Do you think Blockchain and Distributed Ledger Technology (DLT) are the same?
They are synonyms but not similar.
In general, blockchain and distributed ledger technologies are misinterpreted.
All blockchains are distributed ledgers, but not all distributed ledgers are blockchains. It’s time to delve beneath the hype and uncover the truth. Although the terms have become synonymous over the past few years, it is vital to understand what is blockchain and how it varies from DLT?
What is Distributed Ledger technology?
A distributed ledger (also known as a shared ledger or distributed ledger technology, or DLT) is a collection of digital data that has been copied, shared, and synced across various sites, countries, or institutions. There is no central administrator, unlike a centralised database.
Most businesses currently rely on a centralized database that is stored in a single location. The risk of a single point of failure is a threat to the centralized database. A distributed ledger, on the other hand, is decentralized and does not require a central authority or intermediary to process, validate, and authenticate transactions. Modern enterprises use distributed ledger technology to process, validate, and authenticate transactions or other sorts of data exchanges.
The distributed ledger’s files are all time-stamped and given a unique cryptographic signature, and all participants in the distributed ledger have access to all of the ledger’s records.
Distributed ledgers (DLs) are a subset of the broader category of ‘shared ledgers,’ which are defined as a shared data record accessible by several parties. A distributed ledger consists of multiple ledgers maintained by a distributed network of nodes, as shown above.
A ledger can be permissioned or permissionless depending on whether network participants (nodes) need permission from an entity to change it. They can also be classified as public or private depending on whether they can be accessed by everyone or only by certain participants in the network.
Advantages of Distributed Ledger Technology
1. Decentralization and Eliminating Third-Party
DLT allows direct transfers of digital currency or tokens between two counterparties and decentralized record-keeping, eliminating the need for an intermediary or central authority to manage the ledger.
Reduced costs, greater scalability, and a faster time to market are all the possible advantages of using DLT.
2. Improved Transparency and Auditability
Every member of the network has a complete automated distributed ledger. Changes are made only through the consensus mechanism, and they are propagated in real-time across the entire network.
This feature, when combined with the lack of a central authority or the central authority’s limited engagement, has the potential to reduce fraud and eliminate reconciliation expenses.
3. Programmability and Automation
DLT allows you to program predetermined conditions, which automatically execute once certain conditions are met.
- Self-paying invoices that get generated when a shipment is received,
- Share certificates that automatically send owners dividends,
- cash-for-work schemes that pay beneficiaries after performing a promised job, etc.
These are some of the examples of “smart contracts.”
Although smart contracts can be implemented in traditional centralized ledger systems, the design of centralized ledger systems mandates that such actions take place only after all parties involved have agreed to the underlying transaction as recorded in the central system. This can take up to a day in some cases.
4. Verifiability and Immutability
DLT can create an immutable and verifiable audit trail of any digital or physical asset’s transactions. While immutability is good in most circumstances, it might cause issues with recourse mechanisms if the system fails.
However, the ledger’s immutability does not prevent the execution of a countervailing transaction to cancel a disputed transaction. This is similar to how dispute resolution works in other systems, such as credit card systems. However, in this case, the original record will still be the same.
5. Gains in Efficiency and Speed
DLT has the potential to enhance speed and reduce inefficiencies by
- Removing or lowering frictions in transactions
- Clearing and settlement processes and
- Automating activities.
6. Reduction in Costs
DLT-based systems, by definition, contain the “shared truth,” so there is no need to reconcile one version of “truth” with that of one’s counterparties. DLT has the potential to save money by eliminating the requirement for reconciliation.
Lower infrastructure expenses for maintaining a DL, as well as reductions in friction and fraud, could be additional sources of cost savings.
7. Increased Security and Resilience
Because of its distributed structure, which eliminates the single point of attack, DLT has the potential to create a more resilient system than traditional centralized databases, as well as better security against many sorts of cyber-attacks.
Real-Time Example of Using DLT
In the world of insurance, a distributed ledger has a variety of uses, and some organisations use more than one.
ChainThat is an example of a corporation like this. It was established in 2015 by David Edwards and features a suite of products whose value is based on the benefits of a distributed ledger.
The insurtech is now working on transforming the Bermuda Risk Exchange, one of the world’s major reinsurance exchanges, into a blockchain-based business.
The initiative will have an impact on how risks are assigned, accounting is done, and claims are handled, with all manual processes digitised and each member of the value chain having a single source of truth.
