• Bryan Zhang

Defining the Conceptual Framework of Distributed Ledger Technology Systems

Terms such as cryptocurrency, blockchain, and distributed ledger technology (DLT) have gradually entered our daily lexicon, featured prominently in news and media, and fuelled discussion and debate among communities, industry practitioners and policymakers. Nevertheless, there is no rigorously defined set of terminologies or commonly acceptable taxonomy available. As a result, people are often talking past each other, and these terms are often misconstrued, misused, and misinterpreted.

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. Consequently, people ‘can’t see the forest for the trees’ and they are more susceptible to bias, misunderstanding, inflated claims, or conflicted views.

For these reasons, the Cambridge Centre for Alternative Finance reached out to assemble a team of researchers and contributors from diverse backgrounds to produce a study that would build on the successes of our Centre's Global Cryptocurrency and Blockchain Benchmarking Studies. In order to conceptualise DLT systems and reach some form of ‘consensus’ on definitions and taxonomies, the team adopted a research process that was open, collaborative, and self-critical. The resulting study, ‘Distributed Ledger Technology Systems, A Conceptual Framework’, offers a thorough and reflective conceptualization and examination of DLT as a functioning system with key layers, components, processes, and interactions with other systems. By adopting a ‘systems perspective’, the Study begins the journey to not only see 'trees’ and the ‘forest’, but to develop a more nuanced understanding of the complex and living ‘DLT ecosystem’.

As we see it, this DLT Conceptualisation Study is a beginning and a catalyst to invite more input, discussion, and debate, as the landscape of DLT itself continues its swift evolution.

In the DLT Conceptualisation Study, DLT systems were purposefully 'deconstructed' and then ‘reconstructed’ using a ‘systems perspective’ and an analytical framework that envisions all DLT systems as constructed of three layers: Protocol, Network, and Data. This allows the Study to articulate how these core layers interact with each other through processes and flows, as well as their conditional dependency and hierarchy within the system. The analysis demonstrates how varying the ‘configuration’ of these layers and their components will result in ‘DLT systems’ (and by extension the records and assets within them) that function and behave very differently. It also illustrates how DLT systems might interact with each other within the wider ecosystem, how ‘centralisation’ and decentralisation’ should be understood as falling along a spectrum rather than binary, and the necessity for making a distinction between native’ and ‘non-native’ record-keeping.

This Study advances the mission of the Cambridge Centre for Alternative Finance to forge cutting-edge, multidisciplinary and collaborative research in alternative finance, including instruments and channels emerging outside the traditional financial system. We are very grateful for the contribution of all of our research team members and the opportunity to do our small part to further our collective understanding of DLT systems.

Bryan Zhang, Executive Director and Co-Founder, Cambridge Centre for Alternative Finance

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