Deference Between Blockchain and Distributed Ledger Technology (DLT)
The FinTech industry has paid much attention to blockchain and its applications in the past decade. However, blockchain is just data storage mechanism. The verification of data that is to be stored is by implying distributed consensus. These are termed that Distributed Ledger technologies.
Ergo, All DLTs are not Blockchains.
Nevertheless, there are some Distributed Ledgers (DLs) that use blockchain-based cryptocurrencies as a mode of payment or to execute smart contracts.
Furthermore, Blockchain implements encryption to store and transmit data or information in packages called blocks. The blocks are then appended on each other, the blocks can be updated only in an add-only mode. However, to reach consensus they can or cannot choose to implement distributed Ledger (DL).
Ergo, Blockchain and DLs can operate independently of each other
Let’s understand the above statements to understand the distinction between them.
A Blockchain is a type of a data structure that is composed of small data packages called blocks. Whereas, DL (Distributed Ledger) is a consensus mechanism where an identical copy of a data or program is shared across a distributed network. Hence, malicious and unethical nodes can be eliminated by majority rule.
Bitcoin is the first most popular blockchain-based DLT that is used as a payment medium and store of value.
Moreover, the potential scope of DLTs is not limited to cryptocurrencies. It can be implemented to improve the security and privacy in digital identity products (such as national ID, birth, marriage and death records). It can also be used to build tamper-proof decentralized records of flow of commodities and materials across a supply chain.
Categories of DLs
DLs are categorized as permission or permission-less depending on whether the network decisions and updates are validated by a central authority or through a public consensus mechanism.
The proponents of Bitcoin and cryptocurrency prefer a permissionless protocol. However, there are many complications in building a truly decentralized system. Moreover, there are many other applications of DLTs that require centralized permission.
Distributed ledgers are also categorized as public or private depending on whether the ledgers can be accessed by anyone or only by the participating nodes in the network.
The potential of Blockchain and DLTs are yet to be utilized by the private and public organization on a large-scale. World Bank, R3’s baking consortium and IBM are the biggest organization tapping the DLT and blockchain concept independently.