However, ChainThat has tools that put the risk-placing process link between brokers and insurers on a distributed ledger, creating a digital signature for policies and removing the need for each party to have their legal paperwork.
What is Blockchain?
A ‘blockchain’ is a distributed ledger data structure that stores and transmits data in packages called “blocks.” These blocks are connected through a digital ‘chain.’ To immutably record and synchronize data across a network, blockchains use cryptographic, encryption, and algorithmic methods.
Advantages of Blockchain
Businesses are willing to engage in deals or information exchange that they might not have done otherwise or that might have required the need for an intermediary. One of the most frequently mentioned advantages of blockchain is enabling trustworthiness.
Blockchain proved its worth by handling transactions between entities that did not have direct contact but exchanged data or made payments. Bitcoin and cryptocurrencies are classic examples of how blockchain allows individuals to trust each other even if they don’t know each other.
2. Decentralized Structure
According to Daniel Field (head of the blockchain at UST, a global provider of digital technologies and services), when there is no central player to facilitate trust, blockchain displays its worth.
A good example is supply chain management: Multiple organisations — from suppliers and transportation companies to producers, distributors, and retailers — require information from others in the chain, but no one is in charge of making it happen. The decentralized nature of blockchain helps in overcoming this issue.
3. Improved Privacy and Security
With end-to-end encryption, blockchain generates an immutable record of transactions that prevents fraud and illegal behavior.
Moreover, blockchain data is stored across a network of computers, making it nearly impossible to attack (Unlike conventional computer systems that store data together in servers). Additionally, by encrypting data and enabling authorization to limit access, blockchain can solve privacy concerns better than traditional computer systems.
4. Cost Reduction
Blockchain technology can also help businesses save money. It improves transaction processing efficiency. It simplifies reporting and auditing operations by minimizing manual tasks such as data aggregation and amendment.
Financial institutions save money when they use blockchain for its capacity to simplify clearing and settlement reflects directly into operational cost savings. In general, blockchain helps organisations save money by removing the intermediaries (vendors and third-party providers) who have traditionally handled the work that blockchain can do.
5. Enhanced Speed
Blockchain can handle transactions significantly faster than traditional techniques since it eliminates intermediaries and replaces remaining human processes in transactions. A blockchain transaction may take seconds or less to complete.
However, the speed with which a blockchain-based system can process transactions is dependent on many factors, including the size of each block of data and network traffic.
Nevertheless, experts have decided that in terms of speed, blockchain often outperforms traditional processes and technology. Walmart used blockchain technology to trace the origins of sliced mangoes in seconds (A procedure that had previously taken seven days).
6. Traceability and Visibility
Walmart’s usage of blockchain isn’t only about speed, it’s also about being able to track the mangoes and other products back to their source. This enables businesses such as Walmart to better manage inventories, respond to issues or concerns, and validate the histories of their products.
If a farm has to recall its product due to contamination, a retailer can use blockchain to identify and remove the produce from that farm while leaving the rest of the farm’s products for sale.
Experts say blockchain can help track the origins of several commodities, including pharmaceuticals to ensure that they are genuine.
Immutability means that transactions can’t be modified or deleted after they’ve been recorded on the blockchain. All transactions on the blockchain are timestamped, resulting in a permanent record. Therefore, blockchain can be used to track data across time, allowing for a safe and reliable audit of data.
8. Individual Data Control
“In a world where data is a valuable commodity, the technology intrinsically secures your data while allowing you to govern it,”
Michela Menting (research director at ABI Research).
A blockchain allows a high level of individual control over one’s digital data. Individuals and organisations can choose which parts of their digital data they want to share, with whom, and for how long.
In tokenization, a real or digital asset’s value is transformed into a digital token which is then recorded and shared on the blockchain. Tokenization has taken off with digital art and other virtual goods, but Joe Davey, director of technology at global consulting firm West Monroe, believes it has broader applications that might simplify corporate transactions.
Leaders in a variety of industries are experimenting with and deploying blockchain-based technologies to solve intractable problems and improve long-standing inefficient procedures.
A high percentage of people fake their resumes, leaving hiring managers with the time-consuming duty of manually checking the material.
However, pilot initiatives that allow participating colleges to publish data about their graduates and degrees granted on the blockchain, which can then be accessible by approved hiring managers, assist to solve both issues: getting to the truth and getting to the truth swiftly and efficiently.
