FAQs

Although often used interchangeably, DLTs and blockchains are not identical. A blockchain is one type of DLT, which adds data in linear and chronological order. Not all DLTs add data in this way. For example, platforms can add transactions individually, rather than in blocks (e.g. R3's Corda and 'DAGs' or directed acyclic graph ledgers). In sum, all blockchains are DLTs but not all DLTs are blockchains.

DLTs create the underlying consensus from which smart contracts can be built. They can be understood as the foundational layer that ensures that all participants operate from an agreed set of data. Generally speaking, smart contracts are decentralised applications (or dApps) that are built on top of distributed ledgers (although it is possible, albeit not favourable, to build and run smart contracts on top of centralised platforms as well).

Databases are a great solution to manage data where there is a trusted, centralised, environment. For example, a company managing its own data to enable their business applications or operations to function. However, unlike a blockchain, a standard database does not enable the secure, decentralised management of transactions between unknown and dispersed parties without a trusted intermediary.

The proof-of-work (POW) consensus mechanism used by some DLTs utilise vast amounts of electricity. In response, networks are working to develop alternative consensus mechanisms, such as proof-of-stake, which use much less energy. For permissioned ledgers, where participants are known to the network administrator, the cost and complexity of the POW system is not needed. As parties are known to the network administrator, trust exists off-chain (often underpinned by legally binding onboarding agreements) and does not need to be manufactured in this way.

Permissionless ledgers (in contrast to permissioned ledgers where participants are known to the network administrator), are often said to be anonymous as participants do not have to share personally identifying information. However, even on permissionless ledgers, participants transact by reference to their wallet addresses, creating a permanent and trackable record of activities. In this way, it is more accurate to describe activity on a permissionless ledger as pseudonymous.