Nope, this isn’t a countryside version of our favourite sandwich; the Deer, Lettuce & Tomato. Yep, it is another acronym with confusing words for something that actually, like most things in finance, ends up being a pretty simple concept once explained in normal English. And so on to the normal English…
Before we get into the meat of it, just to say that DLTs have been around for some time, and are not necessarily exclusive to blockchain technology. A confusing diagram below for you to muddle over, but suffice to say that I’ll just be talking about cryptographically secured DLTs on blockchains.
Good, now you’re nice and confused, let’s get on with it!
Distributed Ledger Technology is really, in my mind, at the core of all this crypto stuff. It’s like the spark plug in a combustion engine; the car looks great and is complicated and has a great story, but if it doesn’t spark and get moving, then it’s all for nothing. Or put another way around, a lot of the time I come across people with bicycles that have a spark plug in them, and are calling themselves a car…
Well… no… that’s just a bike made out of a spark plug.
So when I’m looking at crypto projects, I’m always trying to understand where Distributed Ledger Technology adds value to what the project is trying to do.
So what does Distributed Ledger Technology do? I’m not going to be the annoying person that goes through each word one by one explaining them with dictionary definitions like you’ve just emerged from 40 years in exile and need to learn the English language again. As always, we’ll go par example…
Think of DLT like a massive Google Sheet. Here is a Google Sheet ready to be populated….
Now I don’t want to get into a debate about grandmother’s sucking eggs and so on, but I have a wide range of technological skills in my readership... Suffice to say, a google sheet is basically an excel sheet that can be modified by anyone, anywhere, at the same time so long as they have the link, or the url, to the sheet. So I can create the sheet, put some information into it, and then create a link and email it to you, which when opened, will show you the sheet with my inputs that you can then add to. If we want to work on it at the same time, that’s cool.
To explain it like you’ve never come across English before, DLT is a ledger, or a database, which is distributed, so accessible anywhere in the world, and involves some tech… Welcome out of exile.
DLT is the equivalent to having a never ending Google Sheet with some data in it, that can be updated and accessed from anywhere, but with a few nuances.
The first is that once the data is in the spreadsheet, it can’t be changed. So it’s almost like people can add data in rows below, but they can’t change the data in the rows above. This is what makes DLT ‘immutable’, and this references the blocks within blockchain that build on top of one another. This is achieved through cryptographic keys and hashing, which I’ll explain another time.
Not only can the sheet be accessed by everyone anywhere, but also the people that are responsible for keeping the data in the spreadsheet ‘true’ all hold a copy of the spreadsheet on their own computer. So if you try and put something into the database that hasn’t gone through the approval process (consensus mechanism), then someone with a copy will catch you out, unless you manage to change all of the copies that are held by random people around the world, which is unlikely. Everyone has to agree.
So it’s immutable, secure and global.
Fair enough. But hear me out this last bit…
It might come as a suprise to you, as it did to me when I thought about it for a while… but databases actually run A LOT in our lives. Think about your money in the bank… it’s just a line in a database somewhere stored by Barclays. What about your social profile? That’s all just data that is compiled from your movements online and stored in a database owned by TikTok or Facebook. Using a map to drive to a friend’s house? That’s all just done by recalling data that’s stored in a database owned by Google. All your healthcare data is stored in a database. The entire financial infrastructure of the world is built on one big monster database (well that’s not quite true, but you get my point) - when Jay Pow turns back on the money machine, he’ll just add a line to a database saying that we now have $1bn more dollars this month than last…. And we’ve gone beyond carting around bullion to get people paid. And this is important shit! Excuse me. Why? Well…
Data is important for our livelihoods, our security, our well being. And who controls it, what they do with it, and how efficiently they use it matters. At the moment these databases are controlled by central parties… Google, Facebook and Jay Pow. Blockchain holds the promise of databases held by you and me, secured by cryptography and that don’t carry centralisation risk.
So back to the spark plugs
The critical aspect to a blockchain is DLT; that you can access data quickly and freely, that you know you can trust, from anywhere in the world, and with no central counterparty involved. The other critical part is ‘provenance’ - being able to go back and check data (that you can trust) from the past. If any of these utility functions are missing from a blockchain project, then it’s likely that it could just as easily work as a super fast database provided by Oracle or IBM. Be wary of ‘blockchain’ projects that don’t actually rely on the benefits of DLT.