Real-Time Example of Using Blockchain
Mastercard has filed over 30 Blockchain-related patents, some of which are titled “Method and System For Instantaneous Payment Using Recorded Guarantees,” implying that the company is developing its Blockchain-based payment gateways. Payment processors such as Mastercard and VISA have been accused of being disrupted by Bitcoin, so, understandably, they’d look at private solutions to Bitcoin-based payments.
2. Huawei Technologies
Huawei plans to further organise the mobile sector with Blockchains to eliminate fraud and deception. “Blockchain Technology offers mobile carriers superb opportunities to support the transformation of business models through new network layers,” Huawei claimed in a recent press release. “Blockchain technology can revolutionize how data integrity is verified and value and rights are transmitted and tracked over the infrastructure to subscribers.”
3. Bank of America
Bank of America has just filed for nine more blockchain-related patents, indicating that the bank is interested in incorporating blockchain technology into its operations. Bank of America intends to employ open-source ledgers to make financial transactions more efficient for both customers and businesses. Bank of America, when combined with Ripple’s XRP token, may save billions of dollars in cross-border payments per year.
Distributed Ledger Technology Vs Blockchain: Major Differences
The primary difference to remember is that blockchain is only a model of the distributed ledger. Secondly, distributed ledgers eliminate the requirement for proof of work and, ideally, provide better scaling options.
A distributed ledger, unlike blockchain, does not require a block-based data structure. A distributed ledger is just a database that spans numerous locations, regions, or participants.
Distributed ledger appears to be exactly what you’re thinking of when you think of a blockchain. All blockchains, on the other hand, are distributed ledgers, but not all distributed ledgers are blockchains. A blockchain is a sort of distributed ledger, but it is only a subset of distributed ledgers.
To help you better understand the blockchain vs distributed ledger technology, here are some aspects of blockchain that are unique and may not exist in other distributed ledgers.
1. Block Structure
Blockchains are made up of blocks of data. This is not the original data structure of distributed ledger. This is because a distributed ledger is simply a database that is spread over multiple servers. The information can, however, be represented differently in every ledger.
In blockchain technology, the arrangement of blocks happens according to a specific order. On the other hand, a distributed ledger does not require a precise data sequence.
3. Proof of Work (PoW)
Proof of work (PoW) is a method of adding new blocks of transactions to the blockchain of a cryptocurrency. In this case, the task is to generate a hash (a long string of characters) that matches the target hash for the current block. In contrast, distributed ledgers do not require this form of consensus, as they are more scalable.
Blockchain is a subset of distributed ledgers that provides additional functionality beyond the boundaries of regular DLTs. Between distributed ledger and blockchain, proof of work adds a substantial difference.
4. Real-World Applications
Many businesses are gradually integrating blockchain technology into their systems. You’ll find big names like Amazon, IBM, and others offering good blockchain as a service solution.
However, developers have only recently begun to explore the core of distributed ledger technology.
There is no requirement for tokens or cash in distributed ledger technology. However, tokens may be necessary to block and identify spam.
Distributed Ledger Technology Vs. Blockchain: Summary Table
|Block Structure||The data is stored in different nodes across different locations and the representation of the data varies in each ledger.||The data is stored in the form of blocks and connected sequentially through chains by using Cryptography and Encryption.|
|Sequence||It doesn’t store data sequentially.||Data is sequentially stored and timestamped.|
|Proof of Work||It is more scalable compared to blockchain and doesn’t require Proof of Work.||It implements all the distributed ledger technology functionality and additionally implements the Proof of Work concept.|
|Real-World Applications||Other than the applications related to databases, DLT has lesser real-world applications in contrast with blockchain.||Almost all industries can implement blockchain technology.|
|Tokens||It doesn’t need to use tokens or any form of currency.||Digital currency and tokens are easily implemented and used through blockchain.|
Blockchains are merely subsets of distributed ledgers but they provide additional functionality beyond traditional DLTs. They are capable of some functionalities that even distributed ledgers cannot achieve. Hence it is reasonable to say that blockchain takes DLT to the next level.
Here we have summarized what you need to know when looking into distributed ledger technology vs. Blockchain. Feel free to contact a reputed blockchain development company if you have more questions or are unsure which one to invest in. Throughout the entire process, we will provide you with high-quality blockchain development services.