What Is Distributed Ledger Technology?

Distributed ledgers are replicated and synchronized amongst participants in a decentralized network. The ledger is used to record interactions (transactions) between participants — including, for example, a payment.

This technology is a contrast to the centralized systems that are used by most businesses and financial institutions. In a business situation, ledgers are often complex, unwieldy, expensive, and very easy to tamper with. Furthermore, it is very easy for different versions of a ledger to become out of sync, resulting in stakeholders acting on incorrect or partial information.

Decentralized ledgers are not under the control of any single party. Instead, every participant (or node) has their own exact copy of the ledger, which is usually updated every few seconds. Participants agree on changes to the ledger through consensus. All participants are equal, and there is no central intermediary through which transactions must be routed.

In addition, distributed ledger technology allows for extremely high levels of security. The use of cryptographic hashes and digital signature technology mean that participants can be assured that transactions recorded in the ledger are genuine, and that they originate from legitimate senders as opposed to bad actors.

Distributed ledger technology is most widely known as the basis for Bitcoin. However, DLT and blockchains have wide ranges of potential uses both in public settings (such as cryptocurrencies) and in private environments such as businesses. The technology and the protocols underpinning it are designed to allow participants to transact without the need to trust any other party — for example, participants in the Bitcoin blockchain do not need to trust that a central bank or clearing institution is going to act as expected or as they say they will.