We are living in a digital world wherein technology is transforming the ways businesses are carrying out their daily activities. Blockchain technology and distributed ledger technology are influencing the way businesses work in the digital world. Consequently, we have encountered a rise in smart business practices that attempt to gain financial profits with the boom of Blockchain technology and distributed ledger technology.
There is a common misleading misconception that Blockchain technology and distributed ledger technology are similar. There is a huge difference between the two phenomena. Blockchain technology is more popular and has hit the headlines daily with the rise of cryptocurrencies such as Bitcoin. Distributed ledger technology has not received the same level of attention and fame.
Let us differentiate between the two:
a. Distributed Ledger Technology (DLT)
A distributed ledger is a database that exists across several locations or among multiple participants. A distributed ledger technology is convenient to understand concepts. DLT is a concept that exists in several locations. It means that the transactions of assets are recorded in multiple places simultaneously. DLT is different from the traditional databases in the sense that it has no centralized data store. Distributed ledgers have no centralized data store.
A distributed ledger system has no centralized location because its decentralized system eliminates the need for centralized administration functionality for the validation, processing, or authentication transactions.
b. Blockchain Technology
Blockchain technology is a shared database that is a decentralized distributed ledger that records the transactions that take place. It is essentially a shared database that requires confirmation and encryption of the data. An easy way to understand the working format of Blockchain technology is the Office 365 document. Every entry on the document is dependent on the logical relationship to all its predecessors. The term “Blockchain” alludes to the blocks that are added to the series of the transactions recorded. In order to facilitate this, the technology utilizes the cryptographic signatures that are called a hash.
Difference between the Blockchain Technology and Distributed Ledger Technology
| Blockchain Technology | Distributed Ledger Technology (DLT) |
| 1. The Blockchain technology is a form of DLT, which is used for recording digital data packed in the small packages called Blocks. | 1. It is a system that processes the consensus that maintains and validates the platform by multiple parties to it. |
| 2. It is a specific type of DLT that utilizes cryptography to protect the platform against phishing attacks and malware attacks. Thus, the system prohibits users from using the platform for their illegal gains. | 2. This is a technology that creates a decentralized system for the parties who do not trust each other. |
| 3. Blockchain is a platform that utilizes the distributed ledger technology and implements it on its platform. However, not all DLTs are Blockchain technology. Any other platform can use the DLT for processing their work online. | 3. Other platforms such as Blockchain technology use Distributed Ledger Technology to create a trusted decentralized system where they can process transactions. |
| 4. Miners on the Blockchain technology mine the data and process a single transaction on the blocks. Thus, the Blockchain system works. | 4. The platform is used to record new transactions online. New transactions are recorded only when a consensus is achieved between different parties. After the consensus of all parties, the transaction is processed. |
Bottom Line:
Blockchain Technology is a platform that uses the Distributed Ledger Technology for carrying out their business activities. It cannot be vice versa as the DLT does not use Blockchain technology for its creation. Rather, Blockchain Technology utilizes the DLT and processes their work online.
