Cryptocurrency public ledgers are not difficult to understand. The term ‘public ledger’ comes from the early record-keeping system used to note down data, such as different product prices, news, and assays. This ledger was accessible for the general public as well as for verification.
As cryptocurrency-based blockchain systems appeared, which depend on a similar record-keeping and public verification system, the use of the public ledger became popular in this industry. So what are cryptocurrency public ledgers, how they work, and what are their use risks?
Cryptocurrency Public Ledgers – How Do They Work?
A cryptocurrency is an encrypted, decentralized digital currency that makes the exchange of value by the transfer of crypto tokens between users possible. The public ledger is used as a data register mechanism that keeps participants’ identities secure and hidden, along with their cryptocurrency balances, and a record book of all veritable transactions carried out between users.
To better understand the process, here’s an example: when writing a check to a friend, or making an online transfer to their bank for $100, the details of the transaction will be sent to the bank’s records.
The bank’s accounting systems keep the record of transactions and balances and make sure that the sender’s account has enough funds -otherwise, the check annuls, or the online transfer is not enabled.
Verifying Transaction Details
The transaction’s information in the bank’s records can be questioned and checked by the two parties between whom the transaction happened. Moreover, the bank record is available to the designated bank officials and the authorities, such as the tax department or the government.
Public ledgers operate the same way as bank records, but with a few differences. Similar to the bank records, the details of the transaction on a cryptocurrency public ledger can be verified and questioned by the two participants. However, no authority or network users can have access to the identity of the participants in the transaction; the transactions are enabled and recorded only after appropriate verification of the sender’s liquidity – otherwise, they are not processed.
Cryptocurrency Transactions on the Public Ledger
A public ledger can be resembled to a data management or storage system comparable to a database network of bank archives. A blockchain is a type of public ledger, which is a string of blocks on which transaction info is registered after appropriate authentication and verification by the nominated network users.
Designated network participants, usually called ‘full nodes,’ keep a copy of the whole ledger on their devices that are linked to the network. Because hundreds and thousands of users have a copy of the ledger, they are informed about the true state of the network when it comes to who holds crypto tokens, the amount of held tokens, whether transactions are authentic and registered, and so on.
Risks of Public Ledger-Based Cryptocurrencies
In spite of the advantages of public ledgers, concern over their use for cryptocurrency has been raised. For instance, the blockchain’s working system mandates the recording of each transaction that has even taken place on the network.
Balancing the upkeep of this detailed history while scaling the ability to process the increasing number of transactions is rather difficult. In the same way, there are concerns that maintaining a public ledger that registers every transaction in permanence would also enable hackers, governments, and security agencies to monitor public records and network users.
The Bottom Line
Serving as a data storage holder, the public ledger forms the backbone of a cryptocurrency by storing data after verification. While its use is being mostly adopted, setting up the public ledger with the correct parameters is crucial to keep decentralized and anonymous features for easy and uncomplicated transactions in cryptocurrencies.