Crypto FAQ: What is Distributed Ledger Technology (DLT)?

• Alt. Phrasing: What is distributed ledger?; What is a shared ledger?

• Defn: Distributed Ledger Technology (DLT)
  [noun; a.k.a. distributed ledger, shared ledger]
  Distributed Ledger Technology is an umbrella term for the consensus collection of shared, replicated, and synchronized digital data that represents financial records (i.e., ledgers) that are physically spread (i.e., distributed) across multiple sites, organizations, or countries. Distributed ledgers are typically enabled by peer-to-peer networks and consensus algorithms, without a single or central point-of-failure. Stated otherwise, DLT designs and implementations do not require either centralized data storage or a centralized system administrator to authorize transactions.
  

Distributed Ledgers Technologies (DLTs) may be classified in terms of: data structures, consensus algorithms, permissions, mining availability, etc. DLT data structure types range from simple linear data structures (cf. linked lists and blockchains) to more complex Directed Acyclic Graphs (DAGs) and hybrid data structure approaches. DLT consensus algorithm types range from traditional Proof-of-Work (PoW) and Proof-of-Stake (PoS) schemes to more sophisticated DAG incremental consensus building and voting schemes. DLT permission types are generally either permissioned (public or permissionless (private). DLT minability types are generally either 'Mined' (or "Mineable") or 'Non-Mined' (or 'Non-Minable'), where the latter typically implies extensively 'Pre-Mined' cryptocurrencies (e.g., XRP, IOTA/MIOTA).

Although blockchains are the most common and best-known DLT type, other DLTs based on Directed Acyclic Graph (DAG) data structures, and hybrid blockchain-DAG approaches are gaining in usage because they decrease transaction data size and transaction costs (fees or 'gas') and while increasing transaction speeds (Tx/sec or TPS). Examples of DAG DLT / cryptocurrency pairs include IOTA/MIOTA and Hedara/HBAR.

The following table compares and contrasts the various types of Digital Ledger Technologies (DLTs):

Table: Digital Ledger Technology (DLT) Taxonomy

The difference between Blockchain and Directed Acyclic Graph (DAG) DLTs are further elaborated below.

• Blockchains: simple, linear linked-list type data structures that are easter to implement than DAG trees, but are more problematic to scale (even when using hash algorithms for indexing) in terms of computational time-space tradeoffs.

  • Blockchains are currently the most popular and widespread DLTs used by Bitcoin (BTC) and the vast majority of altcoin cryptocurrencies. A blockchain is a continuously-growing list of digital records—called blocks—that are linked and secured using cryptographic techniques. Each block in the blockchain contains transactional data (e.g., cryptocurrency exchange information) as well as a timestamp and a secure link (e.g., a cryptographic hash) to the previous block in the blockchain. Blockchains are typically managed by peer-to-peer networks that adhere to specific protocols for inter-node communication and verifying new blocks. Once a block is recorded and validated on the blockchain, that block cannot be altered retroactively without the alteration of all subsequent blocks, which requires the collusion of a network majority. Common examples of blockchain protocols are the Bitcoin and Ethereum protocols for the Bitcoin and Ether cryptocurrencies.
    

  • For further information about blockchains, see the What is a blockchain? FAQ and check out the How Do Cryptocurrencies & Blockchains Work? section.
    

• Directed Acyclic Graphs (DAGs): are tree-like data structures that are more complex than blockchains to implement, but are more efficient to scale in terms of computational time-space tradeoffs. More specifically, compared to blockchains DAGs can substantially reduce the data size per transaction (Tx), thereby increasing Tx speed (TPS), decreasing costs (Tx fees or "gas").

  • Tangle DAGs
    • A Tangle is a DAG which applies the following Proof-of-Work (PoW) consensus algorithm [Popov 2015]. In order to send a new Tangle DAG transaction you must first validate two randomly allocated previous transactions you have received, confirming that they are well-formed and conform to all protocol rules. This "two-for-one", "pay-it-forward" consensus building assures the validity of Tangle transactions as more transactions are added to the Tangle DAG, assuring scalability. The best known cryptocurrency/DLT that currently uses a Tangle DAG for PoW is MiOTA / IOTA.
  • Hashgraph DAG
    • A Hashgraph is a Directed Acyclic Graph (DAG) digital ledger that package transactions into blocks, but unlike on a blockchain, all hashgraph blocks are added to the distributed ledger, regardless of their chronological order. Instead of a "winner-takes-all" mining race to validate all the blockchain data, Hashgraph DAGs are used to create a more complete picture of all the network’s transactional data. One of the primary advantages of DAGs over blockchains is that they can reduce the data size per transaction, thereby lowering costs, increasing speed, and ultimately achieving higher levels of scalability.The best known cryptocurrency/DLT that uses a Hashgraph DAG for PoW is HBAR / Hedara.

Usage note: Blockchain should not be used synonymously with Distributed Ledger Technology, since the former is a sub-classification of the latter.

Compare: blockchain
Contrast: N/A
References:
* [Scheuffel 2018] Alternative Distributed Ledger Technologies: Blockchain vs. Tangle vs. Hashgraph
* [Popov 2015] The Tangle