In the always-changing world of UAE Crypto, distributed ledger technology, or DLT, is a game changer. If you're like most, you're overwhelmed with all the information about DLT. You might be asking yourself questions like: "What is it?" "Why is it important for my business?" "How does it work?" "What do I need to do to comply with the new laws about DLT?" "Should I be using it?" If so, this guide can help you navigate DLT's legal hurdles and establish a solid foundation for your operations.

Ape Law's web3 legal experts can help you answer questions about DLT's new regulations and guide you toward compliance. With their help, you can ensure that your crypto business is on the right side of the law.

Table of Contents

• What is DLT?

• How Does DLT Work

• 5 Types of DLT

• 9 Tips on How to Use DLT

• Book a Free Consultation to Navigate the Legalities of Setting up a Web3 Business in the UAE

What is DLT?

Unlocking DLT: The Basics and Beyond

Distributed ledger technology is a sophisticated digital system for recording the transactions of assets. Unlike traditional databases, distributed ledgers lack a central data store or centralized administration functionality. Instead, DLT records transaction details in multiple places simultaneously, minimizing the time-consuming and error-prone processes required to reconcile differences in data contributions. This ensures that everyone has access to the current version, and its accuracy can be trusted. 

What DLT Does

DLT refers specifically to the technological infrastructure and protocols that enable the simultaneous access, validation, and updating of records that characterize distributed ledgers. It operates on a computer network spanning multiple entities, locations, or nodes. In a distributed ledger, each node processes and verifies every item, thereby generating a record of each item and creating a consensus on its veracity. A distributed ledger can be used to record static data, such as a registry, and dynamic data, such as financial transactions. Blockchain is a well-known example of a distributed ledger technology. 

DLT's Increasing Popularity

Organizations across various industries are experimenting with DLT and exploring its applications in enterprise processes. The financial services, healthcare, and pharmaceutical sectors were early leaders, and supply chain management is a typical application. 

DLT is Not New

The concept of a distributed ledger is not a new one. Organizations have long gathered and stored data in multiple locations, either on paper or in siloed software, bringing the data together in a centralized database only periodically. A company, for example, might have different bits of data held by each of its divisions, with divisions contributing that data to a centralized ledger only when required. Similarly, multiple organizations working together typically have their data and contribute it to a central ledger controlled by an authorized party only when requested or required. 

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How Does DLT Work

DLT, or distributed ledger technology, is a system for digitally recording transactions involving assets. Unlike traditional databases that store records in a central location, DLT operates on a decentralized network of computers, or nodes. Each node maintains its copy of the database and updates it independently of other nodes. This process eliminates the need for a central authority to validate and store transactions, creating a more resilient system with no single point of failure. The replication of data across nodes also enhances the security and transparency of transactions by making it virtually impossible to alter records without the consensus of the network.

5 Types of DLT

1. Public (Permissionless) Ledgers: The Open Blockchain for Everyone

Public ledgers, also known as permissionless ledgers, provide open access to anyone, from readers and writers to validators. Anyone can participate in the network without having to obtain permission from anyone. Governance is fully decentralized. There is no single controlling entity that allows for greater transparency and security.

Public ledgers often employ consensus models, such as proof of work (PoW) or proof of stake (PoS). Both are effective at keeping the network secure and validating transactions without the need for a trusted third party. The benefits of public ledgers are transparency, strong security, and trustless operation. However, they also have drawbacks, including scalability bottlenecks, slower performance, and increased energy consumption.

Examples of public ledgers include Bitcoin, Ethereum, and Litecoin. 

2. Private (Permissioned) Ledgers: The Controlled Blockchain

Private ledgers, also known as permissioned ledgers, restrict access to approved participants. These networks are typically controlled by one organization, which manages permissions and can revoke access at any time. Because access is limited, private ledgers can process a higher number of transactions per second (TPS) than public ledgers, making them suitable for enterprise use.

