What’s the Difference between Blockchain and Distributed Ledger Technology (DLT)?

Even in 2020, blockchain and distributed ledger technology (DLT) remain a black box to the majority of the world. In this article, we will explain all you need to know about the blockchain and the distributed ledger technology, and enough to get you into any conversation.

What is the Blockchain?

The blockchain has grown to be a far more popular term than the DLT itself, which of course is thanks in no small part to the rise of the Bitcoin and other digital currencies over the decade.

While blockchain is the spine of the major cryptocurrency, it, of course, has other use cases and applications with the potential of being implemented across diverse sectors other than finance, including health, agriculture, and countless other sectors that the blockchain itself might even redefine. Thus, what is it about blockchain that sets it apart as probably the most important innovation of the past decade?

The blockchain is, put simply, the sequences, and series of records that cannot be altered and is being managed by a large body of computers. Computers verifying transactions in a blockchain might be hundreds, thousands, or even in many practical cases, millions in numbers.

The blockchain, due to its immutability, security and lack of a central authority, has grown in popularity. By cutting away the need for a middle man, the blockchain allows products and prospective services to be rendered directly to the customers without the middleman.

It’s like buying pizza without the delivery guy or paying client miles and oceans away from your country directly without any mediums such as Visa, or Paypal cutting in the deal. Blockchain has provided the ground for many smart protocols and contracts and is only going to get stronger and find more use cases.

How the Blockchain Works

The blockchain, modeled as a series of immutable records, is only secure because of the cryptography linking its blocks. This is where the concept of ‘chain’ is derived.

There are two kinds of records in a blockchain system. The first is the Transaction, and the other is the Block. The transaction record stores time-stamped transactions over no transaction cost. The block records are secured by a cryptography hash, which has encoded information of the preceding block.

The blocks in a blockchain are time-stamped, recording the present state of the system cryptographically so that any future change would have to be verified by the majority of the network. This means the addition of a new block to the existing chain becomes harder and involves more processes. Each increase in block given each addition would have to be verified by the existing network.

Thus, the blockchain comes off more secure. By requiring the majority of the system to verify a change it eliminates the need for trust, simply giving authority to the majority. Kalle Alm, a Bitcoin Core developer, explained why this process is important. He stresses that verification eliminates the possibility of fraudulent transactions while still eliminating trust at the same time:

“Blockchains alleviate the trust requirement in a shared time-stamped database,” he commented. “For a public cryptocurrency, this is obviously necessary or someone might just go and give themselves a million USD, but for a private database, especially when it is not a cryptocurrency but some more abstract form of smart contract platform, it starts to make less and less sense.”

What is Distributed Ledger Technology (DLT)?

As hyped and known as the blockchain is, the blockchain is however just a type of distributed ledger. If a pencil is a writing material as well as a pen, then the blockchain is a very good pencil! This is a terrible over-simplification by the way, but the point remains that blockchain is a specific type of distributed ledger, and there could be other types of ledgers different from blockchain and with different use cases.

The distributed ledger is likewise a database that is public in nature. It requires many witnesses and is open to all participants. Like in the blockchain, the DLT does not require a middle man which makes the concept of distributed ledger technologies very alluring.

While the blockchain, of course, has stolen the march and grown into respectable popularity over the years, there is every possibility that other forms of DLTs would materialize in the very near future.

As James Wallis, Vice President of Blockchain Markets and Engagements for IBM explained, applications of DLTs in the future would come off in the most unlikely of ways and places.

“You will see uses for DLT that you can’t even think of today,” he said. “But that this will involve a level of sharing that hasn’t really existed before.”

How the Blockchain Differs From the Distributed Ledger

As mentioned, the blockchain is only a type of DLT, and just so happens to be the one known to be underlying DLT technology in the world. However, other key differences set the blockchain apart from its parent term.

For one, the blockchain is a permissionless system while the DLT is not necessarily permissionless. In fact, a DLT is generally considered to require permission.

The underlying concept behind the blockchain is particular about the growth and openness of the network, thus, a blockchain is open to anyone. Meaning any party can create and verify nodes on the former while at the latter, it is not the case. According to the director of the ecosystem at Hyperledger, Marta Piekarska, this particular feature is probably the most important feature that separates the two. Explaining its corresponding impact on its application, he talked up Bitcoin:

“First and foremost: one is permission less, the other is permissioned. This means that in the first case anyone can participate in the network, in the other: only chosen participants have access to it. This also determined the size of the network: Bitcoin wants to grow infinitely, while in a permissioned blockchain space, the number of parties is smaller.”

Apart from this, not all DLT are cryptographically hashed: it is perhaps uncommon and unnecessary in the majority of other existing DLTs. These subtle differences contribute to other major differences that affect the performance of both subjects.

Conclusion

The blockchain, as known, is largely decentralized. However, while the DLT is shared by many participants, its database is majorly centralized. This, of course, leads to the issue of scalability. By decentralizing its entire network, the blockchain is generally slower in transactions than most DLTs, leading to significantly inferior scalability.

Nevertheless, the blockchain is here to stay, and its increasing use cases is more than enough proof. Other forms and applications of distributed ledger technologies would be emanating soon in the near future. We can only keep our fingers crossed and enjoy the unveiling evolution.