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Distributed Ledger & Blockchain: The Difference Between Them

Basics

Since the rise of Bitcoin in 2009, these two terms have gained massive popularity. The words are sometimes used interchangeably while in fact, they are two different terminologies. In this article, we explain the two terms in depth to give a broader view of the technology at hand. As we will see, it is not so easy to distinguish between the two for a novice in the technological field.

Distributed Ledger Technology (DLT)

This is a digital network (database) that records data and transaction history of assets on decentralized nodes. A node refers to a computer within the network that validates and records these transactions. These nodes record transactions simultaneously and across several nodes. This is different from the current databases that are stored centrally within the companies or governments.

How it Works

How do record keeping and updates of the system stretch across the whole network of nodes? Since the system is decentralized, a common consensus must be reached by the majority of nodes. If a node wants to make an update on their side, other nodes must vote on this decision to make sure the update is legitimate and secure. Once it’s done, the system updates the records to the most recent and the agreed-upon updates on all nodes simultaneously. This process of voting on one node is known as consensus.

A good example to further explain this would be Google docs, where one document can be shared across many people. Once the document is shared, the responding party can make changes to the document and updates will be shown on the rest of the documents shared. However, since DLT is not dealing with documents but sensitive data and a record of transactions, security is heightened. Every record stored on the distributed ledger has a unique timestamp and a cryptographic signature to keep the network safe and incorruptible.

Blockchain Technology

The easiest way to explain blockchains is referring to them as a type of decentralized ledger. The blockchain was popularized by the invention of Bitcoin, a cryptocurrency based on blockchain back in 2009. Satoshi Nakamoto, a pseudonym for a person or a group, invented the blockchain systems and had since seen a huge number of over 1500 coins rise due to the blockchain technology.

How it Works

Blockchain technology is a new version of the internet allowing for decentralized recording of digital information on blocks across distributed nodes (computers). In the case of Bitcoin, one block consists of all transactions done within a ten-minute period. The blocks are then stored in a chain to provide the network with a secure and immutable platform. These blocks allow for peer-to-peer transactions giving the users a decentralized platform that is maintained and managed through a consensus.

Differences Between Distributed Ledger & Blockchain

How exactly does blockchain technology differ from other DLTs such as R3’s, Corda and B3i’s? Blockchains, unlike other DLTs, are stored data and transactions on blocks which are then placed in a chain to make the previous records immutable. The chains provide a continuing list of records on an append-only network. This means the data on a blockchain can only be added; once validated it cannot be deleted or altered. This gives the blockchain technology an upper hand over other DLTs, especially on the financial scene.

Conclusion

Blockchains present a whole new technology on the decentralized ledger scene as we’ve seen above. The technology can be applied to various sections of the economy including land registry, tracing assets, event records and even voting. It’s key to remember that every blockchain is a decentralized ledger, but not all decentralized ledgers classify as blockchains.

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