Definition

distributed ledger technology (DLT)

Contributor(s): Sue Troy, Mary K. Pratt

Distributed ledger technology (DLT) is a digital system for recording the transaction of assets in which the transactions and their details are recorded in multiple places at the same time. Unlike traditional databases, distributed ledgers have no central data store or administration functionality.

In a distributed ledger, each node processes and verifies every item, thereby generating a record of each item and creating a consensus on each item's veracity. A distributed ledger can be used to record static data, such as a registry, and dynamic data, i.e., transactions.

This computer architecture represents a significant revolution in record-keeping by changing how information is gathered and communicated.

Origins of ledgers

Ledgers -- which are essentially a record of transactions and similar data -- have existed for millennia in paper form. They became digitized with the rise of computers in the late 20th century, although computerized ledgers generally mirrored what once existed on paper.

However, throughout history, a central authority needed to validate the authenticity of the transactions recorded in the ledgers. For example, banks need to verify financial transactions.

Now, 21st century technology has enabled the next step in record-keeping with cryptography, advanced algorithms, stronger compute power and near-ubiquitous computational power, making the distributed ledger an increasingly viable form of record-keeping.

Distributed ledger implementations

Blockchain, which bundles transactions into blocks that are chained together, and then broadcasts them to the nodes in the network, is probably the best-known type of distributed ledger technology. It powers bitcoin, the digital currency created in 2009. Bitcoin is also known as being a peer-to-peer network.

blockchain DLT
A representation of how blockchain, a distributed ledger technology, works.

Other entities using blockchain include Overstock.com, the online retailer based in Salt Lake City that delivered a first when it traded stock on a blockchain-based platform in December 2016.

Why they're important

Distributed ledger technologies have the potential to speed transactions because they remove the need for a central authority or middleman. Similarly, distributed ledgers have the potential to reduce costs of transactions.

Experts also believe that a distributed ledger technology is much more secure because each node of the network holds records, thereby creating a system that's more difficult to manipulate or successfully attack.

Many also consider a distributed ledger a much more transparent way of handling records because the information is shared, and thereby witnessed across a network, which also makes a successful cyberattack much more unlikely.        

Distributed ledger benefits

Much of the early interest in distributed ledger technology has been around its application in financial transactions. That's understandable, considering that the cryptocurrency bitcoin gained worldwide use, while also simultaneously proving that DLT can, indeed, work. Banks and other finance-related institutions became early innovators in this space, as well.

However, DLT proponents say digital ledgers can be used in multiple areas, including government and business dealings, in addition to financial transactions. Experts believe digital ledgers can be used in tax collection, property deed transfers, social benefits distribution and even voting procedures. They also say DLT can be used to process and execute legal documents and other similar exchanges.

Some believe that individuals can use this technology to hold and better control personal information, and then selectively share pieces of those records when needed; use cases here include individual medical records and corporate supply chains.

Additionally, proponents say digital ledgers can help better track intellectual property rights and ownership for art, commodities, music, film and more.

The future of distributed ledger technology

Whether distributed ledger technologies, such as blockchain, will revolutionize how governments, institutions and industries work is an open question. Articles in the academic and financial press have questioned whether distributed ledger technologies as they exist now are sufficiently reliable to put into wide-scale use. Issues include the paucity of regulations for this new form of exchange and security concerns. 

This was last updated in August 2017

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