Which DLT implementations are not blockchains

Blockchain

Get in or wait? Many IT managers are faced with this question when the topic of Distributed Ledger Technologies (DLT) comes up. The technology is less of a challenge - the basic technologies are already 40 years old - than the question of the economic benefit of using a distributed ledger. To make matters worse, DLT is basically a form of inefficient data storage.

These and other questions are answered in our FAQ, which J├╝rgen Pinkl, head of the Technology division of Accenture Germany, supported us with his know-how.

Both digital ledger technology and distributed ledger technology are often used. What is the difference?

The terms are usually used synonymously, even if there is one or the other manufacturer who makes a very fine distinction here. As a rule, however, the same thing is meant by it.

DLT is currently one of the hype terms. What exactly can I imagine by that?

The term distributed ledger technology is partly explained by the direct translation. In general, it is a decentralized database, in particular a "distributed cash book". Distributed ledger technology, for example, represents the technological basis of virtual currencies. However, it would be wrong to reduce it to this application. In digital payment and business transactions, it is also used to record transactions from user to user without the need for a central point that legitimizes each individual transaction.

Distributed ledgers are generally divided into "permissioned" and "unpermissioned". The blockchain in the Bitcoin network is a good example of the latter. Everyone has access to the network and can mine bitcoins whenever and wherever they like. With such "unpermissioned ledgers", a proof-of-work mechanism is used (all participants must validate a change) because the participants in the network do not know each other personally. This is also the reason for the immense computing power and the high power consumption when mining bitcoins. For companies, however, the restricted, permission-based access is far more interesting. The choice of access authorization has a direct effect on the verification of entries in the database or the ledger. The proof-of-stake approach (weighted voting rights) is used here, in which the participants are checked before they join the network.

What significance do these technologies have for business?

With DLT, processes can be mapped that previously could not be implemented in this way. One example is platooning for trucks when they are driving very closely behind one another in a convoy. The following vehicles save a lot of fuel. But how can the first in the convoy who doesn't save anything be compensated so that he continues ahead? If, for example, points are awarded for this and a billing system is built on it, then this is an application for distributed ledgers.

Ultimately, DLT enables applications whose processes were previously far too expensive and time-consuming, or where there was no trustee. In general, you could publish vehicle data, maintenance data, service data, etc. via DLT, for example, and turn them into a business.

There are also revolutionary ideas: For example, when small contracts are drawn up with DLT so that payment is made automatically when a certain action is carried out. Specifically, this could be a micropayment that is triggered when a song is playing. Ultimately, DLT opens up a broad and broad field of application. That is why decision-makers should know about DLT, even if they do not necessarily have to know the technology themselves.

Is DLT really needed in practice? Applications such as platooning or maintenance data can also be implemented with the help of a data trustee

Yes that is correct. Not all applications that are now being tried out with blockchain and other technologies are a great use case for distributed ledger technologies. Basically, a data trustee is also a good idea. The question of compensation remains, however, and how expensive the whole thing will be. DLT, on the other hand, is more of a voluntary system in which participation is administratively less difficult. In principle, the question arises again and again whether a central database or DLT makes more sense. Especially since blockchain and other DLTs have the disadvantage of storing data in a comparatively inefficient manner. In fact, the database has to be distributed to all participants. This redundant data storage makes distributed ledgers inefficient.

When is DLT and when is a central database more suitable?

It is difficult to make a general statement about this, each user should decide on a case-by-case basis with a view to the respective use case.

Blockchain is often mentioned in connection with DLT. Is blockchain the same as DLT or is blockchain just a subset?

DLT is the generic term and blockchain is a real subset of DLT.

What other DLTs are there besides blockchain?

Distributed ledger technologies differ essentially in their different architectures. In addition to the blockchain, the Block Directed Acyclic Graphs (blockDAG) and the Transaction Directed Acyclic Graphs (TDAG) are known. Recently, with Hashgraph, a further development of the original blockchain architecture has been attracting attention, which has been optimized in terms of security and processing speed (and thus also energy consumption).

What technology is behind DLT?

One technique is the blockchain and it goes from there back to the Merkle Trees invented in 1979. This is a data structure in which individual data blocks refer to each other and are accordingly encrypted - both the reference and the hash value of the block. Actually, DLT are data structures that have been known for a long time.

Why are DLT and blockchain hype topics right now when the technology is almost 40 years old?

The IT equipment used today is many times more powerful when it comes to processing and storing large amounts of data. This would not have worked at all 30 to 40 years ago, as there was a lack of computing power, storage resources and the corresponding networks. The ability to efficiently process large amounts of data has now made the technologies popular. At the same time, there are many critics who, in view of the immense amounts of data, such as those generated with the blockchain application Bitcoin, and the inefficient data storage, warn of the high energy consumption and the associated CO2 pollution.

As a user, what do I need if I want to introduce a DLT solution such as platooning?

The technical requirements are relatively easy to deal with. For this purpose, companies can work with hyperscalers, who usually also offer the corresponding libraries. Regardless of whether Azure, Google Cloud or AWS - the appropriate libraries are available everywhere to set up a DLT system. In addition to the technology, the agreements of the other participants are also required. The biggest challenge is likely to be to find some kind of consortium that uses the same technology.

How does a typical DLT implementation work?

The projects are usually not particularly large and the technical implementation is not complicated. Often it is a typical system integration project. The digital ledger structure is set up in small agile teams in the backend and the necessary interfaces are created in the frontend. Actually, a DLT implementation does not differ from other current projects - always under the assumption that the corresponding platforms and open source components are used. The hard part is the business side of finding the partners you need to maintain critical mass.

What's the future like? Will DLTs continue to spread and will they replace traditional methods?

In percentage terms, the number of blockchain projects is growing rapidly - but starting from a relatively small base. Even if the numbers double every year, only a small percentage of users venture into DLT projects. In addition, there are more prototypes and experiments than real large-scale projects. Nevertheless, users should deal with DLTs. In every industry there are always startups that successfully attack traditional business models with the help of new technologies - here we only think of transfers and the like. At the moment, the interest in DLT and classic database technology is balanced out in consultations.