Distributed Ledger Technology

When reading articles, white papers or news related to cryptocurrencies such as Ethereum or Bitcoin, it may happen to see the terms Distributed Ledger Technology and Blockchain being used interchangeably. The problem with this is that the two terms do not indicate quite the same thing. This article aims at clarifying what DLT is and why it differs from the “mere” concept of Blockchain.

Going from information carved on stone and clay to paper and eventually digital registers, human beings have long been using the practice of storing information on ledgers to keep track of exchanges of assets. The world now stands on the brink of disruption, as new forms of data storage led by decentralization are going to foster a new wave of innovation. These new forms are known as distributed ledgers.

A distributed ledger is a record of assets spread across a network of computers that manage the network and are connected to each other, eliminating then the need to have a central authority holding the entire record of assets. The term distributed indicates the possibility for every participant to have a copy of the entire ledger, which is automatically updated when a new transaction occurs; this system makes DLTs extremely difficult to hack. 

“Imagine you have a distributed ledger with a thousand computers on it. If you had stored a contract into the ledger and someone wanted to come in and change some of the information, in order to d o that they couldn’t just hack a computer; they would have to hack every single other person’s computer at the same time and change the exact same piece of information”

Dr Catherine Mulligan, Imperial College London

Click here to watch the full video where Dr Catherine Mulligan explains DLT and Blockchain technology

The ultimate goal of DLT pioneers is to create a market where most (if not all) types of interactions and exchanges of value occur in a peer-to-peer fashion with minimum involvement of intermediaries. Distributed ledgers can be classified by level of access:

• Public accessible ledgers: all kinds of users can access the information contained in such ledgers
• Restricted ledgers: only a certain group of users can access all or part of the information stored in the ledgers

DLTs can also be differentiated by level of permission:

• Mutable ledgers: ledgers where all users can modify the existing information

• Partially mutable ledgers: ledgers where only a certain kind of enabled users can update, add or delete information

Immutable ledgers: ledgers where, once uploaded, information cannot be edited in any way. Blockchain is a typical example of immutable ledger

The most commonly known types of existing DLTs are:

• Blockchain: the best-known type of distributed ledger, where unrelated information is bundled into blocks, chained together and then broadcast to all members of the network
• Consensus Ledger: instead of grouping and chaining transactions, each member has its own independent account. Therefore, consensus is achieved at the individual level and not at the level of the entire ledger

In the final analysis, it can be stated that Blockchain is just an example of a distributed ledger. Despite being the most powerful form of DLT today, it doesn’t mean it’s going to remain the only or even the final one.