It was meant to clear up the tonnes of paperwork associated with global shipping and, together with IBM, Maersk spent four years developing it: a distributed ledger called TradeLens. The platform’s record was more than 175 organisations and over 600 ports and terminals at its peak and reduced some container status checks to one or two process steps. That didn’t pass either because the ocean carriers that were competing with Maersk wouldn’t pass their most sensitive shipment information through infrastructure part-owned by a competitor. Not long after, the Australian Securities Exchange gave up on its own six-year attempt to rebuild its clearing and settlement system on a distributed ledger. Since January 2009, the ledger has been churning out blocks about once every ten minutes, and that fundamental scheme a distributed ledger that no one controls now serves to settle tokenized government debt among some of the biggest banks on Earth.
That contradiction is the honest starting point for understanding distributed ledger technology. It isn’t the universal fix its early promoters promised, and it isn’t the overhyped dead end its critics enjoy calling it either. This is a narrowly focused system that does very few things but does them really well, and is a real and expensive pain when it gets applied to problems for which it is not designed. So, what is distributed ledger technology (DLT) really, what is the reality beneath the marketing jargon and how has it proven itself?
What Distributed Ledger Technology Actually Means
Distributed ledger technology (DLT), typically shortened to ledger, is a method of simultaneously holding a single record of who owns what, or what happened when, across many independent computers at once, without any one of them in control. Each computer that participates in the system, or node, carries its own copy of that record. So when a user submits a change, such as a payment, transfer of ownership, or new entry in a registry, the nodes on the network validate the change against a common set of rules and only accept it if a sufficient number of nodes agree it is valid. After that, any version of the ledger that gets a copy of that ledger also gets an update, and changing the ledger’s history later would require an orchestrated rewrite of history across the majority of the network at the same time, by design, something extremely hard or practically impossible.
It’s important to be specific about what makes this different from a typical distributed database, since much of the marketing hype is confusing. For decades, companies have been duplicating copies of a common database at multiple offices or data centers; a supermarket chain could update all of its stores with its stock numbers every night. It’s just a matter of who is in control. With a traditional distributed database, there’s some manager, typically the IT team at one company, who can edit, delete, or overwrite anything he or she pleases, and everyone else blindly accepts the master copy. With a distributed ledger, there would be no such authority. None of the copies of any single node is more important than another, and only changes take effect when the network as a whole, according to its rules of consensus, agrees upon them. The real innovation is that the data is no longer stored in a single location, because that’s always been the case, rather than that no one is the boss of it.
Distributed Ledger Technology Step by Step
When you remove the jargon, the process of making an update to a distributed ledger is more or less the same, from Bitcoin transactions to banks settling tokenized bonds.
First, someone initiates a transaction: a wallet sends funds, a company logs a shipment, a bank records a trade. That transaction is disseminated to nodes in the network instead of a central server. Every node verifies it with the rules of the protocol: does the sender really have the money or the asset, is the transaction correctly designed, has the sender already spent the money elsewhere? It’s where cryptography plays the major role. Each transaction is signed using the private key of the sender and checked against the public key of the sender, the same public-key cryptography used by a crypto wallet address to allow the network to ensure the person sending the change has the right to, without anyone providing a password or relying on a middleman to stand in for them.
After that initial pass, the network must concur, without resorting to a third-party referee, that the transaction is valid and reach a consensus on the order in which it occurred with regard to the other transactions. A consensus mechanism takes care of that. Bitcoin employs proof of work, meaning that nodes race each other to solve a math problem, and the player to solve it gets to suggest the next set of transactions. The vast majority of newer networks operate on this alternative system: proof of stake, which assigns the right to validate based on the amount of the network’s native asset a participant has locked up, and is far less energy-intensive. Enterprise ledgers tend to be based on simpler, voting-based consensus of a vetted and known set of validators, as they do not have to protect against malicious actors who seek to cheat because they are anonymous strangers.
