How does distributed ledger technology work?
DLT technology using the example of blockchain
The best known DLT application is the blockchain. Blocks represent cryptographically linked database entries that record transactions transparently and tamper-proof.
Nodes, which are access points to a DLT, are an integral part of the network and possess a copy of the entire database, known as the ledger, to validate transactions. This increases trust by mitigating the potential malfunction of a single node.
Continuous data synchronization in the DLT
Transparency: continuous synchronization ensures that each node always has the latest information. This makes DLT a trustworthy and transparent solution for handling data and transactions in digital networks.
Transactions: to ensure verified and binding entries, transactions are signed and verified by nodes using cryptographic methods before being included in a block. This prevents forgery and guarantees that only valid transactions are recorded in the ledger.
Verified and binding DLT entries: Proof of Work, Proof of Stake and Proof of Authority
Consensus: various mechanisms such as Proof of Work (PoW), Proof of Stake (PoS), and Proof of Authority (PoA) are used to achieve consensus on transaction validation and maintain ledger integrity.
- PoW relies on computationally intensive tasks to generate the next block, but this requires significant power consumption.
- PoS, on the other hand, selects the block producer based on the stake of cryptocurrency held, which is more efficient.
- PoA delegates block creation to known and trustworthy nodes, thereby improving speed and scalability.
The choice of consensus mechanism depends on the specific requirements of the DLT network.
To access a DLT, participants typically use a wallet.
