Blockchain and DLT are often used to mean the same thing — but all DLT is not blockchain. What is distributed ledger technology?
A distributed ledger is very different from a centralized ledger, which is widely used by many institutions. A centralized ledger is highly prone to cyberattacks, because it has one point of failure. On the other hand, a distributed ledger is decentralized, meaning that the need for third-party intermediaries is removed and security is enhanced.
Blockchain vs Distributed Ledger Technology
While all blockchains are distributed ledgers, not all distributed ledgers are blockchains.
Still, the term “blockchain” is often interchangeably used with “distributed ledger.” This is not correct.
A distributed ledger is simply a type of duplicated and synchronized database shared across different regions, servers and users, without the need for a certain data structure or centralized confirmation.
The various servers communicate with each other to keep the most updated records of transactions. The DLT builder can control the structure, privacy and functionality of the distributed ledger, making it theoretically not that decentralized at all.
A major difference between blockchain and distributed ledgers is that blockchain must achieve consensus across its nodes, while a distributed ledger can achieve this without network-wide validation.
Types of Distributed Ledger Technologies
Advantages of distributed ledgers
- Security and transparency - distributed ledger technology allows entries to be made on a decentralized ledger without involving a third-party. The entered records cannot be altered unless an entity controls more than half of the network’s computing power. In essence, distributed ledgers are tamper-proof, secure, immutable and transparent.
- No intermediaries needed - distributed ledgers greatly reduce operational inefficiencies. The elimination of third-parties saves both time and money. Such ledgers are good for financial transactions, as they offer a better alternative to the traditional banking process, known for being bureaucratic, expensive and time-consuming.
- Secure - distributed ledgers boost high security due to their decentralized nature. The information entered on the ledger is not stored on a single location, but rather, on all the computers (nodes) participating in maintaining the network.
Use of Distributed Ledgers
- Supply chains
- Mining industry
- Farming and agriculture
- Music and entertainment
The Future of DLT
The extent to which distributed ledger technologies such as blockchain will revolutionize both the public and private sectors is still up for debate, with questions remaining about whether these technologies can be sufficiently used on a wide scale. Detractors have claimed in the past that the technology is akin to a hammer looking for a nail, because it has no specific use case.