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Defining DLT

The Cambridge Centre for Alternative Finance publishes the “Distributed Ledger Technology Systems” report to provide a common terminology and framework for distributed ledger technology (DLT) systems.

Alternative Finance, Scaffolding, sunset

The Cambridge Centre for Alternative Finance (CCAF) at Cambridge Judge Business School, University of Cambridge, today published a 109-page report on distributed ledger technology (DLT) systems that provides a formal definition and comparative framework for DLT systems.

Michel Rauchs

Michel Rauchs

The DLT ecosystem is currently plagued by the use of inconsistent definitions and lack of standardised terminology, so the report – entitled Distributed Ledger Technology Systems: A Conceptual Framework provides an important practical structure in this fast-expanding area.

“The current inconsistency leads to frequent misunderstandings and misconceptions about the nature and capabilities of DLT systems,” said Michel Rauchs, CCAF Lead in Cryptocurrency and Blockchain. “In collaboration with an interdisciplinary group of researchers and industry experts, we have set out to provide a shared language and framework for the analysis and comparison of these systems.”

Specifically, the report sets out a list of key characteristics of a DLT system, which must be capable of ensuring shared recordkeeping, multi-party consensus on a shared set of records, independent validation by each participant, evidence of non-consensual changes and resistance to tampering.

The report also clarifies the forms of data within a DLT structure, by classifying the data as “transactions”, “logs”, “records”, “journals” and “ledger” – based on the extent the data has been processed by a DLT system’s network. The final outcome – the “ledger” – is defined as a set of records “held in common by a substantial proportion of network participants”.

Although DLT systems emerged conceptually back in 1982, and the “blockchain” concept can be traced to 1991, the recent flurry of interest and activity surrounding these technologies in the absence of a clear framework has resulted in the current inconsistency and confusion.

The report’s definitions and framework are designed to serve as a multi-dimensional tool for policymakers, industry participants, researchers and investors to gain a better understanding of the characteristics and inner workings of a DLT system, and the roles that various actors play in the system.

Bryan Zhang

Bryan Zhang

The framework is applied in the report to six case studies of existing DLT systems – Bitcoin, Ethereum, Ripple, Alastria, Verified.me, and an anonymised DLT system – to illustrate its use for performing a comparative analysis.

A DLT system consists of three main layers (protocol, network, and data), which can be further broken down into a set of interconnected components and processes. It is the combination and interactions of these small and rather simple processes that together form a complex and dynamic system.

The report outlines various configuration options for each process and demonstrates how specific design choices can lead to different system properties and characteristics. A key takeaway is that trade-offs are inherent to DLT systems, and move along a spectrum according to specific security assumptions, threat models, and trust relationships.

Bryan Zhang, CCAF Executive Director and Co-Founder, says:

Without undertaking a systematic and holistic approach, attention and analysis can be narrowly devoted to fractions, parts, and the surface of the phenomenon, rather than the whole. By adopting a systems perspective, hopefully we can develop a more nuanced understanding of the complex and living DLT ecosystem.