Distributed ledger

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Short description: Store of digital data spread across multiple sites and synchronized via a consensus algorithm

A distributed ledger (also called a shared ledger or distributed ledger technology or DLT) is the consensus of replicated, shared, and synchronized digital data that 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

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][6] Security is enforced through cryptographic keys and signatures.[7][8][9]

Applications

In 2016, some banks tested distributed ledger systems for payments[10] to determine their usefulness.[2] In 2020, Axoni launched Veris, a distributed ledger platform that manages equity swap transactions.[11] The platform, which matches and reconciles post-trade data on stock swaps, is used by BlackRock Inc., Goldman Sachs Group Inc., and Citigroup, Inc.[12]

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 DBS and JP Morgan. 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.[13][14]

Types

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

References

  1. ↑ Distributed Ledger Technology: beyond block chain (Report). Government Office for Science (UK). January 2016. https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/492972/gs-16-1-distributed-ledger-technology.pdf. Retrieved 29 August 2016. 
  2. ↑ 2.0 2.1 2.2 Scardovi, Claudio (2016). Restructuring and Innovation in Banking. Springer. p. 36. ISBN 978-331940204-8. https://play.google.com/store/books/details?id=uNM0DQAAQBAJ. Retrieved 21 November 2016. 
  3. ↑ "Distributed Ledgers" (in en). https://www.investopedia.com/terms/d/distributed-ledgers.asp. 
  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" (in en). Environmental Science and Pollution Research 29 (7): 10495–10520. doi:10.1007/s11356-021-16376-y. ISSN 1614-7499. PMID 34528198. PMC 8443118. https://doi.org/10.1007/s11356-021-16376-y. 
  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. https://openresearch.surrey.ac.uk/esploro/outputs/journalArticle/Distributed-Ledger-Technology-Applications-and-Implications/99514404202346. 
  6. ↑ Ray, Shaan (2018-02-20). "The Difference Between Blockchains & Distributed Ledger Technology". https://towardsdatascience.com/the-difference-between-blockchains-distributed-ledger-technology-42715a0fa92. 
  7. ↑ "Distributed Ledger Technology: beyond block chain" (Press release). Government Office for Science (UK). 19 January 2016. Retrieved 25 September 2018.
  8. ↑ Brakeville, Sloane; Perepa, Bhargav (18 Mar 2018). "Blockchain basics: Introduction to distributed ledgers". IBM. https://www.ibm.com/developerworks/cloud/library/cl-blockchain-basics-intro-bluemix-trs/. 
  9. ↑ Rutland, Emily. "Blockchain Byte". R3 Research. p. 2. https://www.finra.org/sites/default/files/2017_BC_Byte.pdf. 
  10. ↑ "Central banks look to the future of money with blockchain technology trial". Australian Financial Review (Fairfax Media Publications). 21 November 2016. http://www.afr.com/technology/central-banks-look-to-the-future-of-money-with-blockchain-technology-trial-20161117-gss4nd. 
  11. ↑ "Citi and Goldman Sachs go live with blockchain equity swaps platform - The TRADE". www.thetradenews.com. Retrieved 2022-05-20.
  12. ↑ "BlackRock Joins Blockchain Platform Axoni for Equity Swap Trades". Bloomberg.com. 2021-09-07. Retrieved 2022-05-20.
  13. ↑ "MAS in DeFi landmark trade" (in en). 2022-11-03. https://www.euromoney.com/article/2au6gwbo5uecadnjjxzb4/fintech/mas-in-defi-landmark-trade. 
  14. ↑ "First Industry Pilot for Digital Asset and Decentralised Finance Goes Live" (in en). https://www.mas.gov.sg/news/media-releases/2022/first-industry-pilot-for-digital-asset-and-decentralised-finance-goes-live. 
  15. ↑ "Blockchains & Distributed Ledger Technologies". https://blockchainhub.net/blockchains-and-distributed-ledger-technologies-in-general/. 
  16. ↑ Pervez, H. (2018) (in en). A Comparative Analysis of DAG-Based Blockchain Architectures. ICOSST 2018. https://www.researchgate.net/publication/330880551. 



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