On-Ledger Currency

November 21, 2023 - Around 2 mins mins to read

Understanding On-Ledger Currency

An on-ledger currency refers to a form of currency that exists within a blockchain. This concept serves as the foundation for all cryptocurrencies, which rely on a distributed ledger – a shared database among all participants.

On-ledger currencies offer a potential alternative to off-ledger currencies like fiat, with their distinguishing features being openness and transparency. All transactions and balances are visible to everyone, and they also provide a certain level of pseudo-anonymity, as users are not directly identifiable. To maintain their functionality, on-ledger currencies require a continuous and incentivized provision of computational power or other consensus mechanisms. They are also resistant to counterfeiting and operate in a decentralized manner. Typically, these currencies are stored in digital wallets.

Bitcoin, the first and most well-known on-ledger currency, serves as a prime example of this concept. However, there are now numerous on-ledger currencies in existence. One of the key advantages of an on-ledger currency is its resistance to manipulation or control by any single party or influential group. Consequently, these currencies are typically free from centralized control.

On-ledger currencies are classified based on various factors, including their supply, the public or private nature of their database, the consensus mechanism they utilize, the community supporting them, their level of usage, liquidity, emission rate, wallet support, and other attributes. It is also possible for an on-ledger currency to undergo a process known as forking, where the open-source nature of blockchain code allows for the creation of a new on-ledger currency with modified parameters.