Before diving into Ledger systems, let us quickly understand General Ledger (being used since 15 century). It is governed by three accounting principles – Debit the receiver, credit the giver; Debit loss and expense, Credit profit and gain; Debit inflow and credit outflow. These principles are inviolable.
In Conventional ledger system, having intermediaries, if Lucy wants to send $10 to Centralized ledger systemBob, she sends request to the bank. It checks the authenticity and balance of Lucy’s account and accepts the transaction for processing. Bank then, through central intermediary, checks credentials of Bob and transfers fund to Bob. In the process, it charges transaction fees. Finally, bank creates ledger entry, with both sides of transactions and fees. Both the parties will get reflection of this central ledger into their ledger. In these transactions intermediaries have complete control over transactions.
Blockchain Distributed ledger Technology, consists of blockchain, smart contractsdistributed ledger system and consensus logic. Ledgers are distributed among users of network. When Lucy transfers funds to Bob, this transaction is broadcasted on the network for validation. Depending on the type of DLT adopted, through a consensus mechanism, transaction is validated. This write only, time stamped & immutable record is appended in the block chain as a new block. This transaction has cryptographic key and reference to previous block, making it a chain of blocks. This block gets registered to the ledger of all the users in the network, so everyone has same copy of ledger.
From public block-chains, underpinning Bitcoin, Ethereum, etc. to Federated or Consortium block-chains adopted by sectors e.g. banks, energy, insurance on Corda- R3, etc. to Private block-chains e.g. Multi-chain, etc, Distributed Ledger Technology has come long way in last 9 years. In the last couple of years, with the advent of Hyperledger project, governed by Linux Foundation, few more iterations of Open Source DLTs are available for corporations to adopt, tune up and deploy.
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