A public ledger, as its name suggests, is a record-keeping system that has been used for centuries to store data like agricultural commodity prices or news stories. The term ‘public ledger’ refers to the fact that this information was available for anyone to see and verify. With the advent of blockchain technology (which also uses a similar public verification process), the idea of a public ledger became popular in cryptocurrency circles. In this article, we will explore cryptocurrency pubic ledgers – how they operate and some of the challenges they face.
Cryptocurrencies are digital, encrypted currencies that use tokens to facilitate the transfer of value between network participants. A public ledger is used as a record-keeping system that maintains anonymous identities and balances for all participants, as well as a record book of all genuine transactions executed between network participants.
Imagine you have to write a check for $200 to a friend or make an online bank transfer. In both cases, the transaction details will be updated in the bank’s records—meaning that the sender’s account is decreased by $200 while receiver’s increases by that much. The bank has different accounting systems which help keep track of balances and if the sender’s account has enough funds; otherwise, the check bounces oronline transfer isn’t possible. If the sender has only $200 in their account and they write two $100 checks, then depending on the order of which they are cashed, one check will bounce.
The details of the transaction in the bank’s records can be queried and verified by both parties to the transaction. Additionally, only designated bank officials and concerned authorities such as the tax department or government have access to those details.
Although public ledgers and bank records may seem similar, there are a few key differences between the two.
Cryptocurrency public ledgers work similarly to bank records in that the transaction details can be verified and queried by the two transacting participants. However, unlike with banks, no central authority or network participant can know the identity of the participants. Transactions are only allowed and recorded after verification of the sender’s liquidity; otherwise, they are discarded.
Since no central authority maintains or regulates the ledger records, how are fairness issues handled on cryptocurrency ledgers?
A public ledger can be imagined as a physical data management or storage system that is comparable to a database system which bank records are kept in. A blockchain is a type of public ledger, where transaction details are recorded after going through the authentication and verification process by people who have been designated by the network.
The recording and storage of all confirmed transactions on public ledgers begins at the creation and start of a cryptocurrency. As a block is filled to capacity with transaction details, new ones are mined and added to the blockchain by network participants called miners.
People often called “full nodes” who take part in the network selected maintain a ledger of all cryptocurrency activities on their devices that are connected to the network. Depending on how interested participants are and where they’re located around the world, the public ledger gets distributed as people join and contribute blockchain activity to keep it working well.
The large number of people with a copy of the ledger prevents any single person from easily manipulating it. Those who hold cryptocurrency, as well as how many tokens are held, is transparent to everyone on the network. This openness mixed with features like encryption and reward mechanisms protect users’ identities and transactions.
For example, if Alice wants to send one bitcoin to Bob, she only needs to share the encrypted account numbers (wallet addresses) for herself and Bob. The transaction amount of one bitcoin can even be hidden, depending upon the network configuration. An internal digital signature mechanism confirms that only the person with permission can conduct transactions from their wallets or accounts.
When a transaction is broadcast, every full node on the network verifies it for authenticity. These nodes then update the records on the blockchain cryptocurrency network accordingly.
Despite the benefits of public ledgers, there has been growing concern over their use with cryptocurrencies.
Because of this, the security and traceability features are typically more complicated to complete than other types of blockchain. For example, the functioning mechanism of the blockchain demands that every transaction that has ever occurred on the network be recorded. Maintaining a long-term detailed history while expanding capacity to handle the increasing number of transactions is a problem.
Hackers, governments, and security agencies would be able to access every blockchain transaction if it were public, which would then violate the anonymity and privacy of users–the most fundamental parts of cryptocurrency use.
The American security agency NSA is already accused of attempting to track down bitcoin users. Any public ledger-based cryptocurrency is always vulnerable to hacking attempts, stealing of cryptocoins, and network clogging by hackers.
The public ledger is the backbone of a cryptocurrency as a data storage container, storing information after verification. While its usage has exploded, setting up the public ledger with the appropriate settings is critical to maintain decentralized and anonymous characteristics for simple transactions in cryptocurrencies.