When we speak of Blockchain Technology, we are actually referring to four things: distributed Ledger Technology (DLT), smart contract technology, Enterprise Software Using block chain technology and Distributed Ledger Technology (DFT). DFT is the term used for smart contracts. It is a form of digital cash that can be programmed with any required information and executed on the fly without any need for intervention or knowledge of the seller. This is the most important aspect of the technology, as unlike other technologies such as the transfer of money and other commodities, this is governed by no laws that govern its operation and it does not have any restrictions. It’s main advantage is that unlike money, which can be controlled and taxed, digital currencies have no limitations.
On the other hand, DFT is an agreement between two or more independent groups that establishes a digital currency. Once these groups sign the agreement, the transactions are then encoded into digital blocks that are stored in a distributed ledger. The ledger is maintained by a network of computers. As we can see, the main aim of the Blockchains is to replace the traditional approach of conducting business.
The bitcoin project, which is also referred to as the bitcoin network, is basically developed to help you make it easier for people to transact without the need of a middleman. The basic function of the bitcoin is to validate transactions, which will prevent double-spending, fraud and other criminal activities. If you transfer money into and from the bitcoin network, you are actually transferring your money into the hands of the bitcoin system.
Besides being useful for transactional purposes, the ledger serves another purpose as well. This is called the distributed ledger. Unlike the traditional ledgers, which are controlled and maintained from a central database, the distributed ledger works with a network of computers rather than a single one. As such, it is less prone to errors, which makes it more reliable compared to the traditional kind of ledger.
While the ledger and the distributed ledger work hand in hand, the last component that makes up the infrastructure is the bitcoin software. This is what allows users to conduct business on the system. Basically, a user would be able to build a special computer program which can validate and record transactions that happen on the system. Transactions that occur on the system are then reflected in the ledger, which is also known as the block chain.
As you can see, all these three components work together. They work through a mesh network, which is created through a group of computers that are considered to be participants in the decentralized process. These computers form what is called a network, which is made up of nodes. Nodes are the ones that receive transactions between users and are then rewarded or credited for their work.
On the other hand, users create new blocks of transactions by creating them on their own computers. A single transaction can involve anything from a mere computer program to a physical product. These transactions are then reflected in the ledger and the block chains. Just like the previous networks mentioned, the ledger serves as the central information hub, while the blocks are used to secure the integrity of the ledger and the entire system as a whole.
With all these, it is quite clear that the centralization argument is not at all relevant with the decentralized ledger system. As a matter of fact, it would be more accurate to state that the system does not need any centralization since it is completely governed by its users. What the system needs instead, is something that is referred to as a distributed ledger, which would allow users more freedom in making decisions and transactions while still maintaining a sense of security because no single entity will always be in charge of the entire system.
