What is a ledger in blockchain? 📖
A ledger is a collection of records containing the details of transactions from one account to another account. They contain information that help prepare a company or individual’s financial statements to show a complete trail.
Although cryptocurrencies work on a decentralized model, they have adapted some concepts from centralized systems of which a ledger is an integral part.
Deriving itself from the traditional finance ecosystems that used ledgers to keep a track of transactions for a given amount of time, a ledger for crypto works as a digital record-keeping system that records all transactions in a decentralized manner.
The oldest example of a ledger is found in Ancient Mesopotamia, when clay ledgers were adopted and used. The most recent example is its application to blockchain to make it secure and truly decentralized.
Ledgers for crypto are a game-changer. For example, assume Ethereum and its huge user base. If an Ethereum user transfers 20 Eth to a friend, it will instantly be recorded by a ledger which will be visible to both the sender and the receiver.
This removes two big hassles: the need for a third party to do record-keeping and the threat of hackers because crypto ledgers are immutable and autonomous.
Apart from adding to transparency, crypto ledgers give users the authority and ability to verify their own transactions, providing them with a sense of accomplishment. Thus, the application of a ledger is a win-win in any given situation.
How is a ledger maintained?
Every block in a blockchain contains a ledger of transactions that have been added to the network since the previous block. Each block contains a record of all the transactions that have occurred on the network, including the sender’s information, receiver’s information, amount, and other details.
As soon as a new block is created, a ledger for that block is also simultaneously created. Each ledger is maintained and kept up-to-date by the different nodes or servers and computers associated with the blockchain (as is the case with Ethereum) or by the miners of a blockchain (as is the case with Bitcoin).
It is, however, important to note that miners are not directly responsible for updating a ledger. A ledger in any Proof-of-Work (PoW) consensus system (blockchains that involve mining) is updated by the nodes and servers at the end of the day.
However, unlike blockchains that work on a Proof-of-Stake (PoS) consensus system, the transactions that are registered in a ledger are verified by miners in a PoW consensus system.
We’d recommend reading the linked articles for a better understanding of consensus mechanisms in blockchain: Proof-of-Stake Proof-of-Work
The two main types of ledgers
Ledgers have been there since Bitcoin’s inception in 2008-9. An integral part of a blockchain, ledgers are of two different types; public and private.
Ledgers are not just to provide transparency to a blockchain’s users. They are also pretty useful when it comes to confidentiality. Thus, confidentiality and transparency are two things that set public and private ledgers apart.
The main difference between public and private ledgers is that the former is available and visible to anyone with the identities of the involved parties remaining anonymous. Whereas the latter is only accessible to authorized parties.
|Public Ledger||Private Ledger|
|User Identity||User identity is kept anonymous but the transactions are visible to anyone||Only select people (read: authorized parties) can view user identities and transactions|
|Security Measures||No room for tampering; supremely secure||No room for tampering; supremely secure|
|Use Cases||Mostly used for quick transactions, donations, etc.||Used by big firms, companies, and organizations using blockchain; such as healthcare, supply management, etc.|
|Accessibility||Anyone can read and see the transactions||Only authorized parties can access|
But what does a ledger look like?
Great question! A ledger changes from currency to currency. Here are two examples:
1. Ripple ledger
If you transfer your friend 20 Ripple coins, the ledger that will be publicly or privately available to you and your friend will include the amount of Ripple coins you transferred (visible to everyone on a public ledger), the information about the sender and the recipient (only visible to the sender and the recipient), service charge/fee, your unique transaction ID and the exact timestamp when the payment was made.
2. Bitcoin ledger
Similarly, if you transfer 20 BTC to your friend, your publicly or privately available ledger shall show the amount transferred, the information about the sender and the recipient, a transaction ID, a confirmation number – represents the number of blocks added to the blockchain after the transaction – and the timestamp when the payment was made.
All in all, ledgers more or less contain the same set of details but with an additional piece of information or two which is of course, in accordance with the blockchain itself.
Unique and useful blockchain ledger features
Ledgers in crypto have multiple benefits. Some of them have already been mentioned in the article. Here are a few more for you to have a better understanding of ledgers.
Crypto ledgers use advanced cryptography techniques all while abiding by the instructions of a blockchain. There is little to no chance of an outsider or a third party changing the data written on a ledger. If such a thing takes place, the whole blockchain will be disrupted and will start from the genesis block.
Just as the whole of the crypto world is based on decentralization and essentially supported by nodes and servers, ledgers are also maintained and managed by nodes that have little to no room for error.
3. Consensus system
Ledgers in crypto work on a consensus system. All the nodes and the serves are either supported by a PoS consensus system or a PoW consensus system. This leaves no room for a debate on any transaction.
Ledgers are designed in a way that based on the data inscribed on them, one can trace back to the nth transaction within seconds. Thus, it is efficient and highly transparent.
Once the information which includes timestamps, details of sender and receiver and the amount, is stored on a ledger, it cannot be changed or tampered with.
A ledger is distributed among different nodes on the blockchain which provide a transparent system of records. If a miner wants to add a block, the block has to be approved by the majority of nodes on the network.
All blocks contain unique hash IDs as well as have a record of previous blocks which means they are cryptographically linked together. Any attempt to tamper with data will mean that you have to change the entire network’s hash IDs, which is impossible, making it very secure.
In conclusion, ledgers in crypto play a critical role in recording and verifying transactions on a decentralized and secure network. They are immutable, transparent, and auditable, making them a powerful tool for financial transactions that require trust and transparency.