Blockchain is increasing in popularity because of bitcoin and other cryptocurrencies. Many traditional centralized bodies such as governments and banks are starting to take an interest in blockchain technology.
A new term that is starting to make waves in the cryptocurrency space is the distributed ledger technology. However, many people usually confuse distributed ledger with blockchain and vice versa. In this article, we will highlight everything you need to know about distributed ledger vs. blockchain.
What Is a Distributed Ledger?
A distributed ledger is a database that can be found across several locations or among multiple participants. However, most companies still use a centralized database with a fixed location. Unlike a centralized database, a distributed ledger is decentralized, which helps to remove the need for a central authority or intermediary for processing, validating, or authenticating transactions.
Furthermore, these records will only be stored in the ledger after the parties involved have reached a consensus.
What Is Blockchain?
A blockchain is a form of distributed ledger that has a specific technological underpinning. Blockchain creates an unchangeable ledger of records maintained by a decentralized network after a consensus approves all the records.
The significant difference between blockchain and DLT is the cryptographic signing and linking groups of records in the ledger that forms a chain. Furthermore, there is a chance for the public and users to determine how a blockchain is structured and run based on the specific application of blockchain.
What Is the Difference Between Distributed Ledger and Blockchain Technology?
Although both blockchain and distributed ledger sounds similar, there are some differences between the two. Blockchain can be categorized as a type of distributed ledger, but you cannot classify every distributed ledger as a blockchain.
We have listed some of the unique aspects of blockchain and distributed ledgers to help you better understand the distributed ledger vs. blockchain technology comparison.
The first difference between blockchain and distributed ledger technology is the structure. A blockchain usually comprises blocks of data. However, this is not the original data structure of distributed ledgers. This is because a distributed ledger is just a database that is spread across several nodes. But you can represent this data in numerous ways in each ledger.
All the blocks in blockchain technology are in a particular sequence. However, a distributed ledger does not need a specific data sequence.
Proof of Work
In most cases, blockchains usually use the proof of work mechanism. However, there are other mechanisms, but they typically take up power. Distributed ledger, on the other hand, does not need this type of consensus, which makes them more scalable.
Blockchain is just a subset of distributed ledgers, and it has additional functionality aside from the traditional DLTs scope. Proof of work adds a significant difference between distributed ledger vs. blockchain.
Implementation is an essential point to consider when understanding the differences between distributed ledger vs. blockchain. Blockchain has many implementations in real life as it is more popular, and many usages are developed in due course of time. Since a lot of enterprises are adopting the blockchain nature and are slowly integrating it into their systems, you will also find big giants like Amazon, IBM, etc., that offer good blockchain as a service solution.
In comparison, developers recently started to dive deep into the distributed ledger technology core. Although there are several types of DLTs in the tech world, there are few real-life implementations. However, they are still being developed, and we will start to see the real-life implementations very soon.
Tokens create a major difference between distributed ledger vs. blockchain. There is no need for tokens or any currency in a distributed ledger technology. However, you may need tokens to block and detect spam.
Anyone can run a node in blockchain technology. However, running a full node requires a considerable network that may be difficult to manage. Furthermore, there is usually some token economy, and it takes a fundamental role in blockchain technology. However, modern blockchain technology is looking for a way to leave the cryptocurrency shadow.
Distributed Ledger and Blockchain Comparison Table
|Block Structure||It is a database spread across different nodes, but the data can be represented differently in each ledger.||It contains blocks of data, but the structure is not a genuine data structure of distributed ledgers.|
|Sequence||It does not require a specific sequence of data.||You will find all blocks in a particular sequence.|
|Proof of Work||It is comparatively more scalable as it does not need proof of work.||It is a subset of distributed ledgers, but it has additional functionality beyond the traditional DLT’s scope|
|Real-Life Implementations||There are not many real-life implementations||There are loads of real-life implementations.|
|Tokens||It is not necessary to have tokens or any currency on the network.||There is some sort of token economy.|
Advantages of Using a Distributed Ledger like Blockchain
Using blockchain technology offers a secure and efficient way to create a tamper-proof log of sensitive activity. Blockchain has the potential to give an organization a safe and digital alternative to banking processes.
We can use distributed ledgers like blockchain for financial transactions as they help reduce operational inefficiencies and save money. Since distributed ledgers like blockchains are decentralized in nature and the ledgers are immutable, they offer greater security to the organization.
Distributed Ledger Technology Beyond Blockchain
Although the popularly known distributed ledger technology is blockchain, the distributed ledger technology future will depend on the collaborative effort of the two technologies. According to James Wallis, the Vice President of Blockchain Markets and Engagements for IBM, the uses of DLT will be greater than what we can think of today, but it will require a level of sharing that does exist before.
Furthermore, if DLTs become standard, they can revolutionize the Know Your Customer (KYC). KYC is the process that a business use for identifying and verifying the identity of its clients. It will then help make broader identity management much more straightforward.