Two of the most commonly used words in cryptocurrency are blockchain and distributed ledger technology. They are sometimes used interchangeably in the industry by crypto users who have little or no knowledge of the two expressions.
People are partially right when using the two terms interchangeably. They are both a database of information that is distributed across a network. Both DLT and blockchain offer some degree of transparency as well. Well, there’s where the similarities end.
Let’s see the differences between the two. To make the differences stand out, we’ll first take a look at each technology, starting with DLT.
What is DLT?
The distributed ledger technology is a special type of digital database. The updating is done by every member of the network where it is held independently by the members. Thus, it doesn’t have a specific central authority.
This is a bonus for the technology. The absence of a middleman or central authority is responsible for its use for fast transactions. Such ledgers also have the potential to drastically make transaction costs more affordable.
The system also offers a high level of transaction security. This is because all the nodes in the network are saddled with the responsibility of holding records, making it more difficult to attack or manipulate records stored on the technology.
What is Blockchain?
CNBC defines blockchain as “a public ledger of every transaction that has taken place. It cannot be tampered with or changed retrospectively”. That’s a brilliant submission on Bitcoin blockchain specifically.
If you have ever used a ledger, you have an idea of what a blockchain is. It performs a similar function to the traditional ledger with some differences.
For instance, records on a blockchain can’t be changed at will as you can do with a regular ledger. The larger percentage of the nodes in the blockchain network (51%) must support changing the record before that can be done. This makes it more secure and more attractive to users.
There is a big distinction between these two terms, regardless of their similarities. Let’s consider some of these distinctions:
As pointed out by Cointelegraph, blockchain is permissionless while DLT is permissioned. Let’s break these expressions down a bit.
As a permissionless technology, blockchain is public. This implies that any member of the network, known as a node, can participate in whatever operations that are going on in the network. This has three major implications:
- Anyone interested in blockchain can use it.
- Anyone with the right resources and interest can become a node on the blockchain.
- Once you are a node, you can become a member of the governance mechanism in charge of the blockchain’s operations.
These are the major reasons why blockchains are considered as democratic and decentralized. The technology is not controlled by a single party but by every member of the network. Hence, no individual can singlehandedly decide on behalf of the network.
On the other hand, a distributed ledger technology doesn’t offer the public features. Rather, it is considered permissioned because it doesn’t allow everyone to have access to its operations.
While the entire network makes a decision in blockchain, a single entity can do that on the distributed technology. Thus, the public/permissionless and the private/permissioned feature is a major difference between the two.
Apart from their permission status, another important difference between them is highlighted by the name, blockchain. This is a collection of “blocks” containing real-time information of the cryptocurrency stored in the network. Of course, validation is carried out by the majority of the nodes to confirm the credibility of the record stored in the network. is not a block of records and doesn’t require the same validation process. That’s a clear distinction.
In an interview with Cointelegraph, Kalle Alm highlighted the significance of the validation exercise. According to the Bitcoin Core developer, “Blockchains alleviate the trust requirement in a shared time-stamped database. For a public cryptocurrency, this is obviously necessary or someone might just go and give themselves a million USD, but for a private database, especially when it is not a cryptocurrency but some more abstract form of smart contract platform, it starts to make less and less sense”.
Another significant difference is scalability. While blockchain offers limited scalability due to the unlimited consensus participation, a factor that contributes to its low transaction, DLT offers higher scalability. The consensus participation is limited and this is responsible for its quick transaction.
More so, DLT makes provision for Know Your Customer (KYC), a feature that ensures that all parties using the network must undergo the KYC process to affirm their claims. On the other hand, this is missing in blockchain. There is no KYC provision on that technology.
Blockchain can have a cryptocurrency. A typical example is the Ethereum blockchain with Ether coin. However, DLT can’t have a digital currency.
Tokens are created on blockchains. Most cryptocurrency startups generate funds for their ideas through ICOs and tokens. On the other hand, DLT doesn’t have the token capability.
Digital coins are mined on blockchains. The same cannot be said of DLT that doesn’t support any form of mining.
Transactions are recorded on a blockchain as “blocks.” Thus, each transaction is a part of the block while transactions are sent to the participants on DLT because there are no blocks on the technology.
These are the major distinctions between the distributed ledger technology and the blockchain technology.
It is pretty clear that although they perform the same function, the technology behind them and their modes of operation are quite different from each other. Thus, while there may be some basis for using them interchangeably, they are not really the same.