Blockchain tech was developed to timestamp digital documents so that it’s virtually impossible to backdate or temper with them. For this reason, the tech has been extensively used for the secure transfer of assets like currency, contracts, etc. without requiring a 3rd-party intermediary like bank or government. The blockchain creates a distributed ledger of publicly accessible units of data allowing each user to see every transaction that has ever been completed within the network.
Are blockchain and distributed ledger technology (DLT) the same? No. This is a widespread misconception that many individuals still hold on to.
The Bank of England announced a while ago that it was looking to revitalize its Real-Time Gross Settlement (RTGS) network, using both “blockchain” and “distributed ledger technology.”
These words are not interchangeable, though, so in instances like this, we must appreciate their differences. Let’s look into it.
What Is A Distributed Ledger?
A distributed ledger (DL) is a database that exists across numerous locations or among many participants.
The network is fully decentralized to eradicate the need for a central authority or intermediary to process, authorize, or authenticate transactions. Organizations may use DLT to process, validate, or verify transactions or other types of data exchanges.
All files in the distributed ledger are then timestamped and given a distinct and immutable cryptographic signature. All participants on the distributed ledger can view all of the records stored in there, providing a verifiable and auditable history of all info and transactions stored on that particular dataset.
A distributed ledger can be seen as a first step towards the formation of a blockchain, but notably, it won’t necessarily build a chain of blocks. On the contrary, 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 recorded and maintained.
Some corporations that are preferring DLT over a pure blockchain include Google, which partnered with Digital Asset in mid-2018 as a means to bring DLT tools to their cloud service customers.
Volkswagen also labeled its collaboration with IOTA in 2018 as an experiment in distributed ledger technology. Volkswagen deployed the Tangle ledger to manage software upgrades to their vehicles securely and autonomously, while also providing accurate information about a particular car to their owners.
Blockchains are one form of DL, but not all distributed ledgers employ a chain of blocks to deliver a secure and immutable distributed consensus.
Since it is a distributed ledger, a blockchain can necessarily exist without a centralized server managing it, and its data immutability and accuracy can be maintained by database duplication and computational trust.
Blockchains have a concrete technological underpinning that creates an unchangeable ledger of records that is maintained by a decentralized network, where all files have to be approved by consensus.
Cryptographic signing and merging clusters of data records in the distributed ledger to form a chain is what sets blockchain apart from DLT. Moreover, depending on the specific application of the blockchain, network participants have a say on how they want the network structured and managed.
Take the case of BTC as one of the actual examples of blockchain and decentralization. While the tech and its core structure are decentralized, so is its organization and development of the blockchain. In distributed ledgers, the tech is always decentralized, but its overall corporate organization may not be.
While blockchain is the spine of the dominant 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 many other industries that the blockchain itself might ultimately redefine.
A vital example of a startup using the blockchain in its operations is logistics management enterprise, FedEx. In 2018, they started using Blockchains to track high-value freight and have since extended the functionality to almost all their consignments.
Blockchain vs. DLT
The key difference to keep in mind is that blockchain is just one type of distributed ledger. Even though blockchains are created from a series of data blocks, distributed ledgers do not need such a chain.
Likewise, DLs do not require proof of work (PoW) and offer, thus theoretically offer improved scaling options.
Real-life Implementations are an essential factor when it comes to blockchain vs. DLT, and the former happens to be on the lead on this one. Due to blockchain getting all the attention from the very start, there are lots of implementations in real life.
Many enterprises are warming up to blockchain and increasingly starting to integrate it into their systems. There are also many big giants such as IBM, Amazon, Alibaba, and many more adopting blockchain solutions. Blockchain has also found use cases in the healthcare sector and money transfer.
On the other hand, developers only recently started to go deeper into the core of DLT itself, which is why there aren’t that many real-life implementations based on simple distributed ledger technology. But they are under development and will see the light of the day pretty soon.
Eliminating the intermediate party from the equation is what makes the concept of DLT so alluring. In summary, here are the critical differences between blockchain and DLT:
- Block structure. Blockchain stores and manages data as a sequence of blocks, which is not compulsory for other types of DLT.
- Sequence. DLT doesn’t have to follow the block after the block structure of the blockchain.
- Tokens. Blockchain is generally a token economy, but DLT doesn’t require its usage.
- Power-hungry consensus algorithms. In most cases, there is typically an extensive usage of proof of work mechanism on blockchains. But distributed ledgers don’t need this kind of consensus, so in essence, they are comparatively more scalable.
The Benefits Of Blockchain And Distributed Ledger Technology
Distributed ledgers such as blockchain are extremely valuable for financial transactions. They can cut down on operational inadequacies, minimize transaction time to seconds, and are processed 24/7, saving companies a fortune. Greater security and transparency are also realized in transactions due to their decentralized nature, not to mention that the ledgers are tamper-proof.
On the other hand, blockchain tech offers explicitly a way to securely and competently create an immutable record of sensitive transactions. This includes anything from intercontinental money remittances to tracking high-value assets.
Financial transactions on a blockchain also help eradicate bureaucratic, time-consuming, and expensive processes while creating an accurate and immutable audit trail. This is very useful for financial audits.
In terms of real-life implementations, blockchain has more popularity than DLT for now. However, the financial and business sector is gradually going toward the whole concept of DTL.
That said, it is vital to note that though both technologies are related, these are not interchangeable, even if they may be used as such.
For instance, organizations like the Bank of England might favor the use of DLT to distance themselves from the hype and volatility associated with blockchain. For the same reason, a corporation may use the word blockchain to capitalize on the interest even if what they are offering isn’t a blockchain.
These two technologies, though slightly different, represent a new way of storing and processing data that is being adopted by more and more companies across various industries worldwide like healthcare, law, banking, education, and so on.