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Blockchain vs Distributed Ledger Technology (DLT), Explained

By Brian Nibley · November 20, 2022 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

Blockchain vs Distributed Ledger Technology (DLT), Explained

DLT vs. blockchain is an often-misunderstood topic. The terms blockchain vs. distributed ledger are often used interchangeably, but in fact blockchain technology is a subset of distributed ledger technology and they are not the same thing.

Blockchain represents a new type of distributed ledger technology (DLT) that can function without the need for third-party oversight. Peer-to-peer transactions can be verified in a decentralized way, just as they can with distributed ledger technology, but with blockchain the data is stored in blocks vs. a DLT system, which does not require a chain.

What Is Distributed Ledger Technology?

DLT is a kind of distributed database that stores information in multiple locations. Instead of a single server hosting all the information, DLT uses geographically distributed servers known as nodes to store data in different places at the same time.

Each node on the ledger processes and validates each piece of data, creating a record while establishing consensus on the validity of the dataset across all nodes.

The main characteristics of distributed ledger technology also apply to blockchains. DLTs are:

•   Immutable

•   Transparent

•   Append-only

•   Decentralized

That said, while a blockchain network is fully decentralized, with no central authority, a DLT may have some central oversight. Both systems are popular in finance, owing to the need for the speed and transparency decentralized systems can provide.

💡 Recommended: A Beginner’s Guide to Cryptocurrency

What Is a Blockchain?

A blockchain is a type of distributed ledger made up of a series of decentralized servers also known as nodes. The blockchain records information about transactions and groups them into blocks of data, which are validated by the network.

Each new block gets added to the one that came before it, forming a chain of blocks, giving rise to the term “blockchain.” All transactions and data are recorded with a unique cryptographic stamp or signature called a hash.

Blockchain was first created when the Bitcoin network went live in January 2009. Since then, new types of blockchains have been developed that have additional functionality. Many potential blockchain use cases are still being experimented with.

Understanding DLT vs. blockchain is key to understanding different types of crypto.

Blockchain vs DLT: Similarities and Differences

When it comes to the similarities and differences of blockchain vs. DLT, it’s important to understand that blockchain is a form of DLT — but not all distributed ledgers are blockchains.

How Data Is Stored

In a blockchain, records are stored in blocks or modules, after having been validated by the network. Each transaction is then given a cryptographic signature known as a hash, which is a random string of characters, which gets added to the block, forming a chain. Blocks become permanent once they’ve been added to the chain. To alter the information inside a block would require compromising the entire network.

Another one of the benefits of blockchain is that the vast majority of blockchains are also permissionless, meaning no one needs permission from a central authority to access the system. Distributed ledgers can be permissionless too, but because some DLTs can be centrally controlled, this may not always be the case.

Degrees of Decentralization

Blockchains are also decentralized to some degree, meaning they distribute their development and maintenance amongst multiple parties. There is no CEO of Bitcoin, for example, and the network is maintained by thousands of individuals around the world running their own full nodes.

Volunteer developers work on the code based on their own volition, and if the majority of nodes agree that a software update should be implemented, then it will be. Disagreement among nodes can lead to a hard fork, as occurred in 2017 with Bitcoin Cash.

Distributed ledgers, on the other hand, are owned, operated, and controlled by a single entity. This combined with the fact that distributed ledgers do not create cryptographic blocks and add them to a chain are the two main features that designate the difference between DLT vs. blockchain.

Similarities Between DLT vs Blockchain Technology

When considering a DLT vs. a blockchain, remember that both involve many of the same characteristics and functionality, including:

•   A distributed ledger of data that’s transparent and immutable

•   The use of geographically distributed servers known as nodes

•   Some degree of decentralization

Both DLT and blockchain involve building and maintaining a distributed ledger. They both make use of servers called nodes that can be placed in many different locations around the world. And to a degree, both are decentralized, meaning there isn’t a single point of failure for the system (although DLTs may have a centralized owner vs. blockchains, which don’t).

Differences Between DLT vs. Blockchain Technology

While they are more similar than they are different, DLT and blockchains are not one in the same. Some of the ways the two differ from each other include:

•   Blockchains use encryption

•   Blockchains are fully transparent

•   Blockchains group data into blocks, adding them to a chain

Some forms of DLT also use encryption and can be transparent. DLT can vary in its transparency, permissions, and use of encryption. Blockchains, on the other hand, are universally encrypted. They always group information into blocks, too.

Blockchain vs. distributed ledger

Similarities

Differences

Use of distributed nodes DLT may or may not use encryption
Maintenance of a ledger DLT does not use blocks
Some decentralization DLT may be transparent or opaque

Other DLTs Beside Blockchain

Since the invention of Bitcoin, quite a few variations of DLTs and blockchains have been created, as mentioned. Some forms of DLT behave much like blockchains, and were intended to mimic the tech in some ways, but can’t be classified as such.

Holochain

Holochain is an “open-source framework for creating microservices that run peer-to-peer applications on end-user devices” without the need for centralized servers, according to Holochain.org.

Holochain is intended to provide a way for people to run the type of applications that blockchains enable without needing a blockchain. Holochain provides tools that can enable users to:

•   Authenticate users and manage their identities

•   Enforce business rules and data integrity

•   Control access to both public and private data

•   Create a redundant, distributed database to store and retrieve data, and automatically react to security risks

•   Application code deployment and updates for user devices

•   Share participants’ workload in terms of resources

Hashgraph

Hashgraph has been popularized by Hedera Hashgraph (HBAR), a tech project backed by dozens of multinational corporations.

Hashgraph enables quick, low-cost transactions, allows for the implementation of smart contracts, and has the ability to scale better than most blockchains.

Direct Acyclic Graph (DAG)

DAG is the technology behind hashgraph. DAG stores transactions in a tree-like structure that resembles a graph, rather than a chain. Due to its efficiency in data storage — data can be recorded on top of each other, rather than appended in a sequence, allowing for more than 100,000 transactions per second.

The Takeaway

DLT can be thought of as blockchain’s predecessor. Blockchain is a new type of distributed ledger that uses encrypted blocks of data and collects them into an unbreakable chain.

There are also even newer types of DLT that have built off of blockchain’s advancements. In this sense, blockchain is just one important part of the natural evolution of distributed ledger technology.

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FAQ

Is blockchain a digital ledger?

Yes, blockchain is a type of distributed ledger technology (DLT). While DLT came first, and the two share many of the same characteristics (including the validation of transactions through a decentralized system of nodes), blockchain is considered a more sophisticated form of DLT.

Is blockchain the only digital ledger?

No, blockchain is not the only type of DLT that exists. Holochain and DAG (direct acyclic graph) technology are two among several others.

Is bitcoin a digital ledger technology?

Not exactly. Bitcoin is the oldest and largest form of cryptocurrency, and it was also the first implementation of blockchain technology, which is a form of DLT.


Photo credit: iStock/LuckyStep48
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