A crypto ledger is the same thing as a blockchain in crypto. In this post, I will explain what a crypto ledger is and how it works. I will also explain what else people could be referring to when they mention the word ledger in a crypto context.
Let’s dive in
What is a ledger?
A ledger is a record-keeping system with who owns what. Ledgers can be maintained manually in physical books or electronically using accounting software. Each account within the ledger represents a specific financial aspect, such as assets, liabilities, equity, revenues, and expenses.
What is a crypto ledger?
In the case of a crypto ledger, the only thing that is represented is your crypto assets.
Traditional ledgers relied on centralized systems, where a single entity held the authority to maintain and verify transactions. On the other hand, crypto ledgers introduced the concept of distributed ledgers, powered by blockchain technology. This decentralized approach enhances security, resiliency, and transparency, making it an ideal choice for digital currencies.
So for example the Bitcoin blockchain network is a virtual ledger that has entries such as
- address BC102ouhe934hh fih3ofih3ifh has 3 bitcoin
- BC23eo8y2824828HH99e2e9fu29 has 0.1 Bitcoin to it
- BC24ro8yofuhwoehoe8ySODUG9e2ihf has 100 bitcoin to it
and so on.
That’s all a crypto ledger is. Anyone can access it and verify that the information on it is correct using cryptography.
How private keys pairs work
If you have access to the private keys of each address then you can send your digital assets to another address. In crypto speak we say you sign the transaction using your private keys. So, for example, if I own the public address with the 3 BTC in the example I gave before then I could send those bitcoin to another address.
Then the blockchain might update to something like this
- BC102ouhe934hh fih3ofih3ifh: 1 bitcoin
- BC23eo8y2824828HH99e2e9fu29: 2.1 Bitcoin
- BC24ro8yofuhwoehoe8ySODUG9e2ihf has 100 bitcoin to it
You see my address now has 1 BTC and the other 2 BTC have been added to the second address (assuming I sent them there).
Anyone can send you crypto to your public key but no one can remove it unless they have the private key. You can think of your public key like your bank account number. Anyone can transfer money into it but only you can get money out of it.
The only thing to keep in mind with crypto ledgers is that they do not talk to each other. So for example you can’t send Bitcoin to the Ethereum network. This means you need to store your digital currencies across multiple types of blockchains.
Key points about crypto ledgers:
- Decentralization: Unlike traditional ledgers maintained by a central authority, crypto ledgers are decentralized and distributed across a network of nodes (computers). Each node on the network has a copy of the entire ledger, and they work together to reach a consensus on the state of the ledger.
- Blockchain Technology: Cryptocurrencies like Bitcoin and Ethereum use blockchain technology to organize and structure their ledgers. A blockchain is a chain of blocks, where each block contains a list of transactions. These blocks connect in a chronological and sequential order, forming a chain.
- Security: The decentralized and distributed nature of crypto ledgers enhances security. Cryptographic techniques secure transactions. Once miners add a block to the chain, it is extremely difficult to alter previous blocks.
- Transparency: Crypto ledgers are typically transparent and accessible to anyone on the network. Anyone can verify transactions by examining the ledger. However, the identities of the parties involved in transactions are often pseudonymous, with public addresses representing participants.
- Smart Contracts: In addition to simple transaction records, some crypto ledgers support smart contracts. Smart contracts are self-executing contracts with the terms of the agreement directly written into code. They automatically execute and enforce contractual agreements according to predefined conditions.
- Examples: Bitcoin and Ethereum are two prominent examples of cryptocurrencies that utilize crypto ledgers. Bitcoin’s ledger records transactions of its native currency (BTC), while Ethereum’s ledger supports more complex transactions and the execution of smart contracts.
Types of Crypto Ledgers
- Public ledgers, as the name suggests, are open to anyone, allowing anyone to view and participate in the network. Examples include Bitcoin and Ethereum blockchains. In public ledgers, transactions are verified by a decentralized network of nodes, ensuring transparency and trust.
- On the other hand, private ledgers are restricted to a specific group of participants. These ledgers are often utilized by enterprises to streamline their internal processes or create consortiums for specific industries. Private ledgers provide a higher level of privacy, while still maintaining the benefits of decentralization and security.
The Mechanics of a Crypto Ledger
The process of recording transactions on a crypto ledger involves several steps.
- When a user initiates a transaction, it is broadcast to the network and picked up by the participating nodes.
- These nodes validate the transaction by verifying the sender’s digital signature and ensuring that they have the necessary funds. Once the transaction is validated, it is added to a new block along with other validated transactions.
- Before the block is added to the ledger, a process known as consensus is performed to ensure that all nodes in the network agree on the validity of the block. This is typically achieved through consensus algorithms such as Proof of Work (PoW) or Proof of Stake (PoS).
- Once consensus is reached, the block is added to the crypto ledger, and the transaction becomes a permanent part of the blockchain.
- Anyone participating in the network can view and audit the transaction, ensuring transparency and accountability.
Alternative meanings for Ledger
Ledger Crypto Wallet
Ledger is also a popular cryptocurrency wallet. A wallet in crypto allows you to store and encrypt your private keys on them. This way no one can access your funds.
There are two types of wallets: software wallets or hot wallets which have an internet connection and hardware wallets also known as cold wallets that are not connected to the internet.
Ledger is a secure hardware device that allows you to store multiple cryptocurrencies. It comes in 3 models
- Ledger Nano s plus
- Ledger Nano X
- Ledger Stax (soon to be released)
The wallet is accompanied by the Ledger Live app which you can install on your mobile device or desktop computer. Users can install the app to buy crypto using their credit cards, set up their ledger devices, exchange assets, and participate in DeFi.
Ledger’s physical devices contain a Secure Element chip that encrypts your private keys in an enclave making it extremely hard to hack. To hack your wallet someone would need to have access to your physical device and even then it would be almost impossible to hack.
A Ledger hardware wallet is a non-custodial cold storage wallet that offers you full control of your private keys. For those who don’t trust themselves to keep their devices or their 24-word recovery phrase secure, they can opt to subscribe to Ledger Recover for some peace of mind.
Ledger Recover is a new service that costs $10 per month and allows you to recover your keys by reaching out to customer support if you lose your device or seed phrase. If you choose to use Ledger Recover you will need to share your personal information such as your email address, name, and address, and verify your identity by uploading a copy of your ID.
Ledger crypto coins
Apart from the wallet, several different cryptocurrencies have appropriated the term. Some of the most popular are
- Powerledger (POWR)
- Ultiledger (ULT)
- Quantum Resistant Ledger (QRL)
- One Ledger (OLT)
None of the Ledger coins are especially popular.
Other useful crypto concepts
Here are some related articles from my crypto basics series that you might find useful.
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