Governance is centralized, which means a single authority manages the network. This allows organizations to maintain greater privacy over the data recorded on the ledger. They can also create their own rules for how the network operates. The main advantages of private ledgers are higher transaction throughput, enhanced privacy, and a controlled environment. However, their centralization makes them less decentralized than public blockchains, so trust is still placed in the controlling organization.

Examples of private ledgers include Hyperledger Fabric and R3 Corda. 

3. Consortium (Federated) Ledgers: The Collaborative Blockchain

Consortium ledgers, also known as federated ledgers, are collectively controlled by a group of organizations. Access is restricted to approved participants of the consortium only. Governance is semi-decentralized. There is no single controlling entity, but the number of validators is limited. The primary benefit of consortium ledgers is that they offer a balanced approach to transparency and privacy. They are also faster and more scalable than public ledgers. However, consortium ledgers have complex trust coordination. They are also less open than public blockchains, which can limit the ability of organizations to innovate and drive innovation.

Examples of consortium-ledgers include Quorum, the Energy Web Foundation, and R3. 

4. Hybrid Ledgers: The Flexible Blockchain

Hybrid ledgers combine both public and private permissions. In a hybrid ledger, specific data or transactions are public, while others are private. Governance is flexible and can range from fully decentralized to fully centralized, depending on the design. The main advantage of hybrid ledgers is that they allow organizations to customize their balance between privacy and transparency needs. This makes them ideal for regulated sectors that require both secure data management and auditing capabilities. However, hybrid ledgers can be architecturally complex, which may introduce new security considerations.

An example of a hybrid ledger is Dragonchain, as well as similar enterprise blockchains. 

5. DLT by Data Structure (Beyond Blockchain)

AnalyticsSteps also categorizes DLT by architecture—how data is organized and consensus achieved. Here is a look at the different types of distributed ledger technology structures: 

Blockchain

This classic structure features a chain of blocks that confirms transactions in an immutable, decentralized ledger. Blockchains typically use either proof of work (PoW) or proof of stake (PoS) to achieve consensus. The primary advantage of blockchain technology is its high security and proven track record. However, transaction speeds can be low, and the technology is not scalable. 

Directed Acyclic Graph (DAG) & Tangle (IOTA)

In this ledger structure, each transaction confirms prior ones, which eliminates the need for blocks and miners. The primary advantages of DAG ledgers are low latency, high scalability, and low transaction fees. However, they require a sufficient volume of transactions to operate securely. 

Sidechain

A sidechain is a separate blockchain that is connected to a main blockchain via a two-way peg. The primary advantage of a sidechain is interoperability. They allow users to create custom rules and consensus mechanisms while offloading transactions from the main chain. However, sidechains can introduce increased complexity and security trade-offs. 

Holochain

Holochain features an agent-centric model, meaning each user maintains their own chain and only shares data with others via a distributed hash table (DHT). The advantages of Holochain include high scalability, energy efficiency, and strong privacy. However, it lacks global consensus and is unsuitable for unified tokens or currencies. 

Hashgraph

Hashgraph utilizes a directed acyclic graph (DAG) structure, incorporating “gossip about gossip” and virtual voting, to achieve consensus. The primary advantages of hashgraph technology are high throughput, fairness, and finality in seconds. However, it is proprietary and has less open-source and more centralized governance than other DLT structures. 

9 Tips on How to Use DLT

1. Simplifying Crypto Business Set Up in the UAE with Ape Law

Establishing a cryptocurrency business in the UAE can be a challenging process. Fortunately, Ape Law can help simplify the journey. As legal experts specializing in Web3, we handle the complex issues of licensing, compliance, and business structuring for crypto companies. Our goal is to help you focus on growth and development rather than the legalities of starting a business in the UAE. Whether you’re launching a new coin, token, or NFT, expanding operations, or optimizing for tax efficiency, our team ensures a smooth and legally sound setup. Book a free consultation today to navigate the legalities of setting up a Web3 business in the UAE with ease!

