People have explored the blockchain ecosystem quite well today, so now it doesn’t belong to a new fintech industry. Presently, individuals are aware of Bitcoin, cryptocurrencies or the Digital Currencies. But most people don’t know that this innovation is powered by two main technologies, i-e Blockchain and (DLT) distributed ledger technology.
It’s very challenging to pose a difference between blockchain and distributed ledger and understand how these two different technologies actually work. Here we are unraveling small differences between these two technologies that most people don’t know.
Blockchain is a chain of blocks containing specific information, but in a secure and genuine way. It’s a database system for recording transactions that makes it difficult or impossible to change, hack and cheat the system. Actually, blockchain is a type of DLT in which transactions are recorded with an immutable cryptography signature called a hash.
Benefits of Using a Blockchain Technology:
Blockchain technology allows you to generate a tamper-proof log of delicate activity in a safe and efficient way. This technology is enabling organizations to produce safe and secure digital alternative ways to process their payments.
The distributed Ledger technologies like blockchain can be used to make secured financial transactions. It helps in reducing the operational inefficiencies by enabling people to save money. Basically, decentralized networks and the ledgers are irreversible, they are meant to offer greater security to financial institutions or organizations.
Distributed Ledger Technology:
What is distributed ledger technology? Distributed Ledger Technology is a database spread across computers, nodes and various locations. Through decentralization each node will maintain a ledger independently in real time and this maintenance by all the nodes will automatically bring transparency and immutability.
Every single computer or the node that contributes to the distributed decentralized ledger has an equivalent authority to impact the system. This system actually differs from other types of databases due to its central authority that’s meant to control overall management of the ledger. Distributed ledgers enable data immutability and its model is meant to allow easy scalability, especially in case of desired expansion.
Any type of new data addition in the decentralized database of Ethereum ledger will receive undisputed permission from all the participating nodes. After the consent of all parties, whenever the changes will be made, every single node of the decentralized network will automatically start receiving the updates that are being added to the database.
Benefits of Distributed Ledger Technology:
The famously known distributed ledger technology is a part of blockchain. Its future actually depends upon the combined effort of both technologies. The Vice President of Blockchain Markets and Engagements for IBM, James Wallis said, the DLT technology is more beneficial than we can ever imagine. But it requires the exceptional level of sharing that already exists.
Additionally, if Distributed Ledger technology becomes a standard for everyone, then it can easily revolutionize the process of (KYC) Know Your Customer. KYC is actually a business process used to identify and verify identities of their clients. It helps in increasing the perspective of the identity management system and allows its users to make everything forthright.
The difference Between Blockchain & DLT:
Blockchain Technology is only one type of distributed ledger, and therefore not every distributed ledger is a blockchain. The difference between both technologies lies in the mode of information storage and its security.
Both Blockchain and (DLT) distributed ledger technology are open-source technologies, but they are different in many aspects. Basically, blockchain is the type of distributed ledger. However, you should keep in mind that all the distributed ledger can’t be named as blockchain. For example, you can see the distinctions between smartphones and computers. We can say all smartphones are the type of computers, but you can’t say that all computers are smartphones.
The main difference between Blockchain Technology and Distributed Ledger lies in their mode of information storage. This mode of storage is meant to limit the sequence, harmonize the algorithms, validating transactions and securing signup and entry access.
How does blockchain differ from DLT?
While checking out the difference between Blockchain vs DLT, It’s worthy to emphasize that blockchain is indeed a type of digital ledger technology. Although the former technology differs from the latter in so many unique ways. Here we are outlining the differences that lie between these two technologies;
- Proof of work
- Consensus Model
- Real-world Applications
The overall data structure and methods of data entry in the blockchain technology is properly organized in the form of blocks, whereas it’s stored in the form of a normal database within DLT (distributed ledger Technology). Talking about the sequence structure, we can say that DLT stores data as a database without any type of special sequence. However, in blockchain technology, the database sequence will form a chain of new blocks sealed together with encryption.
DLT’s actually have the consensus model to validate entries among various nodes. On the other hand, Blockchain requires a more sophisticated system. There are numerous models in the Blockchain technology, but the two most popular models include the one utilizing Proof-of-Stake (PoS) or the Proof-of-Work (PoW) model.
Actually, all these types of differences are non-exhaustive, but these few explained below actually highlight the fact that both of the technologies DLTs and Blockchain exhibit remarkable differences. And yes, both technologies come on the hype cycle of trends and latest innovations.
Actually, some features of blockchain technology and distributed ledgers are interlinked, but their differences are quite obvious. These differences will become clearer, while we discuss both technologies in detail.
Blockchain Vs Distributed Ledger
|Definition||Blockchain is a chain of blocks containing specific information, but in a secure and genuine way.||A distributed ledger is a consensus of replicated, shared, and synchronized digital data geographically spread across multiple sites.|
|Proof Of Work||The Blockchain Technology is a subset of distributed ledgers, but it has extra functionality other than the traditional DLT scope.||Distributed Ledger Technology is competitively more scalable because it doesn’t need proof of work.|
|Structure||This database is grouped together in a network (peer-to-peer) or chain of blocks.||This database spread across computers, nodes and various locations.|
|Sequence||All the blocks in the blockchain technology will be set in a particular sequence.||Distributed Ledger Technology doesn’t follow Blockchain’s sequence of data.|
|Consensus||The blockchain technology is power hungry because of PoW and POS mechanisms.||DLT doesn’t require any type of consensus mechanism, that’s why it is more scalable.|
|Tokens||Most of the Blockchains are involved in token economy, but it’s not compulsory.||DLT doesn’t require you to use any type of token money or cryptocurrency.|
|Real-world Applications||Many enterprises and institutions are already using Blockchain technology.||Most of the projects are still under development. Hence, there is no real life implementation yet.|
(Draw the above table just like the diagram mentioned below) ⇩
How does blockchain and distributed ledger technology work together?
Both the Blockchain and the distributed ledger technology actually work together in most instances. Basically, all the data that is stored within the blockchain behaves like its occupant in a database, that’s the characteristic of the distributed ledgers. Furthermore, distributed ledger technology also behaves in a certain way. So, when the data within the blockchain network will be updated, then all contributing nodes will immediately receive a copy of these changes.
Distributed ledger vs blockchain use case comparison table
There are lots of use cases of both blockchain and distributed ledger technology. The below-mentioned table depicts a snapshot of the use case comparison between both technologies. As we have already discussed that blockchain is the branch of DTS, it is worth almost everything for which you can use the blockchain. Keep in mind that suitability is what distinguishes both the technologies in the analogy given below.
The examples of use cases mentioned above in the comparison table are non-exhaustive because the applications of these technologies will keep on growing with the passage of time.
|Use Case||Blockchain||Distributed ledger|
|Recording Land Registries||NO||YES|
|Digital Passport Issuance||YES||YES|
|Smart Contracts Creation||YES||NO|
After analyzing all this now we realize that there is a very thin line present between Blockchain and Distributed Ledgers, so it takes an in-depth understanding analyzing the differences. Fundamentally, we can sum up with a statement that Blockchains are also the type of distributed ledger, but it’s different. To analyze the individual use cases of both technologies, developers are required to access the problems for which they want to find solutions. This process will help them to analyze the technology that’s most suitable for them. In other words, based on these solutions, users can analyze which decentralized option is most suitable.