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Distributed ledger

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A distributed ledger (also called a shared ledger or distributed ledger technology or DLT) is a system whereby replicated, shared, and synchronized digital data is geographically spread (distributed) across many sites, countries, or institutions.[1] In contrast to a centralized database, a distributed ledger does not require a central administrator, and consequently does not have a single (central) point-of-failure.[2][3]

In general, a distributed ledger requires a peer-to-peer (P2P) computer network and consensus algorithms so that the ledger is reliably replicated across distributed computer nodes (servers, clients, etc.).[2] The most common form of distributed ledger technology is the blockchain (commonly associated with the Bitcoin cryptocurrency), which can either be on a public or private network. Infrastructure for data management is a common barrier to implementing DLT.[4]

Characteristics

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Distributed ledger data is typically spread across multiple nodes (computational devices) on a P2P network, where each replicates and saves an identical copy of the ledger data and updates itself independently of other nodes. The primary advantage of this distributed processing pattern is the lack of a central authority, which would constitute a single point of failure. When a ledger update transaction is broadcast to the P2P network, each distributed node processes a new update transaction independently, and then collectively all working nodes use a consensus algorithm to determine the correct copy of the updated ledger. Once a consensus has been determined, all the other nodes update themselves with the latest, correct copy of the updated ledger.[5] Security is enforced through cryptographic keys and signatures.[6][7][8]

Applications

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In 2016, some banks tested distributed ledger systems for payments[9] to determine their usefulness.[2] In 2020, Axoni launched Veris, a distributed ledger platform that manages equity swap transactions.[10] The platform, which matches and reconciles post-trade data on stock swaps, is used by BlackRock Inc., Goldman Sachs Group Inc., and Citigroup, Inc.[11]

A pilot scheme by the Monetary Authority of Singapore completed its first live trades using DLT in 2022. The pilot by Singapore's central bank involved JP Morgan, SBI Digital Asset Holdings and DBS. The banks traded using smart contracts against liquidity pools of tokenized Singapore government bonds, Japanese government bonds, yen, and Singapore dollars. Singapore has set up two more pilots. Standard Chartered Bank is exploring tokens for trade finance; and HSBC and United Overseas Bank are working with Marketnode, a digital markets infrastructure provider, on products for wealth management.[12][13]

DLT can be used for smart contracting, which is the formation of contracts which automatically complete when triggered by prevailing conditions.[14]

Types

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In the context of cryptocurrencies, distributed ledger technologies can be categorized in terms of their data structures, consensus algorithms, permissions, and whether they are mined. DLT data structure types include linear data structures (blockchains) to more complex directed acyclic graph (DAG) and hybrid data structures. DLT consensus algorithm types include proof-of-work (PoW) and proof-of-stake (PoS) algorithms and DAG consensus-building and voting algorithms. DLTs are generally either permissioned (private) or permissionless (public).[15] PoW cryptocurrencies are generally either 'mined' or 'non-mined', where the latter typically indicates 'pre-mined' cryptocurrencies, such as XRP or IOTA. PoS cryptocurrencies do not use miners, instead usually relying on validation among owners of the cryptocurrency, such as Cardano or Solana.

Blockchains are the most common DLT type, with a 256-bit secure hash algorithm (SHA). DLTs based on DAG data structures or hybrid blockchain-DAG decrease transaction data size and transaction costs, while increasing transaction speeds compared with Bitcoin, the first cryptocurrency.[16] Examples of DAG DLT cryptocurrencies include MIOTA (IOTA Tangle DLT) and HBAR (Hedera Hashgraph, a patented DLT).

See also

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References

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  1. ^ Distributed Ledger Technology: beyond block chain (PDF) (Report). Government Office for Science (UK). January 2016. Archived (PDF) from the original on 16 March 2018. Retrieved 29 August 2016.
  2. ^ a b c Scardovi, Claudio (2016). Restructuring and Innovation in Banking. Springer. p. 36. ISBN 978-331940204-8. Archived from the original on 22 September 2022. Retrieved 21 November 2016.
  3. ^ "Distributed Ledgers". Investopedia. Archived from the original on 2022-08-01. Retrieved 2022-08-09.
  4. ^ Sadeghi, Mahsa; Mahmoudi, Amin; Deng, Xiaopeng (2022-02-01). "Adopting distributed ledger technology for the sustainable construction industry: evaluating the barriers using Ordinal Priority Approach". Environmental Science and Pollution Research. 29 (7): 10495–10520. Bibcode:2022ESPR...2910495S. doi:10.1007/s11356-021-16376-y. ISSN 1614-7499. PMC 8443118. PMID 34528198.
  5. ^ Maull, Roger; Godsiff, Phil; Mulligan, Catherine; Brown, Alan; Kewell, Beth (21 Sep 2017). "Distributed ledger technology: Applications and implications". FINRA. 26 (5): 481–89. doi:10.1002/jsc.2148. Archived from the original on 9 February 2022. Retrieved 9 February 2022.
  6. ^ "Distributed Ledger Technology: beyond block chain" (Press release). Government Office for Science (UK). 19 January 2016. Archived from the original on 15 May 2022. Retrieved 25 September 2018.
  7. ^ Brakeville, Sloane; Perepa, Bhargav (18 Mar 2018). "Blockchain basics: Introduction to distributed ledgers". Developer works. IBM. Archived from the original on 26 September 2018. Retrieved 25 Sep 2018.
  8. ^ Rutland, Emily. "Blockchain Byte" (PDF). FINRA. R3 Research. p. 2. Archived (PDF) from the original on 23 January 2021. Retrieved 25 September 2018.
  9. ^ "Central banks look to the future of money with blockchain technology trial". Australian Financial Review. Fairfax Media Publications. 21 November 2016. Archived from the original on 4 December 2016. Retrieved 7 December 2016.
  10. ^ "Citi and Goldman Sachs go live with blockchain equity swaps platform - The TRADE". www.thetradenews.com. Retrieved 2022-05-20.
  11. ^ "BlackRock Joins Blockchain Platform Axoni for Equity Swap Trades". Bloomberg.com. 2021-09-07. Retrieved 2022-05-20.
  12. ^ "MAS in DeFi landmark trade". Euromoney. 2022-11-03. Archived from the original on 2023-02-04. Retrieved 2023-02-04.
  13. ^ "First Industry Pilot for Digital Asset and Decentralised Finance Goes Live". www.mas.gov.sg. Archived from the original on 2023-02-04. Retrieved 2023-02-04.
  14. ^ Nevil, S., Distributed Ledger Technology (DLT): Definition and How It Works, Investopedia, updated on 14 June 2024, accessed on 22 June 2024
  15. ^ "Blockchains & Distributed Ledger Technologies". Blockchainhub Berlin. Archived from the original on 2018-01-19. Retrieved 2022-07-28.
  16. ^ Pervez, H. (2018). "A Comparative Analysis of DAG-Based Blockchain Architectures". ICOSST 2018. {{cite journal}}: Cite journal requires |journal= (help)CS1 maint: location (link)
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