Distributed Ledger Meaning

Jul 20, 2023 | Updated Jul 20, 2023

A distributed ledger is a record or database spread across a network that is accessible from several geographical locations.

What is a Distributed Ledger?

Distributed ledger technology (DLT) refers to a digital system that records every transaction regarding an asset. The transaction details are simultaneously recorded and accessed from multiple sites, as opposed to a central location used in conventional databases.

Distributed ledgers use independent nodes or computers to record, process, validate, and synchronize every transaction in their respective digital ledgers. It uses a decentralized server, which means that there is no central authority or central storage location. Instead, a record of each transaction is replicated on every node and a consensus is reached based on the transaction’s accuracy.

Distributed ledgers are used to create blockchain networks. They also create immutable records, meaning that once data is recorded on the ledger, it cannot be tampered with, deleted, or modified.

While the terms DLT and blockchain are sometimes used interchangeably, there’s a big difference between the two. Blockchains chain together blocks of data to form a distributed ledger, while DLTs do not organize data into blocks.

What are the Benefits of a Distributed Ledger?

Distributed ledgers offer enhanced security and immutability compared to conventional databases. Since a distributed ledger is inherently decentralized, it lacks a central point of failure or authority, making the system resilient to hacks/attacks and less prone to system-wide failures.

By removing the need for a central authority, distributed ledgers improve the speed of transactions and significantly reduce transaction costs. In addition, distributed ledgers facilitate a high level of transparency in databases by ensuring information is shared and easily accessible across a network.

Distributed ledger proponents argue that the technology has the ability to help in monitoring ownership and intellectual property (IP) rights for music, art, films, etc.

However, the technology, mostly due to its infancy, is more difficult and complex to implement and sustain as compared to conventional ledgers. It also struggles with scalability as transactions and system users increase, heightening costs and slowing processing capabilities. Distributed ledgers like Bitcoin also consume a significant amount of energy to process transactions and sustain the ecosystem.