DLT vs Common Blockchain: Architectures for CBDCs
As central banks across the globe explore Central Bank Digital Currencies (CBDCs), the choice of distributed ledger technology becomes pivotal. At its core, Distributed Ledger Technology (DLT) encompasses a broad family of consensus-based systems, whereas blockchain is a more narrowly defined, chain-of-blocks data structure popularized by Bitcoin and Ethereum. This article unpacks their differences, trade-offs, and implications for CBDC design.
1. Defining the Terms
DLT is any database replicated, shared, and synchronized across multiple sites and geographies, using a consensus mechanism to ensure data integrity and ordering. It may use directed acyclic graphs (DAGs), hashgraph, or other novel structures.
Common Blockchain specifically refers to a linear chain of cryptographically linked blocks, where each block contains a batch of transactions, validated by a consensus algorithm like Proof of Work or Proof of Stake.
2. Architectural Comparison
| Aspect | DLT (General) | Common Blockchain |
|---|---|---|
| Data Structure | Graph-based or custom ledgers | Linear chain of cryptographic blocks |
| Consensus | Flexible (PBFT, DAG algorithms, etc.) | PoW, PoS, or federated variants |
| Permissioning | Fully permissioned or hybrid | Often permissionless or federated |
| Throughput | High (thousands tx/sec) | Moderate (10–100 tx/sec typical) |
| Governance | Centralized or consortium-driven | Often decentralized communities |
3. Why It Matters for CBDCs
Central banks have stringent requirements:
- Scalability to support national payment volumes
- Privacy for user confidentiality and AML/CFT compliance
- Resilience against cyber-attacks and outages
- Interoperability with existing RTGS, SWIFT, ISO 20022
- Governance under clear legal and operational frameworks
3.1 Scalability Performance
Permissioned DLT systems (e.g., R3 Corda, Hyperledger Fabric) can deliver 5k tx/sec in controlled environments. Common public blockchains often plateau at under 200 tx/sec unless layer-2 solutions are deployed.
3.2 Security Privacy
In a permissioned DLT, pre-approved nodes enforce KYC/AML rules. Zero-knowledge proofs and secure multiparty computation can protect user data. Public blockchains rely on pseudonymity, which may conflict with central-bank transparency requirements.
3.3 Governance Interoperability
Central banks tend to favor consortia-based governance (e.g., BIS Innovation Hub), rather than permissionless communities. Interoperability standards like ISO 20022 are integrated more easily in modular DLT networks.
4. Global Pilot Projects
- Project Jasper-Ubin (Canada–Singapore): Interlinking DLT systems for wholesale payments – Staff Analytical Note
- mBridge (Hong Kong, China, UAE, Thailand): Wholesale cross-border DLT – BIS IH
- Project Dunbar (BIS IAM): Multi-CBDC network – BIS Review
- e-CNY (China): Digital yuan on hybrid ledger – PBoC
5. Pros Cons
Permissioned DLT
- High performance throughput
- Strong access controls
- Customizable privacy
- Centralized governance
- Interoperable with legacy systems
Common Blockchain
- Proven security (Bitcoin, Ethereum)
- Censorship resistance
- Global decentralization
- Lower transaction costs (potentially)
- Challenging privacy controls
6. Conclusion
For CBDCs, the optimal architecture often blends elements of permissioned DLT—ensuring throughput, privacy, and regulatory compliance—while borrowing best practices from public blockchains to guarantee resilience and innovation. As pilots evolve, central banks will continue to harmonize scale, security, and sovereign control in their digital currency endeavors.
References: BIS Innovation Hub, IMF Working Papers, Bank of England consultations
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