You have probably heard the term “Distributed Ledger Technology” (DLT) thrown around in meetings, news reports, or casual chats about technology and finance. But what does it really mean, and why should businesses care beyond the hype?
Essentially, DLT is just a way of recording information—transactions, contracts, data—onto a network of computers instead of one location. Imagine a shared spreadsheet, but one that is stored on many machines and updated simultaneously so that everyone knows they all have the same version, and no one can secretly alter the data. That shared record is what provides DLT its power.
Most people equate DLT with blockchain—the system employed by Bitcoin and other cryptocurrencies. While blockchain is a type of distributed ledger, not all distributed ledgers use it. Other distributed ledgers employ distinct mechanisms for recording and verifying information, tailored to specific business requirements.
Why Should Businesses Care?
Traditionally, businesses employ intermediaries to authenticate and validate transactions—banks for payment, accountants for accounts, and so on. These intermediaries charge cost, time, and occasionally sophistication. DLT offers the possibility to cut many of those intermediary layers so that parties can directly transact with one another, with the ledger itself supplying transparency and security.
Take supply chains, for instance. Products can pass through dozens of hands between the raw materials and the factory workers and the shipping firms and retailers, finally reaching the customer. Everyone sees the same information in real time in a shared ledger, minimizing the scope to conceal what they are doing and making it easier to determine where things came from, catch errors, and respond rapidly if something does go wrong.
What Makes DLT So Useful?
- Transparency: Everyone can see the same records, so it is harder to hide mistakes or fraud.
- Security: As the ledger is spread among many computers, hacking or tampering with records becomes much harder.
Computers can expedite processes that previously required manual verification, commonly referred to as “smart contracts.”
- Cost Savings: By cutting out some of the middlemen, companies can save money and avoid delays.
Where Is DLT Already Making Waves?
Banks are experimenting with DLT to speed cross-border transactions and reduce fraud. Shipping companies are teaming up to track cargo in real time, avoiding lost or delayed shipments. Even the medical community envisions applications for securely trading patient records, increasing care while preserving confidentiality.
It’s Not All Smooth Sailing
While DLT is impressive, it is not a panacea. Some systems struggle when they are required to process thousands of transactions every second. Legal regulation is also uncertain, especially where several nations are involved. Most firms’ existing IT infrastructure was not built to communicate with distributed ledgers, so integration could be complex. And some varieties of blockchain consume a tremendous amount of energy, which is environmentally unfriendly.
What’s Next for Business and DLT?
The technology has not matured yet, and the smartest companies will be the ones that begin to experiment early—testing projects and partnerships that allow them to get a sense of where DLT is appropriate for their business.
Instead of focusing on buzzwords, it’s crucial to ask: Does this technology address a genuine issue for us? Could it bring greater efficiency or trust? And if so, how do we start small and expand from there?
Distributed ledger technology is not a temporary trend or the foundation of cryptocurrencies—it is a real technology that is hard at work changing the manner in which businesses operate. It offers a potential for organizations to increase transparency, decrease costs, and build more durable collaborations.
If you haven’t already, it’s time to embrace this technology. Because DLT is not coming, it’s here.
