You’ll often hear distributed ledger technology (DLT) and blockchain used in substitution for one another. However, they’re actually two completely separate concepts and can’t be used interchangeably.
Nevertheless, the confusion is understandable since we now live in a world where there is frequent evolution of technological terms. However, from a business perspective, the lack of clear understanding of the difference in terminology is certainly worrisome, as many organizations are using blockchain to spruce up their business, while trying to ride on cryptocurrency’s popularity. However, in reality, what they might be offering is not remotely similar, and are instead advertising DLT.
So, what’s the difference between them? Let’s explore the comparison, and understand their individual features and functionalities.
What Is Distributed Ledger Technology?
DLT is a database employed by several companies. Instead of having information stored in one location, they spread it out among several databases. This means there are several participants involved in updating and maintaining the database. The reason they opt for this is because of decentralization.
Decentralization means no one acts as a middleman for the database. No one can take total control over the system. No bank will call you to stop the transaction. This means that data only changes after an agreement with the parties involved. After that, the records will be available on the ledger.
What Is Blockchain?
Blockchain uses the same form of technology as DLT, and you can say that it’s a derivative of distributed ledger technology. The transaction appears in every participating node of the blockchain, and the copy is finally stored in the ledger. All these copies update when a new transaction takes place. They also have encryption to protect against fraud and tampering.
Blockchain is also a decentralized database that functions with strict security protocols. It’s called a blockchain because the ledger sorts the data into blocks linked together before enhancing it with encryption. You cannot alter or change existing data in the blockchain. It will exist throughout history, making it one of the most transparent forms of logging transactions.
Distributed Ledger vs Blockchain: What’s the Difference?
When it comes to blockchain vs distributed ledger, both sound similar, but each has its own unique aspects. To understand them better, we have to look at the two using the following criteria:
| Criteria | Blockchain | Distributed Ledger Technology |
|---|---|---|
|
Block Structure |
In blockchain, data is reflected as blocks. Encrypted blocks chained together make it extremely difficult for anyone to unravel. To try and tamper with one information block means decrypting thousands or millions connecting it. |
Distributed ledgers spread a database across several nodes, which can be represented in many ways. |
|
Sequence |
All information in a chain connects in a specific sequence. There’s no connection to information without going through that chain. It’s the sequence that is integral to making the technology work. Data is immutable and transparent. |
In DLT, there’s no need for a specific sequence of data. You can enter and adjust the data how you see fit. |
|
Consensus Mechanism |
Most blockchains use a consensus mechanism, which requires a lot of power to maintain. Some newer ones are implementing more power-friendly features, but they’re still in the process of optimization. For example, the consensus mechanism validates the database through validators (tokens). It’s a way to add even more security to a blockchain because of the frequency of attacks. |
A distributed ledger does not need consensus mechanism. There is no need for a consensus to store and move data (though some still adopt it). It makes DLT a better option for those who want to scale up, like businesses. |
|
Tokens |
A token economy exists within the blockchain, and there are many uses for it. You can say that it’s fundamental to the success of blockchain technology. |
DLT doesn’t use any tokens or currency at all. Some may have them for security purposes, like detecting and blocking spam. However, it is not a necessary component of any DLC system. |
|
Real-Life Implementations |
Blockchain has many implementations, with more being added regularly. We see blockchain adaptation in tech companies as seen in NFTs, utility, social mechanisms, and more. |
While there are many possibilities with DLT, there are not many real-life implementations yet. |
Benefits of Distributed Ledger Technology
DLT is slowly gaining popularity over centralized storage systems. It offers unique benefits that were not present in previous technologies. Here are some of the reasons more and more companies are adopting it:
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Immutability and Transparency
Every node participating in the distributed ledger has equal rights. Everyone can access and view data, but decisions cannot be made by one party. They must have a collective agreement before anyone can make changes or additions. Because of this, everyone gets to check and audit the information.
Compare it to a centralized system where there is always one authority that can change data as they see fit. They can add rules to their benefit and dictate what is allowed. It can create a monopoly, fraud, and many other issues. A DLT is not only transparent but the system makes it immutable.
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Resistance to Attacks
Since information is stored in a distributed ledger, there is no easy way to access and manipulate data. To do so would require complex systems that would cost too much for hackers to invest in. It’s also difficult to get anything out of a DLT because of the constant auditing and verification. DLT is the optimal option for many, especially with cyber-attacks becoming more advanced every single day.
Different Types of Distributed Ledger Technology
Mentioned below are the three types of DLT that can be used to store information.
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Public
A public DLT has similarities to blockchain because of how the ledger interacts. Before anything can happen, the nodes must all have a consensus. The only difference is that it does not have any cryptographic encryption. In a public DLT, two parties from anywhere can transact in a decentralized network.
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Private
There is a bit of centralization involved in a private blockchain. The owner of this DLT can determine who gets access to the network, meaning they have a say in who can transact. For example, subscribers to their particular service only have access.
Even then, all nodes still have connections to the network simultaneously. There must also be a consensus before any transactions take place.
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Consortium
The consortium is also known as a federal DLT system because of how it operates. It has several organizations and companies managing the ledger with equal rights, all with a say in operations. DLC is decentralized because of the many parties involved.
Conclusion
There are some basic differences between blockchain and DLT. Both provide benefits that transform how people approach data. The assurance they provide is transparency, decentralization, and more security from cyber threats. Even though DLT is lagging in popularity, more companies will likely begin adopting it as they become aware of it.
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