Blockchain vs. DLT (Distributed Ledger Technology) Explained
When it comes to decentralized digital ledgers, two terms frequently come up: blockchain and distributed ledger technology (DLT). They are often used interchangeably, but they are different.
In this piece, we’ll provide a blockchain vs. DLT overview. You’ll learn:
- What blockchain technology and DLT are
- Key differences between the two ideas
- Which one is best for different situations with DLT and blockchain use cases
What Is Blockchain Technology?
Blockchain is a distributed digital ledger for recording business transactions across a network of computers. The technology records information as a data block. Then, different blocks interconnect inside a computer network to form a chain of blocks — hence the name blockchain.
One notable element of blockchain is a built-in mechanism that makes it immutable. Nobody can modify or delete records inside the blockchain after their creation. So, one of the top benefits of blockchain is that business transactions inside the network are tamper-proof and safe from fraudulent activities.
Blockchain is famously known as the technology that powers cryptocurrencies like Bitcoin. But companies can use it to store any kind of data and record different types of transactions. Blockchain can record the transaction of both tangible assets, such as land, or intangible ones, such as intellectual property.
Businesses can also use blockchain to capture client details when collecting electronic signatures. A blockchain-based e-signature solution can record when, where, and what device a client used to sign a document.
What Is DLT?
Distributed ledger technology refers to any system that allows businesses to record, share, and store data across an entire network. DLT eliminates the need to rely on traditional databases with a centralized ledger. This makes it highly secure, as there’s no single point of breach. To compromise data in a DLT-powered network, cybercriminals must breach all or most of the computers inside the network.
Key Differences Between Blockchain and DLT
DLT is an umbrella term for different types of technologies, and blockchain is one of them. Other types of DLT include directed acyclic graph (DAG), hashgraph, and holochain.
In other words, all blockchains are distributed ledgers, but not all distributed ledgers are blockchains. Here’s a clear explanation of how the two are different.
Centralization vs. Decentralization
Blockchain records data across multiple computers in a network, but it can be centralized or decentralized.
In a centralized blockchain network, a single entity or group of organizations controls who can join the network. They also define what rights network members have in the blockchain. In comparison, anyone in decentralized blockchains can view and validate ledger processes — Bitcoin’s network is a good example.
DLTs like directed acyclic graph, hashgraph, and holochain are often decentralized. They typically don’t rely on a central authority to control the network.
Consensus mechanisms are a set of rules in a computer network. These rules help participants work together to verify the integrity of any new information in electronic ledgers. They ensure transactions are authentic, secure, and consistent across the network.
Blockchain uses proof of work (PoW) and proof of stake (PoS), among other consensus mechanisms, to prevent illicit activity and unauthorized changes to the ledger.
Meanwhile, hashgraph uses the Gossip protocol to achieve consensus in distributed systems. This mechanism is quick, fast, and secure in validating transactions. Other types of DLTs, like holochain, use the distributed hash table (DHT) consensus mechanism to maintain data integrity.
Permissioned vs. Permissionless
There are different types of blockchains. Some are permissioned, while others are permissionless.
Permissionless blockchains, commonly known as public blockchain networks, are open. That means anyone can join and participate in the network. Examples include Bitcoin and Ethereum.
A permissioned, or private, blockchain is a members-only network. Here, a central authority restricts who can join the network, what data members can access, and what actions people can take. Permissioned blockchains are common in enterprise settings like supply chain management where businesses deal with sensitive information.
On the other hand, DLTs like hashgraph are typically permissionless. This makes them open to anyone who wants to participate. But generally, the specific use case of a digital ledger technology determines if it’s permissioned or permissionless.
When To Use Blockchain or DLT
Blockchain and digital ledger technology have a wide range of uses in different industries. That’s mainly because they have high levels of security and transparency. But when should you use blockchain over other digital ledger technologies?
Generally, use blockchain if you want to:
- Automate business processes with smart contracts: Smart contracts are predefined rules at the heart of a blockchain system. They can self-execute to automate a task. For instance, insurers can use smart contracts to automatically pay a policyholder when an insurance claim meets the policy’s terms and conditions. This automation can free up staff to focus on client service.
- Boost transparency and data storage security: Blockchain records data sequentially and irreversibly. This means no one can tamper with sensitive business information inside the network. Blockchain transactions are also time and date-stamped, which provides an audit trail of business documents and assets inside the network. As a result, you get improved traceability in supply chain management.
- Collect legally binding electronic signatures: With blockchain software like jSign, organizations that collect customer signatures online can capture and prove the signer’s intent. They can also establish the authenticity of customer signatures. These are all legal requirements of the federal eSign Act. If you deal regularly with signatures, don’t settle for anything less than blockchain.
You can use other digital ledger technologies when you are looking for:
- Privacy and control: Permissioned DLTs allow you to monitor who joins a computer network and what information they can access. This is helpful when compliance requires you to identify network members or restrict access to sensitive data.
- Decentralized ledgers: If you need a distributed computer network with no central authority, public, permissionless DLTs are a great choice.
- Scalability: Hashgraph and some DAG-based networks are more scalable than typical blockchains. They can process more financial transactions at a time with lower energy requirements.
Enhance and Secure Your Digital Information Exchange
Blockchain creates fixed records and protects data with one of the world’s best data protection techniques. With blockchain, you can safeguard confidential business data, such as client electronic signatures, from potential cyber-attacks.
Getting blockchain going in an organization doesn’t have to be difficult. Instead of creating an on-premise blockchain infrastructure from scratch, you can take advantage of cloud-based solution providers like Consensus Cloud Solutions. We can create, host, and run your blockchain applications. You can then store data securely and improve interoperability. Additionally, cloud-based blockchains are easily accessible, highly scalable, and cost-effective.
Consensus also has the following solutions to improve workflows across business models:
- Advanced interoperability solutions
- Robotic process automation tools
Request a demo today to discover how blockchain can help you exchange digital information and boost data security.