Distributed Ledger Technology or DLT has revolutionised the way we used to maintain ledgers of transactions. Compared to other systems or techniques of storing records of transactions, DLT Distributed Ledger Technology is more advanced, secure and in most cases cost effective too. But, every technology needs some solid use cases which helps to properly implement the technology. Distributed Ledger Technology or DLTs have got some really strong use cases, especially to make and receive payments. In this blog post, you will get to know about the top use cases for Distributed Ledger Technology in payments.
What is Distributed Ledger Technology?
Distributed Ledger Technology is a digital ledger maintaining system that tracks and records the transactions made on a decentralised network. DLT operates via a network of computers where every computer has the same copy of data and whenever a new bunch of transactions are added to the system, every computer on the network updates its ledger.
The main difference between the distributed ledger technology and traditional systems of maintaining ledger technology is that, in distributed ledger technology there is no central authority while in traditional ledger maintenance systems there is a central authority that has full control over the ledger.
Benefits of Distributed Ledger Technology
Distributed ledger technology has so many advantages over traditional databases. In the following lines we have listed the top benefits of using distributed ledger technology.
Fast settlements and completion of transactions:
Compared to traditional money or fund transferring systems, distributed ledger technology allows to complete any transactions much faster. While the former one can take up to several days in some cases, the latter one takes just a seconds to a few minutes to complete.
Cross border payments:
Distributed ledger technology makes it very easy to make cross-border payments. In traditional payment systems, there are different kinds of restrictions implemented on making cross-border payments, on the other hand, systems relying on distributed ledger technology are free from these geo-restrictions. People can make cross-border payments very conveniently using a DLT system.
DLT for Transparent Payment Solutions:
The best thing with distributed ledger technology is that, any transactions made on a public DLT network is visible to everybody on the network, including the nodes on which the system is running and also to every single person on the network.
However, based on the confidence of the transaction, it can also be used to make payments which are visible to a certain group of people. In short, there are options for customising the privacy or transparency on a DLT network.
Security:
Every node of a DLT network holds a copy of all transactions ever made on the DLT network. Even if the data of a system is compromised or altered, the other systems of the network are devised to identify that and rectify the error.
Also before a record is uploaded on the network, every node on the network checks and verifies the transaction to reduce fraud. This is what makes the distributed ledger technology so secure.
Distributed Ledger Technology vs Blockchain
Distributed ledger technology, blockchain - both are related concepts. Here is the main difference between the Distributed ledger technology (DLT) and blockchain.
Basic difference:
The Distributed ledger technology is a technology that can store a ledger of transactions on decentralised computers across the world.
The blockchain technology is a system that has been built using the Distributed ledger technology. In a blockchain technology, a bunch of transactions named blocks are stored on the network and in the backend, it too uses the Distributed Ledger Technology.
Transparency:
In terms of transparency, distributed ledger technology allows more flexibility and privacy because this system allows the ledger to be accessible to the public as well as to a certain group of people - this makes it ideal to implement it in a corporate system. But, in blockchain the ledger is usually available to everybody on the network.
Security of data:
In the case of security and immutability of data, distributed ledger technology tends to be more flexible.
Though DLCs don’t allow the data to be edited or altered once it is on the network, some exceptional implementations of DLCs allow editing or updating data if it is extremely necessary.
In contrast, in Blockchain technology it is impossible to change or do any kind of modification to the data that has already been uploaded on the blockchain network.
Top Use Cases of Blockchain in Payments
By using DLT systems as its underlying technology, we can use Blockchain for financial services.
Digital wallet and digital currencies:
Almost every digital wallet and digital currencies use the Distributed Ledger Technology as the backbone of their system. All popular digital currencies like Bitocin, Ethereum are transacted using blockchain technology which has DLT as its underlying technology.
The way DLT works while sending or receiving digital currencies is by establishing a peer to peer network. In this type of network system, two computers are directly connected to each other which reduces the need of an additional computer or server for the transaction to take place.
International money transfer:
DLT can be used to make the process of cross-border payment easy and fast. Geographical location where bank transfer and other payment transfer options, including wallets like Paypal, are limited can take advantage of distributed ledger technology to send or receive money from anywhere - it just requires a digital wallet and an active internet connection.
Supply chain payments:
Distributed Ledger Technology can be used to make the payment of supply chain automatic by using smart contracts. For this, first a developer needs to create smart contracts that will allow the payment to be made based on certain conditions. For example: a supply chain automation can be set up such that when the products get delivered, the money is automatically transferred to the other party’s wallet.
Retail payments:
Another successful use case of Distributed Ledger Technology is to make retail and e-commerce real-time payments with distributed ledger. E-commerce stores and retail stores can accept payments using digital currencies which run on DLT. This can help to reduce the cost of payment gateways and can help to bring down the settlement period.
Healthcare:
We can make use of the Distributed Ledger Technology to keep a track and share the patients data between healthcare professionals or healthcare providers by creating a dedicated ledger of patients data.
In this way, all the information regarding a patient's health will always be available on the DLT network which will bring a revolution to the healthcare sector and offer great convenience to patients.
DLT Solutions for Financial Institutions
Interbank Settlement Systems:
By using the real-time gross settlement systems offered by distributed ledger technology systems, banks and financial institutions can complete interbank settlement much faster than it is done in traditional ways. Some large financial institutions, like JPMorgan, have already started using DLT to make interbank settlements.
Digital tokens:
Financial institutions can create digital tokens for real estate, private equity property. These digital tokens represent ownership of real-life properties.
Future of Payments with Blockchain
Blockchain is already showing us the future of payments with its highly advanced technology. In the near future, it is expected that blockchain will be accepted as a stranded payment method along with other payment options.
- The implementation of Blockchain has found its best success in digital currencies like Bitcoin and Ethereum.
- Along with digital currencies, an alternative currency named stablecoins has also seen an increasing number of users recently and the user graph will only increase in the future.
- Decentralised finance is a new concept whereby blockchain is being used to offer financial services.
Conclusion
It has not been long since blockchain and distributed ledger technology was brought into existence. But within a few years of this technology first brought out, they are not being heavily implemented everywhere. Alternative Blockchain-based new technologies are now being brought to the market to replace old blockchain-based technologies. Now blockchain and DLT are being used everywhere from e-commerce websites, to make day to day payments and even financial institutions too.
Frequently Asked Questions
- Are blockchain and distributed ledger technology different?
No, block Chain and distributed Legi technology are not different from each other, rather they are related. Blockchain is an implementation of distributed ledger technology.
- What is the use of DLT for remittances?
Distributed Legi Technology can be used to send remittances to people living abroad quickly and securely. It reduces the dependency on bank and offers fastest settlement period and lower transaction and exchange fees
- Is there any drawback of DLT?
There are no drawbacks of DLT as such, However there are some disadvantages of DLT in the wider picture.
- Transactions over DLT can slow down if there is a high volume of transactions over the network.
- DLT requires a lot of computers to work simultaneously - this consumes a lot of energy and is somehow harming nature.
- Can DLT be used in companies?
Yes, companies can implement DLT as an alternative to their traditional approach. However, at first there may be some problems with the integrations which can be worked out with time.
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