Distributed Ledger Technology – Is Blockchain the Only Option?
In 2008, Satoshi Nakamoto published a paper titled Bitcoin: A Peer-to-Peer Electronic Cash System. This was the start of a technology that is often considered as the greatest tech innovation since the Internet – blockchain.
Blockchain and DLT
Distributed Ledger Technology (DLT), a.k.a. distributed ledger or shared ledger is a peer-to-peer consensus-based system to distribute, share, and synchronize data between different computers. There is no centralized administration, server, or storage in this system; the data is shared between multiple computers spread across the world.
The devices or nodes in a distributed ledger network continuously communicate with each other. Each node processes and verifies every transaction, and reaches a consensus on the accuracy of these transactions.
Blockchain works on this principle.
The inherent features of DLT – decentralized nature, digital fingerprinting, and consensus algorithm – makes it a trustworthy technology for keeping track of all kinds of digital assets.
Types of DLT
All blockchains are DLTs, but all DLTs are not blockchains. The DLT can be classified based on how the data is distributed, shared, synchronized, and agreed upon – proof-of-work, proof-of-stake, leader-based, and hashgraph.
Proof-of-Work (PoW): One of the most commonly known ledger systems, is the method used in blockchains. According to this protocol, the miners of the participating nodes have to solve a cryptographic puzzle. The first node to complete it gets to add the block to the chain, and the other nodes will essentially endorse it. Bitcoin and Ethereum use this function.
Proof-of-stake (PoS): In this protocol, the person who adds block is chosen depending on the stake that the miner has committed. All miners get the transaction fee here, and not just the person who added the block. Ethereum Casper is being developed on this function.
Leader-based: All the nodes in this protocol sends transaction data to a designated, specialized node. This leader node picks an order and sends it back to the network. Practical Byzantine fault tolerance (PBFT), Raft, and Paxos are systems that use leader-based model.
Hashgraph: A hashgraph uses not only gossip protocol but also gossip about gossip and virtual voting. The nodes to communicate the latest state of their information with each other and this communication is recorded to build a graph of connections.
Is Hashgraph the Future?
Hashgraph claims to be a superior distributed ledger technology as it consumes lesser time, money, and energy for the transactions. The consensus time stamping in hashgraph stops individuals from affecting the consensus order of transactions. Moreover, it uses all the blocks created by nodes and doesn’t discard any, unlike blockchain.