2. DLT and Its Benefits for Real-Time Settlement and Clearing

Traditional settlement processes cause delays of T+2 or T+3, which creates counterparty risk, capital lock-up, and liquidity issues. Distributed ledger technology (DLT) enables atomic settlement, which allows for instant finality without intermediaries. Implementing smart contracts can also automate clearing processes between buyers and sellers in real-time. For example, DTCC’s Project Ion uses DLT to reduce settlement from days to minutes.

3. Tokenization: The Key to Digitizing Securities

Paper-based securities are complex to transfer, fractionalize, or verify. DLT enables the secure creation and transfer of digital tokens that represent equities, bonds, or tangible assets, allowing for easy trading and transferability. For regulatory-compliant tokenized trading, use platforms like Polymesh or Securitize. One use case includes fractional ownership of stocks or real estate (e.g., buying $10 worth of Apple stock as a token).

4. Improving Transparency and Reducing Fraud with DLT

Markets are plagued by problems such as insider trading, price manipulation, and false reporting. DLT provides an immutable audit trail, where every transaction is recorded and can be easily verified. To ensure only trusted entities have write access while all trades are traceable, apply permissioned DLT (like Hyperledger Fabric). One use case involves regulated exchanges utilizing DLT to record every trade and conduct real-time audits.

5. Integrating DLT with Automated Trading and Algorithms

Automated trading systems require fast, verifiable data inputs. DLT provides the solution, enabling secure, real-time execution triggers through decentralized oracles and smart contracts. Utilize Chainlink or Band Protocol to integrate off-chain data (such as prices and volumes) onto a DLT. For example, triggering a trade when ETH crosses $2,500 can be validated by decentralized price feeds.

6. OTC & Cross-Border Trading: How DLT Can Reduce Intermediary Fees

Over-the-Counter (OTC) and cross-border trades usually involve brokers, custodians, and FX intermediaries, all of which can add significant fees and time to a trade. DLT enables peer-to-peer trading of digital assets without requiring custodial or brokerage layers. To lower costs and settlement times, adopt decentralized exchanges (DEXs) or DLT-based OTC platforms. One use case involves trading U.S. stocks in Asia via tokenized assets without relying on U.S.-based clearinghouses.

7. Enhancing Compliance and Regulatory Reporting with DLT

DLT can streamline compliance and regulatory reporting for crypto firms. Regulators require detailed trade data (MiFID II, SEC 613 CAT, etc.). DLT can help, as all trades are time-stamped, immutable, and easily auditable. Use DLT nodes that automatically forward compliant data to regulators while maintaining user privacy. One use case includes securities exchanges using DLT-backed regulatory nodes for real-time reporting.

8. Facilitating Interoperability Between Traditional and DeFi Markets

Many institutional traders operate in both traditional and blockchain-based markets. DLT can facilitate their activities. Smart contracts and bridges can synchronize positions, risk, and pricing across systems. Utilize hybrid trading models—such as Metamask Institutional or Fireblocks—that integrate secure custody with institutional access to DeFi pools. One use case includes hedging crypto exposure on-chain while managing fiat liquidity off-chain.

9. Strengthening KYC/AML and Identity in Trading Networks

Fake accounts and non-compliant counterparties pose systemic risks. DLT can help by using Self-Sovereign Identity (SSI) on DLT to verify users while preserving privacy. Platforms like Civic or Bloom can integrate KYC credentials into a user’s crypto wallet. One use case includes allowing only verified wallets to trade on tokenized stock exchanges.

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Book a Free Consultation to Navigate the Legalities of Setting up a Web3 Business in the UAE

Setting up a crypto business in the UAE can be complex, but Ape Law makes it smooth. As Web3-native legal experts, we handle crypto licensing, business structuring, and compliance so you can focus on growth. Whether you’re launching a new coin, token, and/or NFT, expanding operations, or optimizing for tax efficiency, our team ensures a smooth and legally sound setup. Ready to establish your business in the UAE? Book a free consultation today to navigate the legalities of setting up a Web3 business in the UAE with ease!

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