A Simple Guide to Understanding the Difference Between Blockchain and Distributed Ledger Believers
Blockchain and distributed ledgers are starting to change our lives for the better. You’d be hard pressed to quell the passions displayed by both Blockchain believers and Distributed Ledger Technology (DLT) enthusiasts in their pursuit of life-changing technologies.
If you’re new to the space, you may be confused about the exact differences between a blockchain and a distributed ledger. Information you may have read seems divided, perhaps at times as deeply as political issues found on both the left and the right. The exact definitions of each is outside the scope of this article.
Productive discussion and collaboration between the extremes of blockchain and DLT believers can only happen when the differences between them can be understood. Hopefully this guide will will bridge an unnecessary gap and bring productive thoughts and discussions from both sides of the spectrum.
The best of the new decentralized economy can only be created when labels and ideologies, that at times are no longer helpful, are displaced in favor of understanding.
One key differentiator, among many others, between Blockchain and DLT believers is the level of trust they have in centralized institutions.
Blockchain Believers
Blockchain believers, often close to the Cypherpunk movement, don’t trust centralized institutions and often believe that over the long run centralized institutions mean centralized power that will be wielded against the weakest — the people — need tools to protect themselves against the dominance of these centralized institutions.
For Cypherpunks, the key of a healthy system lies in the decentralization of power, which in the current information age often means access to data. This is a summary of the initial ideas of what motivated many Cypherpunks, although that label may encompass additional motivations that are not shared by others in this camp, especially since Blockchain created an economic incentive for a much larger group of participants to get this to work.
DLT Believers
On the other hand DLT believers tend to trust centralized institutions and because of, see above all, an opportunity to optimize current processes and become more efficient. DLT believers also often tend to see in “full” decentralization solutions (á la Blockchain) a huge social menace that will be used by criminal organizations to undermine the stability of society.
For a DLT believer, centralized institutions work well and often they only need tools to increase transparency to achieve lower cost, remain competitive and create new business models.
These are the two extremes of believers and there are all shades of gray in between. From a computer science point of view, Satoshi Nakamoto created one possible solution to the long researched “double spending problem” with his Proof-of-Work algorithm and also a solution to the Byzantine Generals Problem that started the current global Blockchain mania. Now everyone wants to own the term, but people often don’t understand each other because their worldview and beliefs are very different.
Aspects that Characterize Each of these Groups
You might look at this line of High Trust vs. Low Trust and think that your preferred solution is very decentralized, but others will think that your solution is not as decentralized as you believe.
Finding a common ground is the goal here and the exploring each of these concepts might help.
Network/Governance Decentralization
- DLT: Governance in DLTs is mostly centralized in one or a few validator nodes that are identified and other nodes that might have read access with the permission of the validator nodes. Governance is closed and the network of nodes is permissioned and new nodes can only join with permission from the validator nodes.
- Hybrid Blockchains: Governance in a semi-public or public permissioned Blockchain and is often defined by the validators nodes that are identified, usually, public institutions like governments agencies, educational institutions or corporates. However, read access to the ledger is open to everyone, which is different from DLTs where you need to be invited to have read access.
- Blockchain: The governance in a Blockchain like Bitcoin is decentralized through the global distribution of all nodes each having all the data of the blockchain, the free software that allows anyone to participate in “Bitcoin” and the relative decentralization of mining (which has become more centralized over time) to reach a consensus on the truth of the blockchain. In Bitcoin and similar Blockchain efforts everything is aimed to maximize decentralization.
Trust in Institutions
- DLT: Trust in the participating nodes in this model is high and can make sense when a big corporate wants to organize its own internal blockchain or when a leading corporate/government/industry wants to organize a consortium where all participants trust each other. Censorship resistance in this model is low since it is not a key requirement as these are often centralized and or private.
- Hybrid Blockchains: Trust in a hybrid Blockchain is lower than in a pure DLT, but that trust is delegated to publicly identified nodes. Censorship resistance in this model depends on the geographic and participant distribution of the nodes and the risk of active attacks against the identified nodes.
- Blockchain: Censorship resistance in Bitcoin was envisioned to be very strong with one vote per PC. However the progressive concentration of mining with increased hash power in the hand of fewer decision makers or technologies, like ASICBoost, has created doubts about the real censorship resistance of public Blockchains for some people.
Votes and Tokens:
- DLT: Only select invited and identified nodes in a DLT can validate transactions. Because of that a DLT usually does not need tokens except as an anti-spamming mechanism.
- Hybrid Blockchains: Participation in a hybrid Blockchain is usually open to all nodes, but they have to fulfill a certain number of requirements which imply a cost and are identified. Some have tokens as an incentive mechanism and others don’t.
- Blockchain: The ability to run a node is open to everyone in principle, but the example of Bitcoin has shown that running a full node has become more difficult over time due to the size of the full blockchain. The token, or unit of account, is a fundamental aspect of the Game Theory-driven model in a public Blockchain. For a node run by an individual user that is not part of a professional mining pool, it is unlikely they will solve a new block, but they can still participate in decentralization by running a full node that verifies and relays transactions and verifies new blocks.
Common Characteristics of Blockchain and DLT Believers
Blockchain believers tend to:
- Trust code
- See a need to protect people from institutions
- Don’t trust institutions
- Don’t trust regulators
- Want to create disruption
DLT believers tend to:
- Fear abuse of full decentralization
- Don’t see a need to protect people from institutions
- Trust institutions
- Trust regulators
- Want to improve the current economic model
Why do we talk about believers?
Many people recognize that the Cypherpunk movement is often libertarian in orientation and inspired in some cases by schools of thought like the Austrian School of Economics and Hacktivism.
This is easy to recognize, because cypherpunks are a minority ideology.
What is more difficult to recognize is that DLT believers also reflect an ideology — the ideology that institutions can be trusted and should be part of decentralized solutions.
What is really important beyond ideology?
There are many different ways to achieve decentralization. Blockchain and distributed ledgers are just two of many. It’s most beneficial when we can all learn from each other and find the best technology to improve life for everyone.
The global Blockchain and speculation hype cycle in 2017 — beyond even the previous cycle in 2013 — has motivated many around the world to use all the right keywords with the right marketing to raise money (and then sometimes even disappear), the usage of these keywords has lost a great deal of their meaning.
My personal belief is that we need to look beyond the labels and focus on how decentralization can be achieved for different solutions and use cases. And sometimes decentralization will not be needed and centralized solutions might just be good enough.
For the strongest fundamentalists in both camps this might not be satisfying, but I hope that for people who believe decentralization is a force for good, this will be productive to explore.
The original cypherpunk dreams assumes that these technologies will create a better utopian world, but there is also a risk for creating a more dystopian world with this new Blockchain world. The more of us who understand what we are doing and bridge our philosophical points of view to harness how we can use these technologies, the better we will be able to assess the opportunities and risks.
Special thanks for feedback and editing from Drummond Reed, José Antonio Bravo, James Monaghan and Misty Bledsoe.
