A distributed ledger (also called a shared ledger or distributed ledger technology or DLT) is the consensus of replicated, shared, and synchronized digital data that is geographically spread (distributed) across many sites, countries, or institutions.
In contrast to a
centralized database
A centralized database (sometimes abbreviated CDB) is a database that is located, stored, and maintained in a single location. This location is most often a central computer or database system, for example a desktop or server CPU, or a mainframe c ...
, a distributed ledger does not require a central administrator, and consequently does not have a
single (central) point-of-failure.
In general, a distributed ledger requires a
peer-to-peer (P2P) computer network and
consensus algorithms so that the ledger is reliably replicated across distributed computer nodes (servers, clients, etc.).
The most common form of distributed ledger technology is the
blockchain
A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, a ...
(commonly associated with the
Bitcoin
Bitcoin ( abbreviation: BTC; sign: ₿) is a decentralized digital currency that can be transferred on the peer-to-peer bitcoin network. Bitcoin transactions are verified by network nodes through cryptography and recorded in a public distr ...
cryptocurrency
A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it. It i ...
), which can either be on a public or private network.
Infrastructure for data management is a common barrier to implementing DLT.
In some cases, where the distributed digital information functions as an accounting journal rather than an accounting ledger, another term is used: RJT for replicated journal technology.
Characteristics
Distributed ledger data is typically spread across multiple nodes (computational devices) on a P2P network, where each replicates and saves an identical copy of the ledger data and updates itself independently of other nodes. The primary advantage of this distributed processing pattern is the lack of a central authority, which would constitute a
single point of failure
A single point of failure (SPOF) is a part of a system that, if it fails, will stop the entire system from working. SPOFs are undesirable in any system with a goal of high availability or reliability, be it a business practice, software appl ...
. When a ledger update transaction is broadcast to the P2P network, each distributed node processes a new update transaction independently, and then collectively all working nodes use a
consensus algorithm
A fundamental problem in distributed computing and multi-agent systems is to achieve overall system reliability in the presence of a number of faulty processes. This often requires coordinating processes to reach consensus, or agree on some data va ...
to determine the correct copy of the updated ledger. Once a consensus has been determined, all the other nodes update themselves with the latest, correct copy of the updated ledger.
Security is enforced through cryptographic keys and signatures.
Applications
In 2016, some banks tested distributed ledger systems for payments
to determine their usefulness.
In 2020,
Axoni launched Veris, a distributed ledger platform that manages equity swap transactions. The platform, which matches and reconciles post-trade data on stock swaps, is used by
BlackRock Inc.,
Goldman Sachs Group Inc., and
Citigroup, Inc.
Types
Distributed ledger technologies can be categorized in terms of their
data structures
In computer science, a data structure is a data organization, management, and storage format that is usually chosen for efficient access to data. More precisely, a data structure is a collection of data values, the relationships among them, a ...
,
consensus algorithms, permissions, and whether they are mined. DLT data structure types include linear data structures (
blockchains
A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked together using cryptography. Each block contains a cryptographic hash of the previous block, ...
) to more complex
directed acyclic graph
In mathematics, particularly graph theory, and computer science, a directed acyclic graph (DAG) is a directed graph with no directed cycles. That is, it consists of vertices and edges (also called ''arcs''), with each edge directed from one ve ...
(DAG) and hybrid data structures. DLT consensus algorithm types include
proof-of-work (PoW) and
proof-of-stake
Proof-of-stake (PoS) protocols are a class of consensus mechanisms for blockchain
A blockchain is a type of distributed ledger technology (DLT) that consists of growing lists of records, called ''blocks'', that are securely linked togethe ...
(PoS) algorithms and DAG consensus-building and voting algorithms. DLTs are generally either permissioned (private) or permissionless (public). PoW cryptocurrencies are generally either 'mined' or 'non-mined', where the latter typically indicates 'pre-mined' cryptocurrencies, such as
XRP
Ripple is a real-time gross settlement system, currency exchange and remittance network created by Ripple Labs Inc., a US-based technology company. Released in 2012, Ripple is built upon a distributed open source protocol, and supports tokens ...
or
IOTA
Iota (; uppercase: Ι, lowercase: ι; ) is the ninth letter of the Greek alphabet. It was derived from the Phoenician letter Yodh. Letters that arose from this letter include the Latin alphabet, Latin I and J, the Cyrillic І (І, і), Yi (Cy ...
. PoS cryptocurrencies do not use miners, instead usually relying on validation among owners of the cryptocurrency, such as
Cardano or
Solana.
Blockchains are the most common DLT type, with a 256-bit
secure hash algorithm
The Secure Hash Algorithms are a family of cryptographic hash functions published by the National Institute of Standards and Technology (NIST) as a U.S. Federal Information Processing Standard (FIPS), including:
* SHA-0: A retronym applied to th ...
(SHA). DLTs based on DAG data structures or hybrid blockchain-DAG decrease transaction data size and transaction costs, while increasing transaction speeds compared with Bitcoin, the first cryptocurrency.
Examples of DAG DLT cryptocurrencies include MIOTA (
IOTA
Iota (; uppercase: Ι, lowercase: ι; ) is the ninth letter of the Greek alphabet. It was derived from the Phoenician letter Yodh. Letters that arose from this letter include the Latin alphabet, Latin I and J, the Cyrillic І (І, і), Yi (Cy ...
Tangle DLT) and HBAR (
Hedera Hashgraph, a patented DLT).
See also
*
Hyperledger
Hyperledger (or the Hyperledger Project) is an umbrella project of open source blockchains and related tools, started in December 2015 by the Linux Foundation, and has received contributions from IBM, Intel and SAP Ariba, to support the collabo ...
*
Decentralized Finance (DeFi)
*
Cryptoeconomics
Cryptoeconomics is an evolving economic paradigm for a cross-disciplinary approach to the study of digital economies and Decentralized finance (DeFi) applications. Cryptoeconomics integrates concepts and principles from traditional economics, cr ...
*
Eventual consistency
Eventual consistency is a consistency model used in distributed computing to achieve high availability that informally guarantees that, if no new updates are made to a given data item, eventually all accesses to that item will return the last upd ...
*
Web3
Web3 (also known as Web 3.0) is an idea for a new iteration of the World Wide Web which incorporates concepts such as decentralization, blockchain technologies, and token-based economics. Some technologists and journalists have contrasted it w ...
References
{{Authority control
Accounting journals and ledgers
Blockchains
Distributed computing