What is Distributed Ledger Technology?

Distributed Ledger Technology uses cryptography and computer networks to enable the establishment of trust via a Single Immutable Ledger. A distributed ledger is a type of data structure which resides across multiple computer devices, generally spread across locations or regions.

Distributed Ledger Technology includes blockchain technologies and smart contracts. While distributed ledgers existed prior to Bitcoin, the Bitcoin blockchain marks the convergence of a host of technologies, including timestamping of transactions, Peer-to-Peer (P2P) networks, cryptography, and shared computational power, along with a new consensus algorithm.

The Double Spend Problem.

The Dirty, Rotten, Scoundrel Problem.

Distributed ledger technology generally consists of three basic components:

A data model that captures the current state of the ledger (A single immutable ledger)

A language of transactions that changes the ledger state (Changes to the ledger that record the exchange of value)

A protocol used to build consensus among participants around which transactions willbe accepted, and in what order, by the ledger (Automating changes to the ledger)

Distributed Ledger Technology: Beyond Blockchain - U.K Government Office for Science

https://www.gov.uk/government/publications/distributed-ledger-technology-blackett-review

Important Concepts to further develop your understanding of:

Consensus

Proof of Work, Proof of Stake, DPOS, Byzantine Fault Tolerance, Forks

Shared, Permissioned, Unpermissioned Ledgers

Permissioned - Limited Consensus; Less Decentralized, Generally Faster

Unpermissioned - Anyone can change ledger; Drives Speculation

Keys

Distributed ledgers use ‘keys’ and signatures to control who can do what inside the shared ledger. These keys can be assigned specific capabilities only under certain conditions.

Public Key Infrastructure - Cryptographic Standard X.509

PKI is an encryption approach where a pair of cryptographic keys -- one public and one private -- are used to encrypt and decrypt data. A user can give someone their public key, which that sender uses to encrypt data. The owner then uses their private key to decrypt the data. This authentication and encryption approach originated in the British intelligence community in the early 1970s and has been used commercially for nearly 20 years.

RegTech - Legal Code vs. Technical Code

Legal code is ‘extrinsic’: the rules can be broken, but consequences flow from that breach to ensure compliance. Technical code, in contrast, is ‘intrinsic’: if its rules are broken then an error is returned and no activity occurs, so compliance is ensured through the operation of the code itself.

Distributed ledger systems are solely governed by their own technical code. There are no bylaws or other legal documents stating these rules, and no humans to enforce them.

Digital Economies (Ecosystems)

The world increasingly relies on digital economies. This requires us to do more than apply computer technology to existing economic models; instead, we must reassess our understanding of what a digital economy is becoming, as well as its constituent actors and activities. To do digital business in cyberspace, an organisation has to be able to trust, and be trustworthy. It also has to be interoperable with large and increasing communities of other organisations.

In cyberspace, trust is based on two key requirements: prove to me that you are who you say you are (authentication); and prove to me that you have the permissions necessary to do what you ask (authorisation). In return, I will prove to you that I am trustworthy by delivering services or products to you in a secure, efficient and reliable fashion.

Governance

Economies rely on collaborative governance to provide trust in the financial markets, ensuring that all play by agreed rules. Digital economies are the same. The primary reason that block chains are associated with cybercrime is an absence of strategic governance to establish agreed rules and ensure compliance. Once such governance (with policies, procedures and mechanisms) and enforcement exist, the true societal benefits of block chains can be realised.

Further Reading

Perez C ‘Technological Revolutions and techno-economic paradigms’ Working Papers in

Technology Governance and Economic Dynamics 2009: Tallinn University of Technology, Tallinn, Norway

Rifkin J ‘The Zero Marginal Cost Society: The Internet of Things, the Collaborative Commons, and the Eclipse of Capitalism’ 2014. New York, Palgrave Macmillan