The difference between Blockchain and Distributed Ledger Technology
Blockchain and distributed ledgers are starting to change our lives for the better. Words such as distributed ledger technology and blockchain in the same sentence often make people think of blockchain technology and distributed ledger technology (DLT) as the same. This is a common misconception that many people have. In this article, we explore what blockchain and DLT is and it’s differences between them.
Blockchains are one form of distributed ledger technology. A blockchain is managed by peer-to-peer networks. Since it is a distributed ledger, it can exist without a centralized authority or server managing it, and its data quality can be maintained by database replication and computational trust.
However, the structure of the blockchain makes it distinct from other kinds of distributed ledgers. Data on a blockchain is grouped together and organized in blocks. The blocks are then linked to one another and secured using cryptography.
“Every blockchain is a distributed ledger, but not every distributed ledger is a blockchain. Each of these concepts requires decentralization and consensus among nodes. However, the blockchain organizes data in blocks, and updates the entries using an append-only structure.” — Shaan Ray
To sum up, a blockchain is a decentralized database which logs records by grouping transactions (data) into blocks. These records are unchangeable, append-only and can be used to create and document a history of lots of different things. This permanent blockchain ledger record is very useful; however, the disadvantage is that it continues to grow larger over time.
What is Distributed Ledger Technology (DLT)?
Distributed ledger technology is a general term, which describes software and online technology that distributes information as a record of ledger transactions to all that use it. Each node replicates and saves an identical copy of the ledger. Each participant node of the network updates itself independently. DLT information may be shared either publicly or on a private basis among authorized users.
The groundbreaking feature of distributed ledger technology is that the ledger is not maintained by any central authority. DLT works with a decentralized ledger that does not require centralized administration like a traditional database. Therefore, it is much more difficult to change or corrupt the information, since it is hard to be “hacked” and manipulated.
DLT is technologically decentralized and bases on similar principles of consensus to the blockchain. Once consensus has been reached, the distributed ledger updates itself and the latest, agreed-upon version of the ledger are saved on each node separately. A DLT can be considered the first step towards a blockchain, but importantly it won’t necessarily construct a chain of blocks. Rather, the ledger in question will be stored across many servers, which then communicate to ensure the most accurate and up to date record of transactions is maintained.
Distributed ledger technologies drastically reduce the cost of trust. The architectures and structures of distributed ledgers can help us mitigate our dependence on banks, governments, lawyers, notaries, and regulatory compliance officers. Distributed ledgers present a new paradigm for how information is collected and communicated, and are poised to revolutionize the way individuals, enterprises and governments transact.
The Difference between Blockchain and DLT
The most important difference to remember is that blockchain is just one type of distributed ledger. However, blockchain is a sequence of blocks, distributed ledgers do not require such a chain. Furthermore, distributed ledgers do not need proof of work and offer — theoretically — better scaling options.
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 permission and new nodes can only join with permission from the validator nodes.
Blockchain: The governance in a Blockchain 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 and the relative decentralization of mining (which has become more centralized over time) to reach a consensus on the truth of the blockchain. In blockchain’s efforts, everything is aimed to maximize decentralization.
DLT: Trust in the participating nodes in this model is high and can make sense when a big corporation 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
Blockchain: Censorship resistance in Blockchain is 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.
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.
Blockchain: The token, or unit of account, is a fundamental aspect of the Game Theory-driven model in a public Blockchain. The ability to run a node is open to everyone in principle. However, 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.
In conclusion, blockchain is a specific type of distributed ledger. It is designed to record transactions or digital interactions and bring much-needed transparency, efficiency, and added security to businesses. But these two technologies are not the same and remember that all blockchains are distributed ledgers, but not all distributed ledgers are blockchains. Whereas a blockchain represents a type of distributed ledger, it is also merely a subset of them.
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