Blockchain: Differentiating the Terms

The Terminology: Bitcoin, Blockchain and Distributed Ledger Technology (DLT)

These terms are often used interchangeably, but there are important differences.

A distributed ledger is a database stored on multiple computers or nodes in a network rather than on a centrally controlled computer—hence the name “distributed” ledger. Each node has an identical copy of the database. When a transaction is originated by one node, all other nodes “decide” whether to accept it as authentic based on a consensus mechanism. Once consensus is reached, the transaction is saved to all copies of the database. Every stored transaction is timestamped and encrypted to ensure the integrity of the network. This eliminates the need for an intermediary such as a bank, government agency or other central authority to process or validate the transaction. Theoretically, this technology could eliminate the roles played by these intermediaries and reduce the time and cost of processing transactions.

Blockchain uses a distributed ledger, but it goes one step further by organizing transactions in groups or blocks and connecting these blocks in a sequence or chain. Transactions can only be added to a blockchain, not altered or deleted, making them immutable. All blockchains are distributed ledgers, but not all distributed ledgers are blockchains. Many solutions and initiatives described as blockchain are actually distributed ledgers. For many business cases, DLT may actually be a better solution than blockchain.

Bitcoin uses blockchain, as do other cryptocurrencies. Blockchain was originally conceived to support bitcoin, but it is being adapted to other applications in addition to cryptocurrencies.

To avoid confusion, all references to blockchain in this series also apply to DLT.

Illustrated guide to the steps of blockchain

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