Term

Distributed Ledger Technology (DLT): Definition and Types

Definition

A distributed ledger is a database that is shared, replicated, and synchronised across multiple nodes — computers operated by different participants — without requiring a central administrator or a single master copy held by a controlling authority. A distributed ledger technology (DLT) is any technology that implements this architecture.

The defining feature of a distributed ledger is its absence of a single point of control. In a conventional database, one organisation owns and operates the database. All participants who want to read or write data must interact with that central owner, who has unilateral authority to modify records, deny access, or shut the system down. A distributed ledger removes this central authority: the ledger exists simultaneously on multiple nodes, and any change to the ledger must be validated by a defined set of those nodes before it becomes part of the permanent record.

How a Distributed Ledger Differs from a Conventional Database

The distinction between a distributed ledger and a conventional distributed database is often misunderstood. Conventional distributed databases — such as those used by large technology companies to replicate data across multiple data centres — also maintain copies of data on multiple servers. However, they are not distributed ledgers in the DLT sense, because:

All the replicated servers are operated by a single entity and controlled by that entity
The replication is an internal architecture choice, invisible to external participants
The controlling entity can modify any record at any time without external validation

A distributed ledger, by contrast, distributes control itself — not merely data storage. Multiple independent participants each hold a copy of the ledger, and the rules for updating the ledger are enforced by the consensus mechanism of the network, not by any single operator. No single participant can unilaterally modify a validated record.

This distinction is fundamental to why distributed ledgers are legally significant in contexts like the Swiss DLT Act: the tamper-resistance and independence-from-any-single-operator properties of a DLT register are what make it suitable to serve as the legal record of securities ownership.

Types of Distributed Ledger Technology

DLT is a broad category that encompasses several distinct technical architectures:

Blockchain

The most widely known form of DLT. A blockchain organises transactions into discrete blocks, each of which contains a cryptographic reference (a hash) to the preceding block. This chain of hashes creates a tamper-evident record: altering any block would invalidate all subsequent blocks, making historical tampering computationally detectable. Blockchain is used by Bitcoin, Ethereum, and most institutional DLT platforms including R3 Corda and Hyperledger Fabric.

The term “blockchain” and “DLT” are often used interchangeably, but this is imprecise: blockchain is one type of DLT architecture, not the only one.

Directed Acyclic Graph (DAG)

A DAG-based distributed ledger does not organise transactions into sequential blocks. Instead, each new transaction references and validates two or more preceding transactions, creating a web-like structure rather than a linear chain. DAG architectures can process transactions in parallel rather than sequentially, offering potential throughput advantages over blockchain. The IOTA protocol is the most prominent DAG-based DLT used in enterprise contexts, particularly in Internet of Things (IoT) and supply chain applications.

Hashgraph

Hashgraph is a consensus algorithm and DLT architecture used by the Hedera Hashgraph network. Hashgraph uses a “gossip about gossip” protocol — nodes share information about which information they have received from other nodes — combined with virtual voting to reach consensus without requiring the energy-intensive proof-of-work computation used by Bitcoin. Hedera Hashgraph has attracted interest from enterprise users seeking high-throughput, low-cost DLT infrastructure.

Consensus Mechanisms

A consensus mechanism is the process by which the nodes of a distributed ledger agree on the correct state of the ledger — which transactions are valid and in what order they occurred. The principal consensus mechanisms are:

Proof of Work (PoW): Nodes (miners) compete to solve computationally difficult problems. The first to solve the problem adds the next block and receives a reward. Bitcoin uses PoW. It is energy-intensive and has limited throughput, making it unsuitable for most enterprise applications.

Proof of Stake (PoS): Validators are selected to add blocks in proportion to the amount of cryptocurrency they have staked (locked as collateral). Ethereum switched to PoS in 2022. PoS is significantly more energy-efficient than PoW. Validators who attempt to add invalid blocks lose their staked funds.

Delegated Proof of Stake (DPoS): Token holders vote for a set of delegates who validate transactions on their behalf. Used by several high-throughput public blockchains.

Byzantine Fault Tolerant (BFT) consensus: Permissioned blockchain networks typically use BFT algorithms, in which a known set of validators must reach a defined agreement threshold (typically two-thirds) before a transaction is finalised. BFT consensus does not require the energy expenditure of PoW or PoS and provides immediate transaction finality. R3 Corda and Hyperledger Fabric both use BFT-based consensus variants.

Practical Byzantine Fault Tolerance (PBFT) and variants: A class of consensus algorithms widely used in permissioned enterprise DLT networks. PBFT achieves consensus among a known validator set through a three-phase messaging protocol and is highly efficient for small-to-medium validator sets.

DLT and Blockchain: The Relationship

All blockchains are distributed ledgers, but not all distributed ledgers are blockchains. In everyday usage — including in Swiss financial regulation and the Swiss DLT Act — “DLT” and “blockchain” are often used interchangeably. The Swiss DLT Act refers to a “distributed electronic register” (verteiltes elektronisches Register), which encompasses blockchain and other DLT architectures that satisfy the Act’s functional requirements.

For the purpose of Swiss DLT securities law, the architecture of the underlying distributed ledger is less important than its properties: it must be tamper-resistant, it must provide participant access, and it must enable the registered holder to exercise rights independently. Both blockchain and non-blockchain DLT architectures can in principle satisfy these requirements.

DLT in the Swiss Legal Context

Switzerland’s Federal DLT Act defines the distributed register that can host DLT securities (Registerwertrechte) by its functional properties rather than its technical implementation. This technology-neutral approach reflects the Federal Council’s deliberate policy not to prescribe specific technical solutions in legislation that would need to remain valid across a rapidly evolving technology landscape. The result is a legal framework that can accommodate current DLT architectures (Corda, Ethereum, Hyperledger Fabric) and future architectures that have not yet been developed.

This encyclopedia entry is published by ZUG DLT, an editorial publication of The Vanderbilt Portfolio AG, Zurich. Encyclopedia entries are for informational purposes only. See our full Disclaimer.