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What is a Distributed Ledger?

A Distributed Ledger is a technology for recording transactions in a decentralized, transparent fashion, reducing the potential for fraud and obscurity.

Overview

What it is: A Distributed Ledger (DL) is a record of transactions shared among multiple sources without a central controlling authority. Although it is synonymous with blockchain and cryptocurrencies like Bitcoin, more DL protocols may emerge, and DLs can record things other than currency exchange. As yet, there are only a few business applications in use beyond the exchange of cryptocurrency, but potential applications may be significant across domains from healthcare to hospitality.

What it does: A DL creates a definitive, permanent record of transactions among multiple parties. Its integrity is maintained because it’s housed with multiple users, and new transactions are only allowed when every party consents to their validation. Any data that can be represented by a digital token can be exchanged or shared in this way.

Why it matters: Traditional accounting (and by extension, transactional data management) practices have some inherent weaknesses. Individual ledgers are owned by authorities which may tamper with them. Additionally, ledgers aren’t necessarily standardized among actors, leading to obscurity and disputes even among honest parties. Distributed ledger technology bypasses these issues and minimizes the potential for error, a development that could be revolutionary in finance, supply chain management, and other sectors.

What to do about it: DL technology hasn’t yet achieved widespread adoption, except among businesses transacting in cryptocurrency: this could change in the very near future, as more B2B DL services enter the market… Some businesses may have an internal use for a DL (e.g. managing internal assets or its own suppliers), or they may need a shared DL platform to work with others. In either case, DL offers a tamper-proof, highly distributed transaction/data exchange.

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