When consensus is achieved, the transaction is encrypted and linked to the previous transactions with a hash (a digital fingerprint that changes if any piece of information in the underlying data changes). The record is tamper-evident because of that seal. Change anything since that time and the fingerprint fails, alerting all nodes looking at it to some tampering. All copies of the ledger throughout the network then get updated to the new agreed-upon state, and the process repeats for the next transaction.
Distributed Ledger Technology vs. Blockchain: They’re Not the Same Thing
This is the most universal error in the class and it’s time to rectify it. Blockchain is a form of Distributed Ledger. There are several ways to resolve the same basic problem and blockchain is part of a larger category called distributed ledger technology. All blockchains are distributed ledgers. Not all DLTs are blockchains.
The data structure is what makes a blockchain a blockchain. These transactions are collected together in blocks, and each block points to the previous one with a cryptographic hash to make a single, strictly linear chain from the first block to the most recent. While that’s elegant and battle-tested, it’s not the sole approach to organizing a shared, tamper-evident ledger. In some of the distributed ledgers, the concept of a block is not included at all and instead, transactions are connected in a branching structure. Others abandon the concept of a single common chain, and each participant keeps his own personal chain of records, which can be cross-checked with others. By the above definition, both are still distributed ledgers because they have no central authority, they have shared validation and they have a tamper-evident history. Both are not in the true sense of the word blockchain.
Why is the difference significant other than pedantically? It’s used as both names in virtually every news article, product pitch, and job posting, and is a silent way to trick people into believing that DLT started and ends with Bitcoin’s particular architecture. It didn’t. Blockchain just happened to be the first version to become popular, in part because Bitcoin required a solution to the double-spending problem with digital cash and a linear chain of blocks was a neat way to do that. The original intent, however, which was a shared source of truth that no single party controls, has been attacked from several technical fronts, each of which sacrifices some of blockchain’s simplicity for other properties such as speed, energy consumption and other security guarantees.
The Different Types of Distributed Ledger Technology
There are four general architectures today that represent almost all of what’s in production.
Blockchain is still the main type, and these are the ones that Bitcoin, Ethereum and the vast majority of enterprise deployments are based on. A benefit of its linear, block-by-block structure is that it is relatively easy to audit and reason about, so it’s still the default even in cases where it wouldn’t be technically superior.
Directed acyclic graphs, or DAGs for short, eliminate the concept of transactions being grouped into blocks altogether. Rather, each new transaction is directly linked and verified to a few previous transactions, creating a structure that looks more like a tree than a chain. The most popular is IOTA’s Tangle, which was designed specifically for microtransactions between machine devices in Internet of Things environments where transaction fees must be very low and thousands of small devices could be involved in transactions simultaneously. The advantage of DAG-based ledgers is that there is no single chain that everyone must follow in strict order, and that, in theory, they are capable of processing transactions in parallel, as well as scaling up more readily than a classic blockchain.
To achieve the same end, Hashgraph uses a different approach: a gossip protocol that sees nodes randomly disseminate information they know to other nodes, resulting in information about a transaction spreading through the network very rapidly. With a technique known as virtual voting, nodes can then mathematically determine consensus from that gossip history, and do not have to run a costly mining race or wait through a round of explicit voting. It’s the largest network built on this model, and is well-used in enterprise environments that require blockchain security but with significantly higher transaction throughput and with a purpose.
Holochain stands out from the pack more distinctly than the other three. Instead of having one single common ledger that everyone has to agree on, it provides each participant his/her own chain of ledger, which is verified by a shared set of rules and by other nodes via a distributed hash table, but not by everyone else via global consensus. It’s a completely different philosophy: agent-centric rather than data-centric, and it gives up some of the properties blockchains offer, namely everyone sees the same single history, for being lighter and more scalable to applications that don’t necessarily require that.
Overlaid on all four architectures is a separate question that also is not about data structure: who’s allowed to participate? That’s typically referred to as permissioned vs. permissionless, and it’s important at least as important as the underlying architecture in the process of choosing the appropriate tool for the job.
