In classical accounting, a ledger (often called a general ledger) is a book or electronic system where all the financial transactions of an entity (company, person) are consolidated. In the cryptocurrency world, the concept of a ledger is taken to another level through Distributed Ledger Technology (DLT). The most well-known example of DLT is blockchain. Here, the ledger is a shared, replicated and synchronized database on a network of computers (nodes). Each node in the network holds an identical copy of the ledger, and all new transactions are validated by these nodes before being added to the ledger.
Examples:
- Bitcoin ledger: It is the Bitcoin blockchain, a public and immutable list of all Bitcoin transactions ever made.
- Ethereum ledger: Is the Ethereum blockchain, which records not just ETH transfers, but all interactions with smart contracts.
How a ledger (distributed ledger) works
The operating system of a distributed ledger includes three key elements:
- Peer-to-peer (P2P) network: all nodes in the network communicate directly with each other, without calling a central server.
- Consensus mechanism: Nodes vote to validate transactions, ensuring that only legitimate records are added.
- Cryptographic keys: Data security is ensured through cryptography so that unauthorized access is impossible.
Ledger types (distributed ledgers)
Over time, several types of distributed ledgers have developed, each with unique approaches and applications:
1. Blockchain
The most popular form of distributed ledger, widely used by cryptocurrencies such as Bitcoin and Ethereum. Blockchain organizes data into chronologically linked blocks, with each transaction validated by global consensus.
2. Hashgraph
This DLT utilizes a consensus mechanism called “gossip about gossip” to validate transactions quickly and efficiently, without requiring high energy consumption (as in Proof of Work).
3. Holochain
Each node in the network has its own “chain” of data, and updates are validated by strict rules before being shared across the distributed network.
4. Directed acyclic graph (DAG)
Instead of using linear blocks, DAG allows direct verification of transactions by relating them. It is used by projects without transaction fees, such as IOTA.
Advantages of a ledger
Moving from centralized records to distributed ledgers brings numerous advantages across various industries:
- Elimination of middlemen: Without a centralized authority, remittances and asset transfers become faster and cheaper.
- Increased security: Thanks to cryptography, all transactions are protected against unauthorized access or alteration.
- Transparency: All users have access to the same ledger, promoting trust and mutual verification.
- Scalability: Structures such as directed graphs (DAGs) allow a massive number of transactions to be processed simultaneously without bottlenecks.
Practical applications of distributed ledgers
Distributed ledger technology is already found in several key areas. Here are some notable examples:
- Financial sector
Cryptocurrencies are the most well-known use case. But DLT applications are also extending to fast cross-border payments or remittance solutions without high fees.
- Supply chains
Companies like Walmart are using DLT to track product origin and authentication, increasing transparency and eliminating fraud.
- Digital voting
DLT can ensure an election process that is 100% transparent and immune to manipulation.
- Real estate and smart contracts
Blockchain-based smart contracts eliminate bureaucracy, simplifying the buying and selling process.
Interested in a particular cryptocurrency? Check its price and its price history on our cryptocurrency price list page.