Introduction

As technology develops, terms such as blockchain, cryptocurrency, and DLT have all become much more mainstream. The bad news is that most people need help differentiating and connecting these concepts. Are they similar or different? Is the similarity significant? Before getting ahead, let’s dive into each technology’s differences, similarities, and potential applications.

What is Blockchain?

Blockchain is the underlying system of cryptocurrencies like Bitcoin and Ether. Transactions are part of a decentralized digital ledger, recorded across many computers connected via an underlying network. Each block in this ledger contains transaction information linked chronologically, forming a chain—hence its name!

Key Features of Blockchain:

• Decentralization: Unlike traditional databases, the blockchain is not controlled by a central authority. Instead, multiple computers (called nodes) participate in the network and maintain copies of the ledger.
• Security: Blockchain uses cryptographic techniques that make it virtually impossible for information, once input, to be changed or forged.
• Transparency: All transactions are in the network; everyone can see them. There will be an open and transparent system for verifying and auditing data.
• Immutability: Once recorded on the blockchain, data cannot be altered or deleted; it will always remain permanent and trustworthy.

What is Cryptocurrency?

Cryptocurrency is a digital or virtual currency that relies on technology or blockchain. Fundamentally, cryptocurrencies are currencies working differently than most since, unlike them, they lack derived power from any governing monetary body but work from networks based on blockchain systems to offer security and safeguards against fraudulence.

The first and most popular cryptocurrency was Bitcoin, which made peer-to-peer transactions without any third-party intermediary like a bank. In fact, since its origin, thousands more have been created today, including Ethereum, Litecoin, and Ripple, among others.

How Cryptocurrency Uses Blockchain:

Cryptocurrencies rely on blockchain for:

• Transaction validation: Blockchain records every cryptocurrency transaction, verifying its authenticity and preventing double-spending.
• Security: Blockchain features cryptographic security for transactions as well as wallet addresses.
• Transparency: With a public ledger, every transaction in any cryptocurrency is recorded publicly.

What is Distributed Ledger Technology (DLT)?

Distributed Ledger Technologyis a broader term encompassing any system storing data across a distributed network of nodes. Blockchain is a specific type of DLT, but not all DLTs use blockchain as their structure. DLT is primarily about decentralizing the storage and verification of data rather than how the data is structured.

This change made by the participant in DLT is accepted only after a consensus of the people who hold a copy of the ledger. Therefore, it gives security to the system and does not accept fraudulent changes or tampering.

Examples of Distributed Ledger Systems:

• Blockchain: A chain of blocks, where each block contains the data of transactions.
• Tangle: A DLT IOTA is based on a DAG compared to the old blocks in traditional DLT systems.
• Hashgraph: Hashgraph is the version of DLT protocol where fast, secure, and fair transactions can occur independent of a miner.

Blockchain vs. Cryptocurrency vs. DLT: Key Differences

Although these terms are being used interchangeably, there is a vital distinction:

• Blockchain: A distributed ledger organizes data in blocks connected in a chain, widely used to support cryptocurrencies and applications like supply chain tracking and secure voting systems.
• Cryptocurrency is a digital currency that utilizes blockchain technology to ensure secure, decentralized transactions.
• DLT is a broader term that refers to any technology that distributes the ledger (or record) of transactions across a network of participants. Blockchain is just one example of DLT; other technologies like Tangle and Hashgraph also fall under this category

How These Technologies Work Together

To make sense of how blockchain, cryptocurrency, and DLT work together, let’s break it down:

• Blockchain is the foundational technology that drives most cryptocurrencies.
• Cryptocurrency relies on blockchain to record transactions and maintain transparency and security. Bitcoin and Ethereum, for example, use blockchain to verify the legitimacy of transactions and control the creation of new coins.
• DLT is a broader category of blockchain. Nevertheless, it includes other distributed systems that do not represent a blockchain structure. Besides making cryptocurrency, DLT finds application in various contexts, from secure voting systems to supply chain management.

Real-World Applications of Blockchain, Cryptocurrency, and DLT

These technologies are transforming multiple industries:

• Blockchain can help supply chain managers ensure transparency, traceability, and accountability throughout their supply chains. Healthcare industries use it to secure patient records, and governments use it to secure voting systems and public records management.
• Cryptocurrencies are used as an alternative to traditional currencies for digital payments. Cryptocurrencies like Bitcoin and Ethereum are also used for investment purposes, with some investors viewing them as an asset class similar to gold.
• DLT is being adopted in energy, finance, and government industries for applications such as secure transaction processing, decentralized finance (DeFi), and transparent record-keeping.

Advantages and Challenges

Each of these technologies offers significant benefits, but they also come with challenges.

Advantages:

• DLT and Blockchain: The benefits of DLT and Blockchain lie in the extra security, transparency, and decentralization that is particularly suitable for applications requiring permanent records that cannot be altered or plagiarized.
• Cryptocurrency: Cryptocurrencies have lower fees than conventional banking systems and enable faster cross-border payments without intermediaries.

Challenges:

• Blockchain: One of the biggest defects of blockchain technology is that it is not very scalable. More data leads to slower, more expensive transactions.
• Cryptocurrency: The prices of cryptocurrencies are very volatile. Highly volatile, cryptocurrencies’ values can swing drastically and instantaneously, becoming risky as a stable store of value.
• DLT: Although DLT offers decentralization, it is not without significant challenges. For instance, interoperability, centralization, and governance issues exist in some DLT systems.

Conclusion

Blockchain, cryptocurrency, and distributed ledger technology are closely interwoven but distinct concepts. Blockchain is one type of DLT that powers cryptocurrencies like Bitcoin. Distributed Ledger Technology (DLT) is an overarching term that includes blockchain and all decentralized data management systems. This is an essential aspect to understand because these technologies and differences shape the future of finance, data management, and beyond.