With the rise of blockchain technology and cryptocurrencies, many individuals, companies, and entities wish to control their resources better by using new tools to improve the management and control of their financial operations. Because of this need, the “cryptographic ledgers” concept has become popular recently. In this article, we will explain what this term comprises.
What is a ledger?
An accounting ledger is a document in which the financial movements of a company or entity are registered. This document includes all the financial activities, which allows an orderly and precise follow-up of all the economic and financial operations of the company. The accounting book also serves to audit, with which other people can know (through interpreting its data) how the company or entity is being managed, especially from the financial point of view.
Cryptographic Ledgers
Thanks to the advancement of technology and blockchain, digital ledgers had a significant breakthrough in recent years, as they had two critical factors to provide greater security to their database: cryptography and data control and verification algorithms.
These two factors allowed the development of cryptographic ledgers, in which all system transactions can be validated and stored. An example is the Bitcoin blockchain, where all transactions are recorded and protected with cryptography.
It is essential to mention that, thanks to cryptography, each record is kept unchanged and independent within the blockchain, so it is tough to change any data in that record. Through cryptography, data is codified, allowing the information stored and sent to be intelligible to users with external or restricted access.
How do Cryptographic Ledgers work in a blockchain?
Transactions within a blockchain are grouped into blocks and added sequentially to the ledger. Each block contains a cryptographic “hash” generated using information from the previous block, creating a chain of “interlocking” blocks. This feature makes it challenging to modify a prior transaction without changing all the following blocks, which provides an “extra layer” of security against data manipulation.
Purpose of Cryptographic Ledgers
The primary purpose of a cryptographic ledger is to store (securely) all transaction data within a crypto asset’s network. It is important to note that cryptographic ledgers can be private and public, which allows them to be used in different environments. Among the advantages of cryptographic ledgers are the following:
– It allows having a system with a high level of security.
-It facilitates the control, auditing, and transparency of data.
-It allows immediate (and accurate) access to the history of all transactions within the network.
-It allows maintaining the anonymity of its users (optional.)
“Public” Cryptographic Ledgers
“Public” cryptographic ledgers are digital documents or systems within a public access network (open access), which allows any user to access the record at any time. This type of ledger is characterized as a digital decentralized document since an entity does not control them. Although each transaction is publicly recorded, users still have a private identity or pseudonym. An example of public cryptographic ledgers is the Ethereum and Bitcoin blockchain.
“Private” Cryptographic Ledgers
“Private” cryptographic ledgers are digital documents or systems within a private access network (limited access), only authorized users or network administrators can access them. This type of ledger is characterized as a digital document controlled by its owner, an individual, company, or organization.
This type of ledger allows defining special rules for each user, thus getting access and visibility of all data independently but limitedly. When a data or record is added to this ledger, it must be approved by the authorized persons or administrators of the blockchain. Generally, this type of cryptographic ledger is used at the institutional, corporate, banking, or financial system level.
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