Permissioned vs. Permissionless: Who Gets to Validate
A permissionless ledger is accessible to everyone. No one checks on anyone’s credentials or identity before allowing them to run a node, submit a transaction, or assist in verifying a transaction on Ethereum’s main network, the barrier to entry is technical and financial, not a matter of asking someone’s permission. That’s the entire idea behind a public cryptocurrency network: There should be no particular entity to trust or single organization that can prohibit a person from participating or undo transactions after the fact. The downside is that in a permissionless network, the consensus protocol must be more complex and more resource-intensive to prevent anonymous strangers from cheating, and in turn tends to be slower and less private.
A permissioned ledger flips that around. Validated transactions, or even viewed at all, are given to vetted and identified participants. Although this model is not necessarily one of distrust of decentralization, banks, hospital networks and government agencies prefer it because they have to know who is transacting, must abide by regulatory requirements such as know-your-customer and anti-money-laundering rules, and frequently move data they are legally required to keep confidential between competitors. Hyperledger Fabric and R3 Corda mentioned below are examples of enterprise-level permissioned use cases. A permissioned network can usually accommodate many more transactions per second than a permissionless network, because it doesn’t have to do the same kind of protection against anonymous bad actors.
Some networks compromise in between: publicly-readable but only verified by a pre-known list of participants, or open to join with varying access levels for varying roles. It’s that hybrid space where most of the more interesting institutional experimentation is occurring today, as banks attempt to obtain some of the transparency associated with permissionless DLT, while retaining the compliance controls that regulators demand from banks.
Where Distributed Ledger Technology Is Actually Being Used
But, aside from the pitch-deck version, where is the real, ongoing transaction volume for DLT?
Perhaps the biggest gain is in cross-border payments. The decades-old correspondent banking system through which banks merge payments internationally takes a fee and a day or two from each of a series of intermediaries before it arrives at its destination. Indeed, Ripple’s XRP Ledger was designed to process these payments directly between financial institutions in a few seconds, not days, and it does not even use blockchain’s traditional structure, but instead functions on its own distributed consensus protocol, provided by a group of trusted validators—a perfect example of DLT versus blockchain in practice, not theory.
Institutional finance has become the biggest growth story in the category. Some of the world’s largest financial infrastructure providers (FIPS) have gone from experimental to operational in real-world asset tokenization, such as representing government bonds, private credit, or money-market fund shares as tokens on a distributed ledger. The Depository Trust and Clearing Corp. has done some testing with tokenized US Treasuries that can be delivered to banks and clearinghouses in real time rather than overnight as collateral. A similar pilot on collateral mobility has been conducted in Europe by Eurex Clearing and HQLAx. In April, the International Monetary Fund released a note claiming this type of tokenisation is not just an efficiency improvement, it’s actually a restructuring of settlement and risk management throughout the financial system. The current tokenized real-world asset market is estimated to be in the tens of billions of dollars and has grown significantly over the last few years, outpacing nearly every other part of the digital assets market, though the more provocative long-range forecasts with some predicting the number of tokens in the trillions by the early 2030s are merely projections, not guaranteed outcomes.
The mixed bag category is the most instructive: Supply chain tracking. Walmart’s infamous pilot on an IBM-based Hyperledger Fabric testbed platform that traced a package of mangoes back to its farm from a week to about two seconds was a very impressive feat. However, the widespread rollout of such a system involving all players in a single industry, and requiring them to voluntarily provide information on their operations over a common platform, is proving much more difficult than the pilot indicated and this is how TradeLens died. The Tracr, which monitors diamonds from their source in the mine to the final retail store to ensure that they don’t come from conflict zones, hasn’t performed as badly, in part because a single firm that handles the standard avoids the trust issue that doomed the Maersk project.
Some of the more sedate deployments have been by governments. By 2018, more than 1.5 million land titles had been registered in the country of Georgia and were now stored in a blockchain-based registry, with citizens having a cryptographically verifiable and timestamped record of ownership in a country where property disputes and paper-record fraud were frequent. The pilot project undertaken by Sweden’s land registry authority was similar, with the goal of demonstrating that property transfers should be possible in hours rather than months, in theory. Since long before the world knew about distributed ledger technology, Estonia has had its core government data running integrity checks on its own KSI blockchain.
