Also known as DLT, distributed ledger technology describes a database that is used to record transactions across a network of devices, usually computers or servers.

Let’s break the term down. “Distributed” refers to how the nodes (or computers or servers) of the network are designed architecturally, and where they are located geographically.

Geographically distributed networks are used by many traditional companies today, where they have offices across the country which are still connected to the same network. Architecturally distributed networks simply give control to each node on the network, so if one were to go down, the protocols running on the network could be routed to other nodes on the network.

A node acts as a backup to the other nodes on the network.

“Ledger” in this context, and traditionally, simply refers to a centralized database that is used to store financial records, such as a company’s financials, liabilities, revenues, owner’s equity, and other financial information.

All of the nodes on this type of network would sync back their data, or make changes to data, in a central place.

Imagine the wheel of a bike – the nodes or spokes on the bike all come together in the center of the wheel, at the hub. All the data is accessed and stored at the hub.

Now, combine the two ideas and you have a ledger that is distributed across many devices, instead of one device, in many different locations, possibly around the world. Even if one of those locations disappears, or a computer or server goes down, the ledger is still intact, still secure, and the data stored within the ledger can still be processed, validated, and authenticated to.

If a centralized node hosting a ledger were to go offline, none of the nodes would know what data the other nodes are holding, or whether that data was changed. And now imagine that information contains financial transactions, such as buying and selling goods. How would a business determine if something was paid for? How would a customer know if they have any money in their account? If the central authority in charge of managing that information can’t be reached, the entire network is now worthless.

Centralized networks are also more prone to cyberattacks, as hackers only need to focus on a single copy of the data, instead of having to attack all copies of the data stored across the network nodes.

A blockchain is an example of a distributed ledger technology. A blockchain incorporates cryptography, secret keys, and digital signatures with a ledger running across a distributed network to create a network and ledger that are more trustworthy, secure, transparent, and traceable.