Blockchain vs DLT: What’s the difference?
Speaking about cryptocurrencies that are listed on Coinmarketrate.com, we define the technology they are built on as blockchain or DLT (distributed registry technology). These two words sound completely the same for us. But is it really so? Let’s figure it out.
Blockchain: Definition
The blockchain links blocks to each other and correlates the transactions they contain with each other (for example, with Bitcoin). For instance, you can imagine a house of cards that is gaining more and more height. The number of transactions increases the number of blocks in the block chain.
The balance is provided by the network used and the rules applied. The following applies to the house of cards, as well as to the blockchain: the higher and wider, the more stable the structure. An attempt to exchange one card, that is, in the case of a blockchain, to change the transaction information, affects the entire structure.
However, things that seem possible in theory does not work in practice. In order to subsequently change information or transactions that have already been accepted, it is necessary to convince most of the active network. This applies to the transaction that needs to be changed, as well as to all transactions subsequently based on it and accepted.
In case of blockchain, information, i.e. transactions on the network, is usually sent to all participants to verify their correctness by participants who are ready to confirm and attach them to the chain. The disadvantage of such a broadcast is the confidentiality of transactions. All network participants see the contents of the transaction, and the meta-information associated with it, such data as the number of transactions sent by the party, senders and recipients, timestamps and, possibly, the value. Participants can read or even output various information.
Distributed Ledger Technology: Definition
The use of distributed ledger technology extends the properties of a consensus ledger or cash register to synchronize distributed, accepted and confirmed transactions on the network.
Unlike blockchain, it is possible to exchange information on the principle of official necessity, that is, only with authorized parties, which guarantees confidentiality and privacy. Claims in accordance with the requirements of the financial or insurance sector.
An example is one of the DLT platforms already in use – this is “R3 Corda”. The merger of insurance companies demonstrates the added value of this DLT approach. All participants have the same database, including information about their sender and transaction history.
In the interests of competition and despite the joint exchange of data, individual institutions have a legitimate interest in not communicating the number of insurance claims they process or collect with the entire network. There are also blockchain-based platforms that meet these requirements, however, this usually leads to higher complexity combined with lower scalability.
What is the DLT ecosystem or blockchain
A distributed ledger or blockchain ecosystem consists of different components. The focus is usually on the platform. They can be divided into different areas and forms of implementation, which consist of public or private, authorized or unauthorized. These parameters can be combined with each other, and they are more or less useful depending on the application.
Bitcoin or Ethereum can be considered public blockchains, and without permission. In a private and permissive environment, enterprise applications and universal platforms are known, such as Hyperledger Fabric, or specialized for applications, such as Hyperledger Indy for the case of digital identities. The main differences between these forms are the type of access – open or restrictive, and the consensus mechanisms available for the general establishment of the truth.
What was the first DLT/blockchain application?
Short answer: Bitcoin. Blockchain is a technology used, a Bitcoin application. The initial blockchain hypothesis considered the question of how the problem of “double spending”, that is, double spending of digital money, can be compared between unknown parties without a central authority.
Bitcoin is based on a network with unknown participants. The network solves the issu of “double spending”, while ensuring traceability and security. Due to the high costs in the form of computing power and energy required to produce blocks (proof of work), manipulations do not make sense. Even if it were possible to take over the entire network with the help of astronomically high computing power and make the whole Bitcoin your own, the profit would only be a bunch of virtual tokens that have no real equivalent in the form of a fiat currency such as the dollar, ruble or euro.
However, with the BTC, initially there were no additional options for setting conditions, such as sending X from A to B if Y occurs at time Z. This lack of opportunities was the spark, and the birth of Ethereum and smart contracts.
Blockchain and Distributed Ledger technology allows connecting participants within the ecosystem, and gives companies the opportunity to solve previously unprofitable or technically unsolvable problems, such as microinsurance or P2P financing. In addition, they call for new business models and relationships.
What are smart contracts?
Smart contracts are best compared to a distributed application that can be used to exchange and execute business logic with parties connected to the network. The possibilities of smart contracts have caused a stir in companies, since the combination of traceability, transparency, disintermediation, programmable transactions and business logic has been and will be considered as a solution to many current problems.
What does DLT or blockchain do in the financial world?
Both blockchain and distributed ledger technology are mainly used in finance. The most recent and most high-profile achievement here is the central bank’s digital currency (CBDC) – the central bank’s digital money.
From the beginning of 2020, EU banks are also allowed to store cryptocurrencies, such as Bitcoin, on the basis of the law “On the implementation of the Directive on Amendments to the Fourth EU Directive on Combating Money Laundering”, which is ensured by storage solutions. In addition, DLT is also used in clearing and settlement transactions to minimize risks and speed up processes.
What does DLT or blockchain do in the supply chain?
Supply chains must ensure transparency, sustainability, ethics, and efficient and fast trade. Blockchain technology allows you to build a delivery network from the supply chain. To do this, disparate data warehouses are separated, and various industries, from raw materials to transportation and further processing, are connected through the platform.
A shared tamper-proof database reduces the vulnerability to errors and the need for manual corrections. Distributed ledger technology also opens up opportunities for more efficient financing, or pre-financing of goods or compensation payments within networks.
How is DLT or blockchain related to digital identity?
How many IDs do you need? Who will give them to you? Who will check you, and who will manage my identification? Do you know who checks you at all? What can they do with your personal data? All the issues of the digital identity crisis.
Digital and decentralized identification based on blockchain offers decisive advantages here: it provides legally secure proof of identity, sovereignty over one’s own data, and selective disclosure of attributes and information in the relevant application.
When determining the age, you no longer need to provide additional personal data (address, etc.). The date of birth, the institution issuing the certificate, and the validity of the information are the only important things, and the owner can manage them independently.
In the future, unique digital identifiers, whether personal or commodity, will become more relevant to be able to safely develop and display digital services in the supply chain and finance, as well as in new business areas.