Blockchain is a P2P network, where the ledger is distributed and transactions are posted to the ledger only upon consensus. Such a P2P network, along with various components such as smart contracts, cryptography, and algorithms, help to build a blockchain network that delivers trust. Blockchain allows participating parties (nodes) to establish consensus without an intermediary, which leads to a single distributed truth (ledger). There's no reconciliation, no delays, and no intermediary, and transactions are recorded in real time over an immutable ledger forever.
We have not covered the details about blockchain and, in this section too, we will just touch on the definition and jump into the difference between blockchain and DLT. So far, we know about distributed ledgers. Blockchain technology concentrates on securely and efficiently building an immutable record of transactions, also known as activities of high importance. Blockchain (one form of DLT) is the most accepted DLT; however, DLT by itself has a lot of potential for the future. There are various types of DLTs, as displayed in the following diagram:
Blockchain groups data into blocks, chains them together, and firmly secures them through cryptography. Blockchain is an always growing append-only chain of blocks, where agreed upon transactions are appended only to the blocks. They can never be altered or deleted and this immutability has various use cases. Now, by virtue of the fact that blockchain is a form of DLT, it's the ledger that is distributed on the blockchain network. Each node has a copy of the ledger and transactions are only added securely when they reach a consensus by the participating nodes.
DLT is a broader term to highlight those technologies that allow the distribution of information among participants (public or private). Blockchain is one of the types of DLT that got wider acceptance and is very popular and, as a result, it turned out to be the synonym of DLT. DLT focus on a technology that does not have central authority, and interestingly, blockchain is a chain of blocks, while DLT neither mandates any requirement for chains nor for blocks. For the vision of blockchain, DLT resonated well; hence, every blockchain is a DLT. However, it is not mandatory for a DLT to be a blockchain. Here's an analogy of DLT and blockchain with the term vehicle and car, respectively. Hence, our equation is—every car is a vehicle; however, not every vehicle need be a car.
The following table summarizes the differences between DLT and blockchain:
|
DLT |
Blockchain |
|
It's a ledger that is distributed over the network. |
It's a P2P distributed ledger. |
|
The ledger remains immutable. |
Transactions are grouped into blocks, and blocks are immutable. |
|
DLT includes a consensus algorithm that ensures an agreement. |
Blocks are added to the chain when a consensus is reached and each block has transactions. |
|
There's no central authority or centralized data storage. |
There's no central authority or centralized data storage. |
A few other DLTs that have received popularity and acceptance are as follows:
- Chain Core
- Corda
- Directed acyclic graph (DAG)
- Hash graph
- peaq
- Quorum
In conclusion, DLT has broadly– and blockchain has specifically– created a system where the world can have a P2P distributed ledger that is trusted, immutable, secure, and consensus-based. There are various types of DLT, such as blockchain and DAG, and while blockchain has received wider acceptance, DAG is gaining momentum slowly but steadily. For the sake of this book, we will be concentrating on DLTs such as Hyperledger Fabric and blockchain. However, whichever DLT it is, the core benefits of DLTs are transparency, immutability, efficiency, and the absence of a third party.
DLTs that are blockchain:
Blockchain is a form of DLT where data is stored in the form of blocks. These blocks are linked and encrypted. Hence, it can also be termed an encrypted linked-list of blocks, where you can trace the provenance of the block (this means you can reach back to the genesis block). This linked-list of blocks (also known as a chain of blocks) is ever-growing. Such a massive growth leads to slow transactional speed and needs large storage capacity on a P2P network.
Blockchain technology as a platform:
Let's start by talking about the first application of blockchain technology—cryptocurrency. However, cryptocurrencies are not discussed further in this book. For cryptocurrency transactions, a ledger is distributed over the P2P network. Any user (node) can join the network without permission and can start transacting. As long as the user (node) adheres to transaction protocol, transactions can be executed. If they are valid, they will be added to the blockchain network. Similarly, any node can participate in the consensus process and start validating transactions.
Such blockchain networks are public and offer read access to everyone via explorer applications. Such transaction information does not contain user details. They just have the transaction details. Such public blockchain networks do not incur costs to system administrators as the mining is performed by participating nodes and the miners are paid incentives for their efforts to validate the transaction. In turn, the miner can afford the infrastructure themselves by taking care of the server, machines, and electricity costs. You can think of such an infrastructure as crowd-funded, crowd-maintained, and crowd-validated. The cost is shared among the participating nodes. With this approach, the upfront and maintenance cost for the infrastructure is greatly reduced in comparison to centralized systems. Some of the popular currencies are Litecoin, Ripple, EOS, Bitcoin, Ethereum (Ether), and so on.
Other than cryptocurrency, a blockchain platform fuels growth for permissionless networks or permissioned networks. It can be used as a platform for various types of transactions and consensus that represent an asset (a thing of value). Permissionless networks include Ethereum, while permissioned networks include Hyperledger Fabric and R3 Corda.
DLTs that are not blockchain:
There are various DLTs that are not blockchain, such as DAG, Hashgraph, and Digital Asset Holdings (DAH). They are also based on distributed ledger concepts; however, they are not based on a chain of blocks (also known as blockchain). They are mostly effective and their transaction volume is extremely high. DAH is mostly relevant to use cases such as financial services and banks. Hashgraphs are permissioned DLTs based on voting algorithms. DAG (table) is another DLT that is not based on blockchain. It is currently used for IOTA and micropayments.
