How does a blockchain-type Distributed Ledger system work?

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In order to explain the operation of blockchain-type Distributed Ledgers, it can be useful to refresh the mind on how traditional Ledgers operate, ie the “old” “Ledgers “.

How old ledgers work

Companies, but above all banks and public administrations have used Ledgers to manage the accounting and archiving of data and accounting transactions. The Public Administrations, in turn,  based on the Ledgers the registrations and transfers of properties for land, buildings and real estate assets .

With every change, for example in the ownership of a property and every time a transaction took place, a change was made to the Ledger through a central authority in charge of managing the Central Ledger . With this organization, by acting on the Central Ledger, the public administration offices or credit institutions could at any time know and identify the owner of a property or certain resources . This control allowed the banks themselves or the public offices to verify that any passages related to new transactions on certain assets were actually possible and above all legitimate. In other words, with the Central Ledger it was possible check whether the subject X about to sell the property Y was actually in possession of that property or had not already sold it to a subject Z. The bank, in turn, could check that the person H about to buy the property Y from subject X was actually in possession of the necessary sum and had not already used it for other acquisitions, or that the same sum was not used for multiple transactions.

The basis of the Central Ledger is all in trust in a central entity

The basis of the Central Ledger is all contained in the trust that each, indeed, everyone, must have in the manager of the Central Ledger. Banks and public administrations must have that authority capable of instilling this trust. If there is this trust, people can buy and sell even without having met before and in the absence of mutual trust. Because, precisely there is a third party that guarantees for everyone. The Ledger manager – Ledger – also controls access to the information contained in the Ledger and has the power to decide who can access the identity of a building owner and who can check the balance of a checking account. All defining the rules that make up an overall design of guidelines is that establishes the Governance of the Central Ledger.

In the case of banks, only current account holders have access to and visibility of their current account. But when these owners are engaged in the purchase of an asset (for example a property) it is the bank that guarantees, during the acquisition procedures, that these subjects actually have the amount necessary for the acquisition without that other subjects can have access to their Bank account. Click on Teekia Tiwari 5 coins to $5 million masterplan to know more.

The logic of the Central Ledger: the example of the Bank

Digitization has changed the Ledgers. The Ledger goes digital

With digitization, this process has undergone evolutions and accelerations. Digitization has changed the Ledgers, like many other elements of our professional and personal life, but the Ledgers have undergone a radical change, well before other work tools.

In a first phase, digitization made the Ledgers faster, easier to use, more performing and allowed to add many features. Digitization did not change the logic of the Ledger, however. The old Central Ledger has not been questioned. The Ledgers remained in the hands of a central structure that took advantage of the digital opportunities for management and above all remained closed and reserved .Governance has not changed, access and management rules have remained with the central operator of the Ledger, even when the relationship with this manager taking advantage of digital opportunities, ceased to be personal and physical and became virtual by going over the Internet.

The big change comes with the blockchain

The big change comes with lab Blockchain which allows guaranteeing the same functionality in the management of the Ledger, but without having to refer to a centralized structure, it is possible to authorize the legitimacy of a transaction.

Image(s): Shutterstock.com

The post How does a blockchain-type Distributed Ledger system work? appeared first on The Merkle News.

Publication date: 
05/23/2020 - 13:59
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