Distributed Ledger Technology (DLT) is a set of independent systems verifying the same data. The blockchain is a DLT that stores its data in a chain of blocks that keeps a record of the transactions. Hence, every blockchain is a DLT, but not every DLT is a blockchain.
Distributed Ledger has the potential to transform financial transactions and record keeping, its implementation will also reduce remittance cost and improve speed. The blockchain is one type of distributed ledger that records the transactions into blocks, and these blocks are linked together to form a chain that can be added at the end only (append). Hence, the blockchain cannot be modified, so it generally is immutable. A DLT, on the other hand, is a network of trusted distributed systems that are assigned to validate/change transactions, it could be banks or the financial regulatory as well.Distributed Ledger has the potential to transform financial transactions and record keeping, its implementation will also reduce remittance cost and improve speed. Click To Tweet
Bitcoin is the most popular and widely-distributed Blockchain Technology based on PoW distributed consensus system. The nodes or systems give proof of their verification by solving a complex mathematical problem. There are over 2000+ blockchain projects/ cryptocurrencies that are available in the market. Almost all of them are independent payment systems that have a separate wallet. Their integration and adoption would involve using and transferring value from bank accounts and cash to these ‘blockchain tokens’. This is where the bottleneck for these cryptocurrencies lies, as the regulatory limitations and a multitudinous availability of cryptocurrencies induce trust and choice issues.
R3 consortium is an initiative that includes the following entities HoldCo LLC, R3 LLC, and XRP II, LLC. It was found in collaboration with Ripple Labs where more than 80 financial institutions participate in it. R3’s Corda is an example of a successful Distributed Ledger Technology. Corda is their open-source DLT platform that can be used to design payment systems with the required application-specific intermediating/validating authorities.
DLT platforms are significantly different than blockchain in their structure. Nevertheless, they too can implement encryption and achieve distributed consensus depending on their application. E.g., a specific group of banks can validate together on a DLT platform to confirm the transactions sent by customers to transfer value across different banks or cross-country transactions. The group of banks can act as a node verifying and validating the transaction and also hold specific power to reverse or mutate the transactions if it ever becomes necessary. This platform can be used to increase the speed, reduce the cost of currency conversions and also deter corruption because of intermediary parties.
A DLT implementation does not introduce a new Blockchain, instead, invites the financial institutions to take advantage of the DLT in a more straightforward way to reach centralised or decentralised consensus according to the application.