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Distributed ledger technology (DLT)

What is distributed ledger technology (DLT)?

Distributed ledger technology (DLT)

Distributed ledger technology (DLT) is the term used to refer to those technologies that allow a common ledger to be shared across networks of computers.

Distributed ledger technology (DLT) - illustration of blockchain

Blockchain is a particular type of DLT. Although some implementations within the banking sector are diverging from the original conception of blockchain, many of the characteristics described below are also applicable to other types of DLT. Blockchain is based on previously existing technologies, combined in an innovative way to implement a decentralised and distributed ledger in a peer-to-peer network. Transactions are signed by the issuer, validated by consensus among a group of nodes and stored in blocks that are chained cryptographically (each block includes a hash of the previous block), making the blockchain more difficult to tamper with. As regards other features of blockchain, the chronological order of transactions in different blocks is ensured and the inclusion of digital signatures aims to guarantee authentication, non-repudiation and integrity of transactions in the ledger. Taking into account all the above, the need for a central counterparty would disappear, as participants could rely on the platform itself.

There are different types of distributed ledger depending on who is able to read, create or include transactions permanently on the ledger:

  • Public versus private: in public ledgers, anyone has access to read the ledger while, in private ledgers, they need to be granted access. In some private ledgers, only those involved in a transaction are allowed to read it.
  • Unrestricted versus restricted: in unrestricted ledgers, anyone is able to create transactions while, in restricted ledgers, authorisation is needed in order to create transactions.
  • Permissionless versus permissioned: in permissionless ledgers, anyone can validate transactions and include them permanently in the ledger while, in permissioned ledgers, only some members are able to do it.

Bitcoin was the first application of blockchain. This is an unrestricted, public and permissionless implementation of a distributed ledger for digital exchanges that stands as proof of every transaction on the network. Nevertheless, as privacy of information is a key requirement for numerous services, attention is currently being diverted towards restricted ledgers, where an institution or consortium administers the ledger, with authorised and recognisable members and a limited group of trusted validators.

Documents of international standardization institutions

European Supervisory Authorities

International Financial Market Regulation Organizations