Even the most sceptical ones who do not wish to hear about this happening can see it in real time from a blockchain explorer that displays each transaction as soon as it is confirmed on a public ledger, no company word is needed.
What Distributed Ledger Technology Actually Gets You
The benefits are touted so frequently that it’s easy to forget that they have merit, but it is in the places where it has proven successful that you’ll find that DLT works.
The greatest one is the elimination of a single point of failure and a single point of control. A centralized ledger, for example, the internal database of a bank, or the records kept by a government authority, has one location where an attacker, a bug, or a dishonest employee can corrupt the whole record. This risk is distributed in a well-designed distributed ledger to the point of compromising a meaningful majority of a network at once, which is a different, and much harder, problem to solve for any reasonably sized, well-secured network.
Closely related is a reduction in the costs of reconciliation, which may sound dry, but, at scale, it’s real money. In conventional finance, all the financial institutions maintain their own set of ledgers for the identical transactions, and massive resources are devoted to periodically reconciling the books and catching and fixing the inevitable inconsistencies. What institutional finance has been attracted to for settlement is the fact that a shared distributed ledger and a cryptographically agreed version of events are already seen by all, so most of that reconciliation work is removed by design.
Transparency and auditability are the other constant winners, especially on public, permissionless ledgers. All transactions are transparent and time-stamped, and permanently recorded, making fraud more difficult to conceal and auditing processes much quicker after the fact, the audit trail is already established and does not need to be pieced together from various paper records or databases.
There’s also genuine resilience against censorship and downtime. It’s impossible for one government, company, or administrator to quietly freeze, reverse, or delete a transaction on a network that is sufficiently decentralized with no single server whose failure brings down the system, and which is run without permission. That attribute is significant in some cases, of course remittances to individuals in countries lacking stable banking systems are one example, and trivial in others, such as a permissioned bank consortium, where they may want the opposite precisely: to be able to freeze a fraudulent transaction when they need to.
Where Distributed Ledger Technology Falls Short
Rarely seen in the pitch deck, but just as legitimate as the pluses, the minuses are the reason why most of the projects in this category fail.
It’s most widely publicized and specific energy use. Such proof-of-work blockchains as Bitcoin use a truly significant amount of electric power because the security model is based on making cheating costly. Most enterprise DLT platforms and proof-of-stake networks avoid this almost completely, and it’s another reason why the term blockchain is misapplied as a blanket term for all distributed ledger technologies.
Scalability is more a universal tradeoff. By definition, a decentralized network in which thousands of anonymous participants around the world are independently verifying all transactions is slower than a single company operating a centralized network of computers that it owns and controls, which can process many more transactions each second. All of the DLT architectures have to make some trade-offs between those three properties, and much of the innovation in the space in the last several years, from proof of stake to DAGs to layered scaling options, has been aimed at softening the trade-off, not eliminating it.
The underrated killer is governance and it’s the one that actually killed TradeLens. DLT really works well at eliminating the need for a central technical authority. It doesn’t eliminate the need for the different organisations to agree on commercial terms, data ownership and who gains from a shared system, and a human/organisational problem consumes many more enterprise DLT projects than any technical limitation. As with other industries, the message from TradeLens and the ASX’s failed settlement is the same: technology can do exactly what it’s supposed to do, and the project can still fail, as it is a business problem in technical garb.
The fact that regulation is still very much up in the air should be admitted, rather than swept under the rug. The European Union’s Markets in Crypto-Assets regulation has been in effect since December 2024 and provides a relatively clear regulatory environment for crypto-asset service providers, while the EU’s DLT Pilot Regime, designed to enable the testing of tokenized securities trading by market infrastructure providers, has seen only a few service providers actually obtain the approval required under the regime since its initiation in 2022 and regulators themselves have admitted that take-up has lagged behind expectations, with plans for changes still under way. One of the world’s largest and most sophisticated regulatory blocs still has such an uncertain set of rules surrounding running serious financial infrastructure on a distributed ledger, and that’s a clean admission that it’s likely a while longer before real adoption timelines come to fruition than product marketing indicates.
