What it means
The traditional way to record a transaction between two businesses is for each side to write it into its own system and then reconcile the two versions later. DLT removes that duplication by giving both parties access to a single shared record that updates for everyone at once.
Blockchain is the best known form of DLT, but it is one design among several. What makes the shared record trustworthy is the combination of cryptography and consensus.
Each entry is linked mathematically to the ones before it, so altering history would be visible immediately, and participants follow an agreed procedure for accepting new entries. The result is a record that no single party can quietly edit.
There is an important split between public and permissioned networks. Public ledgers such as those underpinning cryptocurrencies are open to anyone; permissioned ledgers, which is what most banks, insurers and supply chain consortia actually use, restrict participation to known, vetted organisations.
Permissioned designs are faster and easier to govern, and they are where most commercial deployments sit. The business case is usually about reconciliation rather than novelty.
Trade finance, securities settlement, insurance claims and provenance tracking all involve several parties keeping separate records of the same event and then spending money on staff and software to make those records agree. A shared ledger attacks that cost directly.
The limitations deserve equal attention. DLT guarantees that everyone sees the same data, not that the data is true, so a mistyped shipment weight is simply an error everyone now agrees on.
Networks also need governance, legal agreements and enough participants to be worthwhile, which is why many pilot projects stall before reaching production. For finance teams the relevant question is narrow and practical: does this process involve several organisations keeping duplicate records of the same event, and are we paying people to make those records agree?
If the answer is no, a shared ledger adds cost and complexity without a matching benefit. If the answer is yes, the saving comes from removing the reconciliation work rather than from anything inherent in the technology itself.
In practice
Real-world examples.
Example
A consortium of banks running a trade finance network replaces couriered paper letters of credit with entries on a shared ledger. Document checking that previously took five to ten days for each shipment completes within a day because every bank reads the same record.
Example
A grocery retailer records the origin, processing site and transport temperature of fresh produce on a permissioned ledger shared with its farms and hauliers. When a contamination alert arises, it traces the affected batches in hours rather than working back through supplier emails for days.
Example
A central securities depository pilots settlement on a distributed ledger so that the transfer of shares and the transfer of cash are recorded in the same instant. Removing the two day gap between trade and settlement cuts the collateral each broker must post while a trade is outstanding, freeing capital that would otherwise sit idle at the clearing house.
Case study
Seen in the real world.
Kestrel Marine Insurance is a fictional insurer used here for illustrative purposes only. It shared cargo policies with eleven brokers and four reinsurers, and each party kept its own record of every policy, endorsement and claim. Roughly nine full-time staff spent their days reconciling those records, and disputes over which version was correct delayed around 15% of claims by more than a month.
Kestrel led a permissioned ledger project in which all sixteen organisations wrote policy and claim events to one shared record, with each party able to see only the transactions it was party to. The technical build took seven months, but the legal work, agreeing who could add entries, who arbitrated disputes and what the ledger meant in court, took considerably longer.
In this illustrative account the ledger removed most reconciliation work and cut average claim settlement time by about a third. Notably, the biggest benefit came not from the technology but from the fact that sixteen organisations finally agreed on one definition of each data field, a discipline they could in principle have adopted without any ledger at all.
Watch out
Common mistakes.
- Using blockchain and distributed ledger technology as interchangeable words, when blockchain is one particular structure and many commercial ledgers do not use chained blocks at all.
- Believing a shared ledger makes data accurate, when it only makes data consistent; incorrect information entered at the start remains incorrect for every participant.
- Launching a ledger project without the legal and governance agreements, which is where most pilots fail rather than in the software.
Questions
People also ask.
Does DLT require a cryptocurrency?
No, permissioned business networks generally have no token or coin at all; the ledger simply records ordinary business events such as invoices, shipments or share transfers.
Is data on a distributed ledger permanent?
Entries are designed to be extremely difficult to alter, which is why sensitive personal data is usually kept off the ledger with only a reference stored on it.
Where does DLT genuinely save money?
Wherever several organisations keep separate records of the same event and pay staff to reconcile them, such as trade finance, securities settlement and multi-party supply chains; if only one organisation holds the record, an ordinary database is cheaper and simpler.
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