The name ledger was derived from the old system of keeping records which was used in recording vital information like prices of agricultural produce, analysis, and news. It was made readily available for the general public to view as well as verify.
As the emergence of crypto-based blockchain systems came to be, which works using a similar mechanism of public verification and record-keeping, public ledger became a widely used term in the crypto world. This write-up explains what cryptocurrency public ledgers are, how they work, and the various challenges they could face.
Public Ledgers: Where all the storage takes place
Before we go into details of what cryptocurrency public ledgers are, let’s quickly remind ourselves of what a cryptocurrency is.
A cryptocurrency is a decentralized, encrypted digital currency that aids value exchange by transferring cryptotokens between the participants of a network. The public ledger serves as a system for record-keeping that maintains the identity of participants in an anonymous and secure form, their crypto balances, and a record containing all the unique transactions that took place between the participants of the network.
For instance, imagine you want to give your sister a check or you making a transfer of $100 to her bank account.
In both cases stated above, the transaction details will be updated in the records of the bank – there will be a debit if $100 from the account of the sender, while the same amount will be credited to the account of the receiver.
The record of balances is kept by the accounting systems of the bank; it also ensures there’s sufficient fund in the account of the sender, otherwise, the online transfer will not be allowed or the check will bounce. If just $100 is available in the sender’s account, and then he issues two checks of $100 each, whosoever will get the money or get a bounced check will depend on the presentation order of the checks.
The details of the transaction in the records of the bank can be verified and queried by the parties involved in the transaction. Also, only designated bank officials as well as central authorities where necessary like the government or tax department, can have access to the bank record. No one else has access to the details.
Cryptocurrency public ledgers have a similar function to that of bank records, though there are some differences. Just like bank records, the two participants involved in the transaction can query and verify the details on a crypto public ledger.
However, no other participant of the network or central authority can know the participants’ identity. Transactions only take place and are recorded after the sender’s liquidity has been verified.
Since there’s no central authority to maintain or control the ledger records, how then can fairness be regulated on crypto ledgers?
Public Ledgers: How do they work?
Physically, one can view a public ledger as a storage system or data management, just like bank records’ database system. A blockchain is a type of public ledger where the recording of transaction details takes place after the network participants have successfully authenticated and verified it. The recording as well as storage of the confirmed transactions on pubic ledgers, starts from the creation and beginning of a crypto’s working.
As soon as a block gets filled with different transaction details, new blocks are mined and are included by the miners (the network participants) to the blockchain.
Select network participants usually referred to as full nodes, usually maintain on their devices, a copy of the full ledger; these devices are connected to the crypto network.
Depending on the interest of the participants as well as their spread throughout the globe, the distribution of the cryptocurrency public ledger takes place as they link with and contribute to the activities of the blockchain network to ensure it is functional and agile.
Since most participants have a copy of the ledger, they know what’s going on with the network i.e. the number of crypto tokens held by each individual, as well as authentic and recorded transactions; this is done to prevent any form of misuse such as double-spending.
The combination of the public ledger’s intrinsic features such as reward mechanism, encryption, and consensus algorithm, ensures the protection of the participant’s algorithm, and the network only deals with genuine transactions.
The mechanism of an internal digital signature ensures that just the individual having the required cryptocoins can perform spend transactions from their accounts or wallets. All the network’s full nodes will see the transaction broadcast and then verify if it’s authentic. If it is, the public ledger records will be updated on the different nodes forming the part of the blockchain crypto network.
Disadvantages of the Cryptocurrency Public Ledger
Beyond the countless advantages public ledgers offer, there has been some concern about public ledgers’ use in cryptocurrencies.
For example, the bitcoin blockchain’s working mechanism ensures that all transactions that have ever taken place on its network are recorded. To balance the maintenance of this detailed history with the need to scale its processing capacity for the increasing number of transactions in the future, will become a great challenge to ensure the sustainability of bitcoin in the long run.
Also, there are worries that maintaining the public ledger to record each transaction would also permit security agencies, governments, and hackers to have access to public records as well as to the participants of the network.
The privacy and anonymity of the blockchain participants will be at risk, which is one important aspect of crypto use. The NSA (American security agency) has already been accused of making attempts to track down users of bitcoin.
Lastly, all crypto public ledgers face a threat of hacks and theft of cryptocoins.
As a container of data storage, the public ledger is cryptocurrency’s backbone, because this is where the whole storage takes place after verification. While it is widely adopted today, it must be configured with the right parameters to maintain its anonymous and decentralized feature for hassle-free crypto transactions.