$BTC The confusion between these two terms, Blockchain and DLT (Distributed Ledger Technology), is not small. Both technologies, DLT and Blockchain, are closely related, but have subtle differences. We will define each and then highlight their differences:
DLT Definition: DLT is a digital system for recording asset transactions in which transactions and their details are recorded in multiple places simultaneously. Unlike traditional databases, distributed records do not have a central data storage or administrative functionality.
Features:
Decentralization: Instead of a central authority or intermediary overseeing the ledger (like a bank in traditional systems), multiple participants (nodes) oversee, validate, and record entries.
Consensus algorithms: These are protocols used to reach an agreement on a single data value among distributed processes or systems. They help ensure that all copies of the ledger are the same.
Security: Entries in the ledger are secure, cryptographic, and often immutable, meaning they cannot be changed after being added.
Blockchain Definition: A Blockchain is a type of DLT where transactions are recorded in blocks and these blocks are linked (or 'chained') together in sequential order. Each block references the previous block, forming an interconnected chain.
Features:
Sequential ordering: The 'chain' of blocks ensures a chronological order of transactions, making it easier to trace any transaction to its origin.
Cryptography: Each block contains a unique code (hash) based on the content of the block and the hash of the previous block. This ensures the integrity of the entire chain, as changing any transaction in a block would require changing the content of all subsequent blocks.
Decentralization and consensus: Like other DLTs, Blockchains are typically decentralized, and consensus algorithms are used to validate transactions.
The main differences between DLT and Blockchain are:
Scope: All Blockchains are DLTs, but not all DLTs are Blockchains. This means that Blockchain is a subset of DLT, which in turn is a broader category that encompasses systems that distribute records or data across multiple sites, regions, or participants, including, but not limited to, Blockchain structures.
Data structure: The most distinctive characteristic of a Blockchain is its 'chain' of blocks. In contrast, DLTs may not organize data in blocks or in a chained sequence. They can use other data structures and techniques to achieve distributed consensus.
Use cases: While Blockchains are often associated with permissionless environments like Bitcoin and Ethereum, DLTs can be used in a variety of applications where distributed consensus and record maintenance are valuable, without necessarily employing a block-based structure. Examples of DLT use cases include supply chain management, voting systems, and distributed cloud storage.
In summary, although Blockchain may be the most well-known form of DLT due to the rise of cryptocurrencies, DLT encompasses a broader range of distributed record systems.
Throughout this book, I will always use the term Blockchain to refer to public and permissionless Blockchain networks, such as the Bitcoin and Ethereum networks. These networks are based on open access for all, distributed validators (or 'nodes', as I will sometimes call them), and full transparency in transactions (everyone can see and verify everything).
When referring to private, permissioned networks, I will generally refer to them as DLT, even though in some cases we may be dealing with permissioned Blockchains, that is, a specific type of DLT. In these networks, we typically have limited access, with the possibility of creating various access profiles, more centralized validators, and consequently greater privacy of the data that flows through these networks.
That is, while public Blockchain networks are open and distributed, private Blockchain networks are more restricted and can be partially centralized, each serving different needs and applications.
A discussion that always accompanies the implementation and use of Blockchains and DLTs in general is the inability to achieve maximum in three lines at the same time: security, decentralization, and scalability. The famous 'Blockchain Trilemma':
Blockchain Trilemma It is said that Blockchain networks face a 'trilemma', where it is impossible to achieve three desired attributes at the same time:
SECURITY Ensuring that the network is protected against attacks and failures.
DECENTRALIZATION Preventing power or control from being concentrated in a limited number of validators (nodes).
SCALABILITY The ability to process a large number of transactions quickly.
