Distributed Ledger Technology

What is distributed ledger technology (DLT)?

A distributed ledger is a shared database that exists across multiple computers (or nodes), so no single entity controls the records. This setup ensures that every participant can independently verify transactions and maintain trust without relying on a central authority. It is the foundational technology behind many blockchain systems, enabling transparency, security, and fault tolerance.

Transactions are verified by a consensus process (such as Proof of Work (PoW), Proof of Stake (PoS), or Tower Byzantine Fault Tolerance) so participants can trust the ledger without a single controlling party.

Most DLTs are tamper-evident rather than perfectly immutable. Records are extremely difficult to change, and any attempt leaves a clear trail.

Key benefits of DLTs include:

These features explain why organizations and developers adopt DLTs in finance, supply chain, and other domains:

• Transparency: All participants can see and verify the same records, reducing the need for blind trust.
• Auditability: Every transaction is recorded with a timestamp and cryptographic proof, making it easy to trace history.
• Disintermediation: DLT removes the need for central authorities or middlemen, allowing direct peer-to-peer interactions.
• Resilience and fault tolerance: Copies of the ledger exist across many nodes, so the system continues running even if some nodes fail.
• Reduced reconciliation costs: Shared data means organizations spend less time and money cross-checking records.

Challenges of DLTs include:

While DLTs bring many benefits, there are also technical and practical limitations:

• Scalability limits: As more users join, verifying and storing every transaction can slow performance.
• Energy consumption (for some systems like PoW): Mining-based systems such as Bitcoin require high electricity usage.
• Regulatory uncertainty: Governments are still deciding how to regulate DLT, creating compliance risks.
• Collusion risks: If participants cooperate maliciously, they could manipulate the ledger. This is generally impractical for highly decentralized systems but more plausible for smaller networks with fewer validators.
• Security vulnerabilities: Permissioned DLTs must prevent unauthorized access, and cryptocurrency wallets remain a target for hacks.
• Permanence challenges: Immutability is a strength, but mistakes or incorrect entries are difficult to correct.

Distributed ledger technology (DLT) is a way of keeping records across many computers instead of relying on a single authority. This makes it harder to tamper with data, increases trust, and ensures everyone sees the same version of the truth. It brings benefits like transparency, resilience, and cutting out middlemen. But also faces challenges such as scalability, energy use, unclear regulations, and the difficulty of fixing mistakes once data is recorded.

Is DLT the same as blockchain?

DLT is a broad category, and blockchain is just one type. Understanding the difference helps clarify how systems operate:

• Blockchain: Groups transactions into blocks, cryptographically linked to form a chain.
• DAG-based ledgers: Organize transactions in a web-like structure, Directed Acyclic Graphs (DAGs): rather than linear blocks.
• Hashgraph: Uses a “gossip about gossip” protocol where nodes share information about transactions with each other. This allows for fast, fair ordering without mining.
• Holochain: Stores data agent-centrically, meaning each user maintains their own chain that can link with others in an encrypted peer-to-peer network. It emphasizes scalability and autonomy rather than consensus across the whole network.

What is an example of a DLT?

DLT platforms vary in design and use case, from cryptocurrencies to enterprise solutions:

• Bitcoin: A blockchain using Proof of Work for digital currency.
• Ethereum: A blockchain supporting smart contracts.
• Solana: A high-performance blockchain that uses Proof of History combined with Proof of Stake.
• IOTA: A DAG-based ledger designed for IoT devices.
• Hyperledger Fabric: A permissioned DLT for enterprises.
• Corda: A DLT tailored for financial institutions, designed for privacy and regulatory compliance.

Are DLTs centralized or decentralized?

DLTs exist on a spectrum. Understanding their degree of decentralization helps explain the risks and benefits:

• Permissionless (Public): Open to anyone. Examples include Bitcoin and Ethereum, where any participant can join, validate transactions, and view the entire ledger.
• Consortium (Federated): Controlled by a group of pre-selected organizations. Examples include trade finance networks and supply chain collaborations, where competing companies share governance.
• Permissioned (Private): Restricted to approved participants only. Examples include Hyperledger Fabric and Corda, where enterprises control access while still distributing records across nodes.

Decentralization is not all-or-nothing—some DLTs may be architecturally distributed but politically centralized.

Using “distributed ledger technology” in English

Distributed ledger technology (noun)

A system where records are stored and shared across multiple computers.

Finance Example

In finance, distributed ledger technology allows us to process international transactions faster and with fewer intermediaries. That means lower fees and near real-time settlement.

Supply Chain Example

For supply chains, a distributed ledger can track every step of a product’s journey. This makes it easier to verify authenticity, reduce fraud, and improve overall transparency.

Technology Choice Example

There are different types of distributed ledgers: blockchains, DAGs, and even agent-centric models like Holochain. Each offers trade-offs in speed, scalability, and governance, so we need to choose the one that fits our project goals.