Before you learn about blockchain and its concepts, it’s crucial to study distributed ledger technology. DLT forms the basis for blockchain and is at the core of the same. By learning about DLT, understanding the various concepts of blockchain will become quite more comfortable for you.
In this article, we’ll discuss the very same topic. You’ll find out what distributed ledger technology is, how it works, and the differences between it and blockchain. Let’s get started:
What is Distributed Ledger Technology?
A distributed ledger is a database which is present in multiple locations or among various participants. Conventionally, organizations save their data on a centralized database that remains stored in a permanent place. This can lead to problems of accessibility and security.
A distributed ledger gets rid of these problems, due to which they are becoming increasingly popular in the modern world. They enable transactions to have public witnesses. If a participant makes any changes to the ledger, it will reflect the same to every other participant within a few seconds or sometimes, minutes.
DLT removes the need to have a central authority to verify and check every transaction. Distributed ledgers use cryptography to store all of their information accurately and safely. To access these pieces of information, you’ll need to have their keys and cryptographic signatures. Once the DLT stores any information, it becomes an immutable database whose rules depend on the network.
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Blockchain vs. DLT
Comparing Blockchain and DLT is just like comparing Maggie and noodles. The former is just the latter. However, because of its overwhelming popularity, people have started using both of these terms as synonyms. After the arrival of Bitcoin in the market, the difference between these two terms became more blurry for people; that’s why there’s a lot of confusion.
Blockchain is a ‘type’ of a distributed ledger. It is a shared database whose entries must be encrypted and confirmed. You can perceive it as a highly secure Google Sheet, where every entry depends on its predecessors and requires verification. Here are the primary differences between the two:
Point #1
Blockchain is a type of DLT which has digital recorded and immutable data. It stores data in packages that are called blocks.
DLT is a record of consensus which multiple nodes (or parties) maintain and validate. It constructs a decentralized ledger to ensure consensus among participants who don’t rely on each other.
Point #2
Blockchain uses cryptography to prevent malicious users from abusing the system and manipulate any transactions in his favor. Cryptography makes the task of managing blockchain very difficult for the intruder.
DLT adds new information to itself in real-time and only when it gets confirmation of consensus from all the participants. DLT uses a unique cryptographic signature every time it adds a new entry in the database.
Point #3
Blockchain is a method of implementing distributed ledger technology. Not all distributed ledgers have to use blockchain.
In other words, all blockchain are DLTs, but not all DLTs are blockchain.
Read: Why Blockchain is important?
Advantages of Distributed Ledger Technology
Blockchain is just a product of DLT. Experts believe distributed ledger technology has a lot of potentials and can do wonders for different industries.
1. Security
The fundamental nature of DLT makes it highly secure and immune to any hackers or similar threats. A centralized ledger is riskier than a distributed ledger for the following reasons:
- It is stored in one location. If that location gets compromised, the entire database is compromised as well.
- It relies on a third party for its operation and control.
Distributed ledger technology removes these faults.
- With DLT, the database remains stored in multiple locations or with multiple participants. This adds more security to the data.
- All the participants have control over the ledger and its operation. It depends entirely on the consensus among the participants, ensuring that a single party doesn’t have absolute power.
Apart from these two qualities, the added layer of cryptographic signatures and keys make a distributed ledger considerably secure.
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2. Efficiency
The peer-to-peer sharing and updating of records make the system fast and highly efficient. A centralized ledger relies only on one order for its efficiency and operation, whereas a distributed ledger can employ multiple methods for this purpose. The enhanced ability of DLT makes it cheaper than its central counterpart as well.
3. Functionality
Distributed ledger technology is very versatile and finds applications in multiple sectors. Just take a look at blockchain, which is a type of DLT. From healthcare to finance, various industries are using blockchain to advance further in the market. Here’s an article on blockchain applications in different sectors; you can explore this topic further there.
Many experts believe DLT is set to revolutionize the future. It has numerous advantages which many fields can benefit from.
Conclusion
This article should’ve removed all your doubts on distributed ledger technology and blockchain. You must’ve also noticed how revolutionary this technology is too.
We’ve already seen how cryptocurrencies have changed the finance sector. Considering they are a by-product of DLT, we can expect to make many transformational changes with this technology.
There is a rise in careers in blockchain technology and blockchain has tremendously changed the very face of the technology industry forever. If you’re interested to become a blockchain developer and build smart contracts and chain codes, checkout IIIT-B & upGrad’s PG Certification in Blockchain Technology.
This article originally published on upGrad blog.
