Blockchains Missing Ledgers - The Myth of DLTs

For years now, blockchains have made headlines on an almost daily basis, alongside the rise of bitcoin and other cryptocurrencies. However, a common misconception - largely caused by companies with outsized marketing budgets - is that distributed ledger technology (DLT) is synonymous with blockchain.

This is a rather unfortunate confusion, as DLTs do not offer any of the advantages that blockchain-based solutions provide. Legacy technology providers, as well as legacy financial providers, are using the DLT and blockchain conflation as a buzzword to attract new customers, or seem progressive in their approach to new technologies.

Questions You Should Ask:

1. What consensus mechanism does your “DLT” use?
2. How is your DLT different from a database solution?
3. Who controls transactions on the DLT?
4. How does your DLT compare with popular smart-contract platforms like Ethereum?
5. What data exchange standards does your DLT use?

A distributed ledger is essentially a database that is replicated across several locations and (sometimes) maintained by multiple participants. By contrast, most organizations currently use centralized databases often at a fixed location, creating a single point of failure.

Enterprises may use distributed ledger technology to process, validate, or authenticate transactions or other types of data exchanges; records are only ever executed and recorded on the ledger when the consensus has been reached by the parties involved - if indeed there is a consensus mechanism at all.

Blockchain technology is a particular type of encryption and is referenced in the second footnote/reference of the Bitcoin Whitepaper (H. Massias, X.S. Avila, and J.-J. Quisquater, "Design of a secure timestamping service with minimal trust requirements," In 20th Symposium on Information Theory in the Benelux, May 1999.).

The Bitcoin Whitepaper makes no mention of a blockchain and does not use the term ledger. This is an important fact, ignored by proponents of the idea that blockchains share features with DTLs.

Blockchains are indeed state machines (more here), and the chain connects blocks which include the information over the change in control over the set of bytes that have been manipulated in the recorded sequence.

However, in as much as the blockchain provides a “public ledger”, that is not a necessary feature of that application, and second-layer solutions and applications frequently address the exposure created by such a ledger.

Blockchains enable permission-less peer-to-peer transactions, which was the motivation for the creation of the first blockchain (Bitcoin). This quality is observably absent from shared ledgers like DTLs, in which the operators of the chain - who usually know each other - set the rules, and can prevent transactions to occur.

Conclusion

DLTs are not blockchains, and blockchains are not DLTs. Users and investors should use great caution when engaging with providers and individuals who conflate these two concepts, chances are they a) do not understand the difference or b) are knowingly applying the label to a database solution that does not provide any of these advantages introduced by the blockchain paradigm.