Experts see a technology that will in-fluence our life, a new phase of the internet.

But what is the belief based on?

Blockchain is momentarily the best-known Distributed Ledger Technology, or in short DLT.

This is primarily due to the hype surrounding the Bitcoin cryptocurrency which is based

on Blockchain technology.

DLTs describe digital databases in which every member can supplement the data stored there

– not centrally in a cloud, but locally on each computer on the net-work, functioning

as a decentral peer-to-peer network.

One of the features: The decentral consensus mechanisms that are implemented through algorithms

on the participating computers.

This so-called mining verifies the data in the decentral network – makes DLTs transparent,

safe and decentral, and by that the backbone for future transactions and verification processes.

In the case of Blockchain, a new digital block with a distinctive signature containing the

hash value of the preceding block is written for every new set of information.

The members check the new information using a consensus protocol before it is in-corporated

as a block within the chain and becomes immutable from then on.

“Proof-of-work,” which is the best-known consensus mechanism, uses computing capacity

of the members to validate the transactions.

This form of mining is very resource-intensive due to the laborious computing caused by complex

calcula-tions.

However, this effort is part of the secure consensus protocol’s design and protects

the network from being manipulated as it renders attacks uneconomic.

At the same time, there are more flexible ways to secure the consensus, such as “proof

of stake”, for use cases where the safety requirements are not as high.

In proof of stake, users with more tokens have more power in the consensus-finding process.

This happens with the assumption that the user has no interest in damag-ing his token

value and his influence by harming this system.

If one has significantly higher speed requirements, then one can use DLT for framework contracts

and perform the exchange of information by a so called sec-ond layer mechanism.

On this second layer transactions are processed at higher rates.

An alternative approach for uses cases with higher transaction rate requirements, could

be making use of the DLT variant Directed Acyclic Graph (DAG).

In contrast to blockchain, consensus finding in DAGs is achieved if the user validates,

for each new transaction, at least two previously not validated transactions.

With every user participating in the network the transaction rate is increased – at least

in theory.

However, this advantage of scalability is at a research stage and is not yet completely

proven in practice.

Distributed ledger technologies are highly relevant in the future, because they en-able

an Economy of Things.

Safe transactions between humans and machines, immutable, indisputable in-formation – and

as a consequence the capability for smart contracts, embedded in a program code to be

able to guarantee decentral automated contractual transac-tions.

Intermediaries will become redundant, businesses will be decentralized – and ul-timately

be performed between machine and machine.

Cars charge themselves, negotiate the prices at the charging station – and settle the

bill.

In an Economy of Things, Distributed Ledger Technologies create and ensure the basis for

trust, fairness, and participation in the decision-making process.

As a result DLT enable intersectoral value creating networks.