Understanding Distributed Ledger (DLT) Types: It’s Not Only Blockchain

Distributed Ledger Technology (DLT) has rapidly transformed the way we think about data management and trust in the digital age. At its core, DLT refers to a decentralized database system spread across multiple networked computers. While blockchain, the technology behind cryptocurrencies like Bitcoin, initially popularized DLT, it's essential to recognize that the ledger landscape has since evolved considerably.

Blockchain remains a key player, but DLT has diversified, offering various structures and applications tailored to specific needs. Among these alternatives are Directed Acyclic Graphs (DAGs), such as Obyte, which provides more decentralization.

On the other hand, besides the structure, DLTs could be classified as permissioned (private) and permissionless (public). As the names suggest, they could be used privately by a certain company, organization, or even individual, or publicly and free by everyone. In our case, we’re gonna dive a bit more into the available DLT structures and their main features.

Blockchain

Of course, this one is the most well-known type of distributed ledger. It consists of a chain of digital blocks, where each block contains a list of transactions. These blocks are linked together using cryptographic hashes (unique IDs). In cryptocurrencies, blocks containing transactions are created by users who decide to do so. They’re known as miners or validators. Anyone with the right equipment or sufficient capital could be one of those users; however, in practice, block production is often dominated by a small (2-5) number of users.

All participant nodes must reach a consensus —agree about the state of the network and its valid transactions. For this, blockchains use various mechanisms. The most used of them are Proof-of-Work (PoW) and Proof-of-Stake (PoS). The first one requires a lot of energy to solve complex cryptography, so it's not considered very eco-friendly. The second one eliminates the energy part but replaces it by giving block production power to the richer nodes, which may cause unfair centralization.

Bitcoin (BTC), Dogecoin (DOGE), and Monero (XMR) are PoW blockchains. Meanwhile, Ethereum (ETH), BNB Chain (BNB), and Cardano (ADA) are PoS blockchains, just to name a few examples.

Distributed Hash Table (DHT)

A Distributed Hash Table (DHT) is a decentralized and distributed data structure used in computer networks to efficiently store and retrieve information. Think of it as a massive, virtual storage system that's spread across many connected computers. Each computer holds a part of this data table, and the DHT helps locate where specific pieces of information are stored.

Unlike blockchains, DHTs store key-value pairs, much like a distributed dictionary. It’s optimized for efficient data retrieval based on keys. Currently, the main example of this system applied in a crypto ecosystem is the platform Holochain and its native coin, Holo (HOT). They describe the system like this:\

“Rather than thinking of Holochain like blockchain, it may be better to think of it like git repositories for each agent [node] which can be published, shared, synchronized, or merged via a BitTorrent-like DHT (Distributed Hash Table). The provenance of all shared data is strictly enforced and the structure, content, and its compliance with shared application rules are validated by randomized peers.”

DHT has been primarily used for distributed data storage and retrieval, though. It still could have unknown exploits in this format.

Tempo + Cerberus

Tempo is described as a distributed ledger and consensus protocol at the same time. It introduced the concept of a shared ledger with lazy consensus, aiming to reduce communication complexity and achieve scalability. Lazy consensus is an approach where nodes don’t engage immediately. Instead, they accept and process transactions independently, coming to a consensus only when a dispute or conflict arises.

Tempo faced limitations related to finality and fault tolerance, which became apparent during testing. To address these issues and further enhance the scalability and performance of their DLT, the crypto ecosystem Radix introduced "Cerberus" in 2020. This is a multi-shard consensus protocol that incorporates elements from Tempo and HotStuff, a consensus protocol that changes leaders with every request to optimize performance.

Cerberus leverages massive presharding, allowing for virtually unlimited parallelism in transaction processing. It also introduces a novel "braiding" mechanism to enable atomic transactions across shards. This complexity may make it more challenging for developers to understand and implement, potentially increasing the risk of bugs or vulnerabilities.

Directed Acyclic Graph

A Directed Acyclic Graph (DAG) is a unique data structure and consensus mechanism used in certain cryptocurrencies. Unlike blockchains that arrange transactions in linear blocks, DAGs organize transactions into a graph-like structure without loops, meaning it's acyclic.

In a DAG-based system, each transaction serves as a node within the graph. Before a user initiates a transaction, they validate all prior transactions since the network was started, thus checking prior network activities and making sure they are correctly recorded. This validation process is crucial for transaction security and consensus. DAG-based systems eliminate the need for mining altogether. Instead, users actively participate in securing the network every time they create new transactions.

They can be faster, cheaper, and more decentralized, but not all DAGs are the same. Each of them has different systems, especially when it comes to consensus. Some of them could be faster than others; some others could have fewer intermediaries. It depends on the specific project since the “DAG” is merely a structure.

Popular implementations of this system include platforms like IOTA (MIOTA), Nano (XNO), Obyte (GBYTE), and Hedera Hashgraph (HBAR). The last one isn’t described properly as a “DAG” but uses DAGs inside its own unique Hashgraph DLT system.

Obyte as a DAG

Every cryptocurrency platform works in its own way, and it’s not different in Obyte. While other DAGs may increase centralization with their consensus mechanisms, Obyte is committed to the idea of a true ledger without middlemen. In this platform, there aren’t powerful parties (such as miners, privileged users, or companies) to control the network. Instead, along with an already partially ordered DAG, Obyte has Order Providers (OPs) to establish an unambiguous order of transactions and avoid double-spending.

OPs are typically well-respected individuals or companies that create transactions like everyone else, only that these transactions serve as waypoints for ordering all other transactions. In other words, their transactions are like guides or small headlights for the rest of operations to follow a single path.

In return, they get a portion of the transaction fees, but that shouldn’t be the main purpose of an Order Provider. They should be respectable members of the community with great interest in its well-being. And they can’t do a lot of things that miners and validators can — they simply don’t have that power.

If we imagine a scenario where they misbehave and collude, they can’t do much. They can’t censor transactions, double-spend, or steal funds. The only thing they can do is stop the network until a new network with a new set of Order Providers is restarted from the point where the old network stopped. That’s not very useful for them. Besides, all the OPs are selected by community voting through their wallets.

In the realm of DAG-based cryptocurrencies, Obyte stands out for its commitment to decentralization. It prioritizes a true ledger without middlemen, ensuring that powerful parties cannot control the network and maintaining security and practicality at the same time.

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