What is the difference between a centralized ledger and a decentralized ledger?
Ledgers have been used for thousands of years. In order to keep track of money flows and prove that payments did or didn’t happen, people record transactions in a ledger. The ledger contains entries of who paid who, when the payment happened, what the asset paid was, and how much of it was paid.
Of course, you can imagine that in the ancient days, whoever controlled the ledger also held a considerable amount of power to decide what goes in that ledger. That’s the reason that over time we developed oversight and regulations. This concept is the basic idea of a centralized ledger.
A centralized ledger is the mechanism behind the accounting of companies, banks, and so forth around the world today. Essentially, a single entity that controls the ledger. But this can result in a few dangers. First, if there is malicious intent, the centralized ledger could be used to take your money or not properly record your transactions. Even if there is not malicious intent, there is always the possibility of the entity controlling the ledger shutting down and the ledger becoming unavailable.
The decentralized ledger, also known as a distributed ledger, solves these problems. Instead of one person or entity managing the ledger on their own, we have a lot of copies of the ledger that many different people maintain. They compare their copies to make sure that everyone has the same calculations and records.
By handing over the management of the ledger to a lot of different people, we ensure that no one actor can act maliciously, and the exit of an individual does not affect the availability of the ledger. The ledger is also public and transparent for everyone, so that everyone can trust it.
When we put that decentralized ledger together in a digital manner with cryptography, we get a blockchain.