What is a distributed ledger?

A distributed ledger is a record of transactions that is copied across many computers, which keep their copies in step with one another. There is no single master copy. The technology is often shortened to DLT, for distributed ledger technology.

How does a distributed ledger work?

A traditional ledger sits in one place. A bank, for example, keeps its record of balances in its own database, and everyone else relies on the bank to keep it right.

In a distributed ledger, each participating computer, called a node, holds its own full copy. When a new transaction is proposed, the nodes check it against a shared set of rules and agree on whether to accept it, using a process called a consensus mechanism. Every copy is then updated in the same way. If one computer fails or is tampered with, the others carry on, and the faulty copy stands out.

Is a distributed ledger the same as a blockchain?

Not quite. A blockchain is one kind of distributed ledger, and the best known. It groups entries into blocks and links each block to the one before it.

Other designs skip the chain of blocks. Some link each transaction directly to earlier ones in a web-like structure. Others, such as the Corda software used in finance, share each record only among the parties to a deal and not with the whole network. Every blockchain is a distributed ledger, but not every distributed ledger is a blockchain.

Who uses permissioned ledgers?

Bitcoin and Ethereum are permissionless, meaning anyone can join and read the record. Many organizations want a shared record without that openness. A permissioned ledger admits only approved, identified members and can restrict who sees what. The differences are set out in the guide to public and private blockchains.

The main users are:

• Banks and market operators, for settling payments and securities trades among themselves.
• Groups of companies that exchange trade and shipping documents.
• Central banks testing a digital form of national currency, known as a CBDC.

What are the limits?

A distributed ledger is slower and more complicated than a single database, because many computers must agree on every change. It also copies errors as faithfully as facts. If false data is entered, every node stores the same false data.

Critics argue that when all the members are known and already trust a central operator, an ordinary shared database does the job at lower cost. Some large projects have ended that way. In November 2022, the Australian Securities Exchange abandoned a years-long plan to replace its share settlement system with one built on distributed ledger technology, and wrote off roughly A$250 million. The exchange cited technology, governance and delivery problems.