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Distributed Ledgers: Applications & Challenges

Decentralization is at the core of distributed ledgers because of which its adoption has seen a huge growth over the years.
  • Innotech
  • |
  • January 12, 2022

A distributed ledger is a database that is consensually shared and synchronized across multiple sites, institutions, or geographies and accessible by multiple people. It allows transactions to have public ‘witnesses’. Distributed ledgers use independent computers (called ‘nodes’) to record, share, and coordinate transactions in their respective electronic ledgers, i.e. the participant at each node of the network can access the recordings shared across that network and can own an identical copy of it. Any changes or additions made to the ledger need to be accepted by a majority of the nodes, after which the new transaction is verified and reflected on the ledgers of all the nodes. Distributed ledger technology does not permit public viewing, restricting those who have access to the information. However, it is worth noting that blockchain, a type of distributed ledger, has additional specific features that enable public viewings of transactions and open participation. 

Blockchain: A Type of Distributed Ledger

A blockchain is a specific type of distributed ledger that stores information in blocks that are then linked together. A blockchain collects information in groups known as ‘blocks’. These blocks have certain storage capacities and, when filled, are chained onto the previously filled block, forming a chain of data known as the “blockchain”. New information that follows the most recently added block is compiled into a newly created block that will also then be added to the chain once it is full. This system of storing information creates an irreversible timeline of data due to its decentralized nature. A block that is filled and added is set in stone and becomes a part of the timeline that displays the history of transactions, with each block being stamped with the time when it was added to the chain. The value of blockchain is derived from it’s inherent characteristics; decentralized, trustworthy, secure and its ability to rapidly transfer value with little or no cost. 

Applications

Banking, Finance,
and Fintech 
Beneficial for both internal and external transactions. Increases the speed of payments and data processing and strengthens data security, making fraud and other security threats more difficult due to it’s distributed record logs. 
Distributed ledgers can vastly improve global payment services when used in context with existing bank infrastructure to improve operational efficiency in reconciliation and intraday liquidity management. 
Identity Services Creating a single customer view across jurisdictional and business silos through mutualized customer data management by securely sharing data among authorized and relevant parties in real time. 
Innotech has been exploring distributed ledgers for the National Digital Identity project to scale trust services for the government, businesses, and corporations.
Supply Chains Promotes transparency in supply chain transactions and reduces transaction costs.
Government Services Tax collection, issuance of passports, recording land registries, licenses, outlay of social security benefits and voting procedures.
Carbon Credit Trading Distributed ledgers are being used for carbon trading in order to improve efficiency, security, transparency, and adaptability as well as replacing legacy systems composed of tedious paperwork and physical documentation. 
At InnoTech, blockchain technology will be used in the Carbon Credit Trading project due to its secure and immutable nature.

Challenges

  • Requires skilled developers 
  • Apprehension towards the complex and disruptive nature of the technology
  • Challenges regarding the regulatory environment 
  • Different types of distributed ledgers like blockchain are still considered an immature technology and face challenges with scalability, standardization, and integration with legacy systems 
  • Security and privacy concerns (smart transactions and contracts are indisputably linked to known identities)

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