"Blockchain" and "distributed ledger technology". Many of us confuse these two terms and use them interchangeably. But even though their meanings overlap in many areas, and even though they have both reached similar levels of public reputation since the 2017 cryptocurrency bull market, they are not exactly the same.
Yes, they both typically refer to records of information distributed via the web, and they both provide greater transparency and openness than earlier centralized databases or digital records. But this is where the analogy ends, as blockchain and distributed ledger technology (DLT) each have their own unique and important distinguishing features.
Openness, decentralization, cryptography
There are two big differences, depending on where you are on the bitcoin and blockchain spectrum, with some bitcoin-style blockchains being superior and more innovative than their distributed ledger counterparts, while others find DLT more useful for everyday business use.
Then there is the second major difference. As the name suggests, a blockchain contains a series of timestamped 'blocks' that are used to record the current state of the entire blockchain/cryptocurrency and need to be cryptographically verified by most of the network to form the next entry in the chain. As Bitcoin Core developer Kalle Alm explained to Cointelegraph, this ensures a higher level of security for the blockchain, as the need for cryptographic consensus makes it very difficult to forge transactions. Alm continued.
"The blockchain alleviates the trust requirements in a shared timestamp database. For public cryptocurrencies this is obviously necessary, or someone might just give themselves a million dollars, but for private databases, especially when it's not cryptocurrency but something more abstract when it comes in the form of a smart contract platform, it starts to make less and less sense. "
However, while some distributed ledgers are not cryptographically verified blockchains, it's worth highlighting that some are - or that they still have cryptographic consensus. For example, while R3's Corda ledger does not actually contain a series of blocks, it relies on its notaries (i.e., nodes) to reach consensus on timestamped transactions. It should therefore be stressed that there is really only one essential difference between a blockchain and a distributed ledger - one is permissionless and the other is permissioned. blockchain architect Michal Zajda of the Aeternity blockchain told Cointelegraph.
"The only difference between private and public blockchains is the scope of availability. I can easily imagine deploying the Bitcoin protocol in a private cloud for only a small group of users. The fundamental difference here is between a license-free blockchain - like Bitcoin and a licensed blockchain. For the unlicensed, we don't need to trust any third-party company to operate it fairly and honestly. "
But assuming the distributed ledger is private and not a time-stamped blockchain generated by cryptographic consensus, it usually amounts to nothing more than a fairly traditional database that happens to be shared among a select group of participants. This is the view of Phil Chen, head of decentralization at HTC Exodus. He told Cointelegraph that the difference between public and private blockchains is huge:.
"In the enterprise space, people talk about private blockchain, which is not technically a blockchain, but a better database management system. However, it does increase productivity; I call it a 9 to 10 innovation, whereas public blockchains like Bitcoin and Ether are 0 to 1 innovation that completely change the way we think about and use money and computing. Bitcoin is a truly public blockchain, open, neutral, censored and borderless. Distributed ledgers are just databases of permissions. "
Privacy, scalability
But as Chen's explanation makes clear, even though blockchains are arguably superior to distributed ledgers, DLTs can still be a useful addition to the global economic technology pool, especially where it would be unwise to utilize a truly public and decentralized blockchain.Alm adds that
The strongest argument for private blockchains seems to be when a group of banks get together to create a system for transferring money to each other. In this case, no bank would be content to allow any other bank to "maintain" the database. They own it, so it makes sense that no one would control the shared blockchain. "
Beyond that, the privacy of a private ledger is an obvious benefit to any company protecting its business or customer data. Nevertheless, Jesse Morris, chief commercial officer at the Energy Networks Foundation, believes that even here, public blockchains are actually much more private than some people realize. He told Cointelegraph.
"A common criticism of public chains has to do with privacy (for example, that the details of every transaction are well known.) This criticism does not acknowledge two simple facts: 1) any dApp can shield certain transaction details by transmitting only the minimum amount of information necessary to keep sensitive data off-chain in any blockchain and 2) even in private networks, privacy protection features are used to protect sensitive information of private blockchain participants, and these same privacy protections (e.g., EY Nightfall. Other zero-knowledge proofs are beginning to be used on public blockchains. "
In other words, it is recognized that public blockchains may offer many of the privacy benefits promised by their private competitors, and then some. Of course, private ledgers often still have the advantage of being controlled by the companies that use them - an obvious advantage for large multinational banks that want to control their processes.
There is also a very significant benefit in terms of increased scalability because, as mentioned above, distributed ledgers are often shared, but are primarily centralized databases. As a result, they can process hundreds (if not thousands) of transactions per second, whereas decentralized blockchains such as Bitcoin struggle to make the first seven transactions per second, while consuming a lot of power. This is probably the main benefit that distributed ledgers offer, even if they don't offer much decentralization and transparency outside of previous database systems, which is one reason why they will continue to be used in the future.
