Distributed Ledger Technology and Blockchain Technology are two of the most discussed topics in the financial technology space today. Both technologies are being used to store, transfer & manage digital assets. This article will provide an overview of Distributed Ledger Technology & Blockchain Technology, compare the two technologies, & explore their benefits.
Definition of Distributed Ledger Technology and Blockchain
Distributed Ledger Technology (DLT): DLT is a type of database which is shared & synchronized across multiple sites, institutions, or geographies. It allows transactions to be recorded, shared & synchronized in multiple locations all at the same time. DLT is considered to be the backbone of blockchain technology.
Blockchain: Blockchain is a type of DLT that consists of data blocks which are linked & encrypted using cryptography. It is a distributed & immutable ledger that can be used to safely store & trade digital goods securely.
Comparative Analysis
1. Security: Both DLT & blockchain are secure technologies. DLT is less secure than blockchain as it does not use cryptography for linking blocks. Blockchain is more secure due to its cryptographic algorithms.
2. Cost: DLT is more cost-effective than blockchain as it does not require miners to process & validate transactions. Blockchain requires miners to process & validate transactions which increases the cost.
3. Scalability: DLT is more scalable than blockchain as it does not rely on miners to process & validate any transactions. Blockchain, on the other hand, depends totally on miners to process & validate transactions which can therefore reduce the scalability.
4. Privacy: DLT is more private & secure system than blockchain as it does not reveal the identity of users, thereby providing greater anonymity. Blockchain reveals the identity of users due to its cryptographic algorithms.
5. Decentralization: Both DLT & blockchain are decentralized technologies. DLT is less decentralized than blockchain because it is not immutable. Blockchain is more decentralized as it is immutable.
Here’s a quick comparison between distributed ledgers technology and blockchain technology.
| ATTRIBUTES | DISTRIBUTED LEDGER | BLOCKCHAIN |
| 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 | All blocks can be found in a particular sequence |
| Proof of Work | It is a comparatively more scalable as it does not need proof of work | It is a subset of distributed ledgers but has additional functionality beyond the traditional DLT’s scope |
| Real-Life Implementations | There are few real-life implementations as of now | 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
Using blockchain technology offers a secure & efficient way to create a tamper-proof log of sensitive activity. Blockchain has the potential to give an organization a safe & digital alternative to banking processes.
Distributed ledger like blockchain can be used for financial transactions as they help reduce operational inefficiencies & save money. Since distributed ledgers like blockchains are decentralized in nature & the ledgers are immutable, they can offer greater security to the organization.
Distributed Ledger Technology Beyond Blockchain
Distributed Ledger Technology (DLT) is a broad term used to refer to a variety of digital record-keeping systems that enable secure & transparent sharing of data between multiple parties. While blockchain is the most well-known form of DLT, there are several other technologies that are gaining traction within various industries.
Hashgraph is one such technology, which is based on a consensus algorithm that is faster, more efficient, & more secure than blockchain. It is designed to help businesses & organizations manage data quickly & securely.
Another DLT is Directed Acyclic Graph (DAG), which is a type of distributed ledger technology that uses directed graphs instead of blocks to store & manage data. DAGs are effective for data storage & processing & can be used for various applications, from supply chain management to IoT (Internet of Things) networks.
Ripple is a payment protocol that uses a distributed ledger system to facilitate international payments & money transfers. It is an open-source system that is designed to be fast, secure, & efficient.
Corda is an open-source DLT platform that enables businesses to build & deploy multi-party applications. It is designed to be secure & reliable and is used in various industries, such as healthcare & finance. These are just a few of the many distributed ledger technologies that are being used in various industries.
Benefits of using Distributed Ledger Technology and Blockchain Technology
1. Increased Security: DLT is designed to be secure, creating an immutable record of transactions that cannot be changed or tampered with. Because of this, it is more challenging for malicious actors to obtain any private information & sensitive data.
2. Transparency: DLT provides a level of transparency that is not available with traditional or conventional systems. This can help to reduce fraud & increase mutual trust between parties.
3. Efficiency: By eliminating the requirement for intermediaries, DLT can definitely help to reduce costs & make transactions faster.
4. Reduced Risk: DLT can help reduce the risk of errors or frauds by guaranteeing that all parties engaged in a transaction have access to the same information securely.
5. Enhanced Privacy: DLT can be used to create a secure & private network, allowing parties to share information without revealing their identities & greatly improving privacy.
Risks of using Distributed Ledger Technology and Blockchain Technology
1. Scalability: DLT’s scalability is an issue since it grows increasingly more complicated as the amount of data that needs to be processed & stored increases.
2. Interoperability: In DLT systems, the Interoperability or the ability of different DLT systems to communicate to each other, can be difficult & challenging.
3. Regulation: DLT is still in its early stages & therefore, there is a lack of regulation surrounding its use.
4. Privacy: As DLT systems are open & transparent & therefore they can be vulnerable to data privacy breaches, because data is accessible to all participants.
5. Cost: The cost of implementing these technologies can be very high & expensive, as they require a significant investment in software & hardware.
Conclusion
In conclusion, Distributed Ledger Technology and Blockchain Technology have both become increasingly popular in recent years, & both offer various benefits & risks. While both technologies are based on the same principles, they offer distinct advantages & disadvantages. DLT is more efficient and secure, but can be difficult to scale, while blockchain provides increased transparency but is vulnerable to security breaches. Ultimately, the choice of which technology to use should depend on the specific needs of the application.
FAQs
What is the difference between DLT and Blockchain?
The main difference between Distributed Ledger Technology & blockchain is that DLT is a type of database which is shared & synchronized across multiple sites, institutions or geographies while blockchain is a type of DLT which is composed of blocks of data which are linked & secured using cryptography.
Is blockchain more cost-effective than Distributed Ledger Technology?
No. Distributed Ledger Technology is more cost-effective than blockchain as it does not require miners to process & validate transactions. Blockchain requires miners to process & validate transactions which increases the cost.
Is Distributed Ledger Technology more decentralized than blockchain?
No, both Distributed Ledger Technology & blockchain are decentralized technologies. However, DLT is less decentralized than blockchain as it is not immutable.
Do DLT & Blockchain use cryptography?
To link blocks together, blockchain relies on cryptography, but DLT does not.
DISCLAIMER:
The information contained herein is provided for informational & educational purposes only and should not be construed as financial advice. The information contained herein is not intended to be a substitute for professional advice related to stocks & investments. Any decisions you make regarding stocks & investments should be made after consulting with a qualified financial adviser. All investments involve risk, & the past performance of a security, industry, sector, market, or financial product does not guarantee future results or returns. The opinions expressed herein do not constitute investment advice and independent professional advice should be sought wherever it is appropriate & necessary.