In one way or another, every blockchain is a distributed ledger, but not every distributed ledger is a blockchain. Bitcoin, as a sequential chain of blocks, has appeared as a new type of distributed ledger technology (DLT): Information storage systems. This means that a blockchain is not the only solution for secure data storage.
In today’s article, we will talk about alternative systems that allow information storage, their advantages and disadvantages, as well as determine where it is better to use blockchain and where alternatives may offer a better solution.
Distributed Ledger Systems
Blockchain technology was invented in 1991 by Stuart Huber and Scott Stornetta. They developed a prototype blockchain, the Surety system. Surety’s main asset was the equivalent of a digital signature: AbsoluteProof. An example of a distributed ledger was found in the 1995 edition of The New York Times in the “Bureau of Lost and Found” section, where the hash database was published. The principles described by the creators of Surety are present in the description of Bitcoin.
Distributed systems in the form of a blockchain have the same functions and features as their alternatives. The main feature of any DLT system is the distribution of data among all users. The only difference is in the ways of design, speed, scalability and security. Apart from the blockchain, the forms of distributed ledgers are:
- IPFS – Interplanetary File System;
- DAG: a directed acyclic graph;
Today we will talk about those solutions that are a direct alternative to Blockchain technology.
Directed Acyclic Graph
Let’s talk about the principles of DAG without going into technical details.
In Bitcoin, to add a transaction to a block, the user must interact with the ledger through the miners because it is the miners who allocate the transactions in blocks. This means that the user does not have direct access to the general ledger. But it will not be possible to get rid of the intermediary in the framework of a blockchain due to the construction principles of the technology itself.
Until recently, the topic of centralization of mining in the hands of 4-5 pools and the release of the updated Stratum V2 protocol to solve this problem was at the center of the crypto community discussion. At the same time, if you replace PoW (Proof-of-Work) with PoS (Proof-of-Stake) or any other consensus algorithm, some parties need to perform the transaction allocation process in blocks. This is a fundamental difference between a chain of blocks and other distributed type systems.
DAG provides a mechanism for users to access the registry, allowing nodes to be transaction validators. Achieving consensus in the network is achieved through all nodes verifying all transactions without forming blocks. Each subsequent transaction contains a reference to the previous one and its hash, forming a “Transaction Tree”, where all of them are confirmed and immutable.
There are minimal to no transaction fees, as miners do not need to be paid for processing your transactions.
The distributed DAG ledger is the basis of the IOTA “Internet of Things” cryptocurrency. IOTA uses a DAG modification, called a Tangle, where when adding a new transaction, you have to confirm two random transactions on the chain, not one.
With DAG in IoT, you can achieve fast data exchange between network devices. An increase in the number of devices that interact with each other increases processing power. Due to this system structure, the problem of network scalability is solved.
Hashgraph also uses “directional graph” technology to achieve consensus. Using DAG in conjunction with the Gossip protocol, which allows a node to interact only with neighboring nodes, Hashgraph is a great solution for resource-constrained devices like smartphones.
Blockchain is a decentralized system, which means that each node makes independent decisions and a sustainable system is based on the aggregate decisions of all nodes. Simply speaking, a consensus is achieved through the interaction of all the nodes connected to the network.
Holochain, due to its structure, is a distributed network where nodes interact with each other but do not depend on the decisions of other nodes. Each node in the network has its own ledger and operates independently of other nodes that interact with them. In other words, each node processes data independently, but the decentralized approach manifests itself in data sharing and storage.
Unlike Blockchain, Holochain does not have algorithms to achieve consensus, neither PoW nor PoS. The integrity of all data is ensured by receiving information from each node and analyzing it further. In fact, users create local payment systems within the Holochain, after which they parse and upload new information to the DHT (a protocol for building most distributed systems, such as BitTorrent).
Another feature of Holochain is the ability to build decentralized applications in popular programming languages, as well as adapt to the processing capabilities of new languages. Prototypes of decentralized applications such as Twitter P2P – Clutter or decentralized Wikipedia – Fractal Wiki are already created for Holo.
The Holochain solution can be used to create social media and networks, P2P platforms, delivery channels and partner networks, as well as mutual credits.
Before we talk about the Radix solution, let’s recall some peculiarities of the mining process using Bitcoin as an example.
New blocks appear on the Bitcoin network approximately every 10 minutes. To keep the speed of block generation constant, the difficulty of the network is fixed: if the block generation time is less than 10 minutes, it becomes more difficult to generate blocks, and if it is more than 10 minutes, the difficulty is reduced . This approach is dependent on time perception, so miners must include a timestamp on each block. Using the timestamp, the system may witness the same event at different times due to a problem like network latency.
A chain of blocks is formed by organizing transactions in blocks, and the computing power is designed to make a decision. This approach ensures the integrity and security of the entire system, not individual participants.
Radix offers a mechanism to achieve consensus by recording the general order of events. When logical clocks are used, what happened before the event is more important than the exact time of the event, that is, the events are sequential. At the same time, the consensus building mechanism does not apply to all events, but only to disputed ones.
The developers have created a whole ecosystem with their own terminology or, as they call it, “Universe”, where each event is an “atom”. Scalability is achieved by distributing the ledger across groups of nodes.
Even at the initial stage of development, this is one of the most innovative and promising solutions for creating distributed systems.
Why Blockchain is Not a Panacea?
The appearance of Bitcoin is an important event of our era. After all, it was Bitcoin that showed the capabilities of Blockchain technology using one of the most powerful niches of our time – finance. Being an important aspect of our lives, the world of finance began to transform and change, drawing more and more attention to both Bitcoin and its underlying technology. Such popularity around distributed ledger technology is justified by the fact that we are looking for ways to implement it in as many areas of our lives as possible: logistics, medicine, education, advertising, telecommunications, defense industry, etc.
But from our experience, it is clear that blockchain will find its own, albeit limited, application in certain areas, giving way to other distributed technologies. The 2017 ICO Boom showed that Blockchain capabilities are limitless, but not equally in demand and relevant. Even having solved the problems of scalability, bandwidth and privacy, the blockchain is limited in its application, structure and operating principles. With the change in structure, new solutions for data storage have been created and we will closely monitor their further development.