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# System prepended metadata

title: The emergence of Distributed Ledger Technologies
tags: [EN-TheSmith's-Collection]

---

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Author: https://twitter.com/guiribabrb
Original Article: https://odysee.com/@ShapeShiftDAObr:a/intro-DLT-ptbr:c
---
# The emergence of Distributed Ledger Technologies

The conception of new technologies, usually, occurs due to problems existing in society. Through them, the resolution or, at least, the reduction of these problems becomes possible. Thus, the creation of Bitcoin by Satoshi Nakamoto came as a proposed solution to solve a fragility in the traditional financial system. The lack of confidence in the State in exercising its regulatory power over financial institutions and the lack of transparency regarding their functioning were issues identified during the 2008 crisis.

By bringing together years of studies by other researchers – such as Wei Dai, Hal Finney, Adam Back – Satoshi, in 2009, implemented a solution: an immutable, public record storage network guaranteed by anonymous validators. These don't depend on mutual confidence to accomplish the validation, because its verification is carried out through algorithmic and cryptographic methods. This new way of storing information was called blockchain.

Thus, Bitcoin brought a new paradigm to society: not only a new way of representing value, but the development of mechanisms capable of guaranteeing the veracity of stored data without the need to place trust in intermediaries.

Blockchain is a type of DLT – Distributed Ledger Technology – and was the first of the type developed. Generally speaking, DLTs refer to a new way of recording and storing information across multiple databases. These communicate with each other in order to synchronize and send data through the distributed network that includes the participants, responsible for validating all transactions that took place.

In this type of DLT, data is stored and transmitted in packets called “blocks”, which are interconnected to each other in a digital chain. That is, a “chain of blocks” is built – hence the name blockchain. The guarantee that the information present in the blocks doesn’t contain false or altered data is carried out by consensus between the validator nodes. In the case of Bitcoin blockchain, the consensus mechanism known as Proof of Work is used, inhibiting malicious users that try to introduce adulterated blocks and facilitating the validation of information present in the chain of blocks transmitted between nodes.

However, other DLTs types came up after the creation of blockchain, in order to attend to specific necessities. Thus, permissioned DLTs emerge, with applications in the supply chain, traditional financial system, energy, among others.

To illustrate the difference between public DLTs – Bitcoin and Ethereum – and permissioned, we bring the [World Bank Group](https://openknowledge.worldbank.org/handle/10986/29053) analysis:

![](https://i.imgur.com/eKBtLfm.png)

The use of DLTs doesn’t require them to be public like the Bitcoin blockchain. Certain companies that want to take advantage it brings, but don’t want to make public all the information about their business model, adapt it according to their needs. Therefore, DLTs can be public, permissioned or even hybrid, mixing characteristics of both.

However, permissioned DLTs give up the main advantages that exist in the creation of Satoshi: better transparency of information; easy auditing of their validation; and the decentralization of data storage and validation. For this reason, private entities that opt for permissioned DLTs should carefully analyze whether, by placing centralization points in the network, they will not make them more susceptible to hacker attacks, such as the 51%¹, for example.

We don’t want to criticize the use of permissioned DLT solutions here: it’s just crucial to point out that the institutional adoption of this technology is a natural migration, due to the benefits it’ll bring to the sector. Thus, the information stored may be at serious risk if characteristics such as: efficient mechanisms for building consensus aren’t considered; as many nodes as possible responsible for validating and storing the data; and decrease in the centralization points of control/administration of the DLTs.

Even with disadvantages, it’s important to emphasize that **there are benefits to its use**. The scalability aimed at achieving the capacity to process a high volume of transactions will hardly be achieved in public DLTs such as Ethereum’s – 15 TPS² – or Bitcoin – 7 TPS. Meanwhile, private solutions such as Ripple’s, which aims to serve as a backbone for international payments between banks and is delving into the asset tokenization market, promises to support up to 50,000 transactions per second. Therefore, the absence of decentralization can bring benefits and harm to the network: **it’s up to each one to find the best solution for themselves.**

Government entities tend to have a better acceptance of permissioned DLTs, as they’re much more open to control over users on the network. An example is the adoption of technologies developed by [R3](https://www.r3.com/) for implementation of a [brazilian CBDC.](https://www.r3.com/wp-content/uploads/2018/11/CBDC_Brazil_R3.pdf)

On the other hand, many *dapps* developers abhor companies like Ripple and tend to build their applications on more decentralized DLTs like Ethereum, for example. Regarding scalability problems, solutions have been already been proposed, such as the use of Layer 2 - Arbitrum/Optimism - and the expectation of migration of the consensus mechanism between validator nodes, which is currently carried out using Proof of Work, but which will adopt the Proof of Stake – on the Ethereum network. As for Bitcoin, there are Layer 2 solutions also being developed, such as Lightning Network, [RSK](https://www.rsk.co/) and [Stacks](https://www.stacks.co/).

The important thing is that the crypto universe is in constant development and new DLT solutions will emerge, whether they are more or less decentralized. Do you know any that weren’t mentioned here?

¹In 51% attacks, malicious users manage to take control of more than half of the validator nodes, allowing them to tamper with occurred transactions or even delete them from the records.

²TPS = Transactions per Second.

###### tags: `EN-TheSmith's-Collection`
