The blockchain is like another layer to the Internet that enables secure, trusted records and transactions to take place peer-to-peer between people who may not otherwise trust each other; the trust is in the technology, computer code, and mathematics rather than people and centralized institutions. In this respect, people sometimes talk about the blockchain as a “trusted machine” in its capacity to enable a network where trust is created by design. Because the blockchain creates a trusted database it can function as a record of value storage and exchange, these records of value may be called ledgers.
Since ancient times, ledgers have formed the backbone of our economies – to record contracts and payments, for buying and selling of goods, or the exchange of assets like property. These ledgers started out as records in stone, clay tablets, and papyrus and later paper as they evolved into the ledger books supporting modern accounting. They enabled the formation of currencies, trade, lending and the evolution of banking. Over the last couple of decades though, these records have moved into the digital realm as whole rooms of people working to maintain accounts have become replaced by digital computers which have made possible our complex global economic system. Today, this record keeping system is once again being revolutionized as these ledgers are shifting to a global network of computers which is cryptographically secured, fast and decentralized, what we call a distributed ledger or distributed ledger technology DLT for short.
A distributed ledger can be described as a ledger of any transactions or contracts supported by a decentralized network from across different locations and people, eliminating the need for a central authority. All the information on it is securely and accurately stored using cryptography and can be accessed using keys and cryptographic signatures. Any changes or additions made to the ledger are reflected and copied to all participants in a matter of seconds or minutes. The participant at each node of the network can access the recordings shared across that network and can own an identical copy of it. At the same time, these networks make constantly available for examination a full audit trail of information history, which can be traced back to the moment when a piece of information was created and every participant in the network can get simultaneous access to a common view of the information.
These ledgers can be used for the recording, tracking, monitoring, and transacting of all forms of assets, all asset registries, inventories, and exchanges, including every area of economics, finance, and money; physical assets such as cars and houses; and intangible assets such as votes, ideas, health data, reputation etc. In this case, the blockchain can serve as the public records repository for whole societies, including the registry of all documents, events, identities, and assets. In this system, all property could become smart property; this is the notion of encoding every asset to the blockchain with a unique identifier such that the asset can be tracked, controlled, and exchanged on the blockchain. For example distributed ledgers could be used to replace or supplement all existing intellectual property management systems as they can register the exact contents of any digital asset such as a file, image, health record or code, to the ledger and given a unique identifier in the form of a hash value.
There are two main classes of distributed ledger: public and permissioned. The former type is maintained by public nodes and is accessible to anyone. Bitcoin is a well-known example of a public platform where anyone can read the chain, anyone can make legitimate changes and anyone can write a new block into the chain. Ripple is an example of a permissioned blockchain, where the creators of the network determine who may act as transaction validators on their network. DLT platforms in each category have their own unique features. Some are designed for specific types of applications, and others for general use. For instance, in the Corda DLT platform, which is a consortium of more than 70 of the world’s biggest financial institutions, the sharing of individual ledger data is limited to parties with a legitimate need to know, which is not the case on other platforms.
DLT technology can have a powerful disintermediation effect as data can be put directly onto the shared database by the network there is no longer need for a centralized organization to provide this service. A developer can create a DLT on a blockchain and using public-private key encryption give people secure storage space on that ledger, allowing people to own their own data, which creates a very different scenario to the world of today. Currently, centralized organizations like Google and Facebook suck up all the little bits of data we leave behind us and use it to serve us customized advertisements from which they create their revenue. This results in a huge power imbalance within society where centralized organizations armed with teams of mathematicians and computer scientists use mountains of data to influence people’s behavior towards purchasing the products of their advertisers. Data, that is a very valuable asset in an information society and of critical importance to tackling major societal challenges, is being used against us in many ways, creating a stumbling block that societies are becoming increasingly aware of. In a world of distributed ledgers, people have their own little databases on the blockchain and can own their own data giving it to organizations to use when and where needed; fundamentally reversing the current dynamic and empowering people. Your health records reside in your health ledger and different healthcare providers can access and update that single record but only with the permission of the end user as the data remains theirs.
Likewise, when people own their own database on a distributed ledger they can transact directly peer to peer, as is the case with Bitcoin. With the existing traditional system when you pay for a ride in a taxi with a credit card, it looks like you are paying the driver directly, when in fact what is happening is that a database record belonging to my bank is being debited and a database belonging to the bank of the company the driver works for is being created. In this respect we can note that in our society, value and data don’t really belong to individuals, all the time they are behind the walls of some centralized organization and we are dependent upon them to secure and validate it, creating huge power imbalances within society. In contrast with the Bitcoin blockchain, the individual has a ledger record and a secret key with which they can access their record. When they send money they send it directly to the other person’s record, simply debiting from your record and adding to theirs directly peer-to-peer.
Distributed ledger technology can greatly improve transparency, reduce corruption and improve security while reducing overhead cost of auditing, accounting, and legal issues. Currently records of value are hidden within the databases of centralized organizations where they are largely inaccessible for their many possible uses within other systems; they are open to manipulation by members within those organizations, which breeds corruption, and because of that there has to be all sorts of regulation and legal requirements that create many overhead costs. Added to this they are centralized points of failure for critical data sources as large concentrations of valuable data prove very attractive to malicious actors. Likewise, it is inefficient to be continuously updating and synchronizing data across many centralized databases.
By putting the information on a shared ledger it can be easily made accessible and visible on demand as needed, because it is tamper proof it can remove many existing points of corruption and the associated need for regulation. Likewise, it is secured by a distributed network without a single point of failure and continuously synchronized across all notes to create a single source of truth for all users.