Distributed Ledger Technology (DLT)

Distributed Ledger Technology (DLT) forms the basis of a Blockchain solution. Before we understand how that works, we must first understand the concept of a ledger.

An accounting ledger is a record book (referred to as a journal) used to maintain entries for balance sheet and income statement transactions. Accounting ledger journal entries can include information such as cash receivable, investments, inventory, payable, accrued expenses, and customer deposits. Balance sheet ledgers include asset ledgers, such as cash or accounts receivable. Income statement ledgers can include ledgers as revenue and expenses.

The accounting ledger, sometimes called the general ledger, provides a centralized repository to collect all account data rolled up from sub-ledgers or modules, making it the backbone of any corporate financial system.

The accounting ledger is used to generate the key financial statements: the income statement, cash flow statement, and balance sheet for the company. Posting to an accounting ledger is known as bookkeeping.

While ledgers may have been digitized and are available as complex accounting systems, their basic design and working principles still mimic the traditional ledgers.

Distributed Ledgers

Distributed ledgers are a system of databases in which the data is replicated across multiple participants who read or write transactions from or to their own copy of the database, which is then synchronized in real time across all other participant copies of the database. It is in contrast to the traditional approach of using a centralized database, which is managed by one of the participants, and the others have to rely on the owner of the database to manage it for them.

With this description, distributed ledgers sound the same as blockchain. While that is a fair understanding, the only point to remember is that while all blockchains use distributed ledgers, not all distributed ledgers are blockchains. There are other implementations of distributed ledgers as well.

Both achieve the primary objective of removing the need for an intermediary party when conducting transactions between a group of businesses. Unlike blockchain, a distributed ledger does not necessarily need to have a data structure in blocks. A distributed ledger is merely a type of database spread across multiple sites, regions, or participants.

Distributed Ledger Technology, or, in general, distributed ledger architectures and structures were created for the processing of transactions in an environment shared by participants bound together by a contractual relationship. In contrast, Blockchains originally were designed so that unknown participants, were not bound by any contract and could transfer value safely.

How DLT works