None of this is to say that DLT doesn’t work. It’s not magic, it’s infrastructure, and it carries with it all the normal constraints on making anything happen across large organisations, and some additional constraints due to how it’s built. Distributed ledger can ensure an after-the-fact record has not been manipulated. It cannot guarantee that the record’s owner will not lose the private key with which to demonstrate ownership of the record in the first place, which is a key factor in why cold-storage solutions like the hardware wallet are as important as the ledger itself when it comes to real-world security.
The Companies and Platforms that are Really creating This
There are a few names that are commonly recurring in actual deployments, and it’s important to understand what they are used for.
Bitcoin is the original, largest permissionless blockchain, which still relies on proof of work as a consensus mechanism, and still functions mostly as a payment network and store of value, as opposed to a general-purpose platform. Smart contracts are self-executing code that facilitates contracts without the need for a middleman and are used in most tokenisation and decentralised finance (DeFi) activity within the industry, currently being operated by Ethereum, which transitioned from proof of work to proof of stake in 2022.
The most widely deployed permissioned framework is Hyperledger Fabric, hosted by the Linux Foundation, originally contributed by IBM, and popular because of its modular design that allows an organization to choose its own consensus mechanism and rules of membership, instead of a one-size-fits-all approach. R3’s Corda has a much more focused approach, geared more towards automating legal agreements between known counterparties instead of having a single shared state across the world, and is supported by a big group of banks and financial institutions. By all intents and purposes, Quorum, now under the Consensys banner and first developed within JPMorgan’s walls, is a permissioned version of Ethereum, enterprise-hardened, designed specifically for banks that wish to enjoy smart contract capabilities without hosting a public network.
Beyond blockchain in particular, Hedera is now the largest production network based on the hashgraph consensus, and IOTA is the reference implementation for DAG blockchain systems designed for machine-to-machine and IoT applications. As important to remember the next time a headline labels “blockchain”, “DLT” and “crypto” as one for all and all for one.
Where This Is Headed
The focus of DLT is clearly moving away from just cryptocurrencies from its early years. The most important thing going on right now is not a new coin launch, but the slow and unsexy task of connecting DLT with the current financial system, as opposed to the notion of outright replacement. Standards such as ISO 20022 are particularly being embraced to enable distributed ledgers to communicate with mainstream banking systems without the need for them to re-engineer everything from scratch, and it is that interoperability, not any individual breakthrough network, that is driving institutional adoption.
Central Bank Digital Currencies (CBDC) are the parallel trend, government-initiated. Today, over 130 countries and currency unions covering close to 98 percent of global GDP are in various stages of researching, testing, or developing a CBDC, and to date, a handful have introduced a CBDC at the retail level. How fast and how it unfolds is heavily dependent on the nation, and it’s a real policy debate, as the U.S. has at the federal level passed a law against a retail version, and it continues to push regulated private stablecoins.
What is coming to life is not some Holy Grail ledger, but rather a web of specific ledgers, public or private, blockchain or non-blockchain, that are increasingly capable of transferring value and data to and from other ledgers. While not quite the same as “blockchain replaces banking,” that’s the narrative supported by the allocation of capital and regulation.
Why Any of This Matters If You’re Not a Bank
It’s not necessary to be settling tokenized treasuries to appreciate and gain an understanding of how this actually works. The most popular of the crypto scams are based on the same confusion started in this article: blockchain is a synonymous term for distributed ledger, as is trustworthy. They’re not. A distributed ledger ensures that, once a transaction is verified, no one can go back and quietly change the record of the transaction. It does not provide any assurance on the legitimacy of the token, contract, or project you are sending your funds to in the first place. That is exactly what scammers bank on: the general impression that it’s on the blockchain and therefore it must be safe, which means that people won’t bother to investigate what they’re dealing with before they send anything.
That’s really the practical takeaway. The distributed ledger technology has the potential to be a true force for establishing a common, non-controllable, and tamper-evident record. It was never intended to be and isn’t a guarantee of honesty of all those who use it. Knowing the difference is worth more than any amount of marketing copy about the future of finance.
