Types of Distributed Ledger Technology

Distributed ledger technology can be classified based on the authority basis where one will need permission and the other will be permissionless for validating transactions.

Apart from this, the distributed ledger technology can be split into the proof of work and the proof of stake based on the voting systems.

 

Permissionless

In the blockchain category, bitcoin is one of the most used cryptocurrency.

There are certain cryptographic keys here which will have nodes in order to participate in a network.

Anyone who holds the key can become a miner to work with the network and get a reward in return.

There is also the option for the miners to stay away from the node and give it back when they want to.

When this happens the miner will get the details of the account activity from the point of time where they left the network.

In this network, any person can read the chain and also make changes to it.

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There is also the option to create a new block for the chain. This entire system is decentralized.

Due to these standards, one can consider this system as a public blockchain.

While this is what is described as the permissionless type, there is also the blockchain which will require the permission for reading the information.
Permission Based

If the blockchain requires permission it will limit the access to users for transacting on the blockchain.

The option of taking part in the network will also be restricted which is done by implementing new blocks in the chain.

In this case, there is a transaction validator which is part of the network.

This transaction validator has its own node along with the third-party nodes, which are present across the globe.

There is the option given to the developer of the blockchain to keep the system permissionless in which the node can be kept private which will enhance the network’s security.

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In this, the record will be available to everyone. There is the option to either go for permissionless or permission-based as well as combining both and have a mix of both for the network security.

It all depends on the needs of the company based on which the technology can be customized.

 

Proof of Work & Proof of Stake

Under proof of work, the one voting right of the ledger will be given for each computer.

Imagine there is a cryptocurrency puzzle for which all the computers present in the network is trying to figure out a solution.

The only way to attain that solution is by predicting the numbers until the final solution has arrived.

The entity which gives the right solution will be able to create a new block.

This new block will have some transactions along with a reward which can be considered as a bonus.

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The reward is usually given in the format of bitcoins.

It is similar to a game where the winner gets it all. But in this game, every participant will have to pay a fee in the form of computational power.

In the case of the Proof of Stake, the process will be changed to one vote with one coin.

Here, the coins which are at stake will be locked up so that no one is able to transfer it.

For this voting rights will be allocated where the vote can be placed on the block needed to be added to the Blockchain.

If there is a fraudulent activity, then the particular person will lose coins as punishment.

In this process, a lot of time and electricity can be saved since there is no lengthy process of trying to get the voting rights.