What is an On-ledger Currency?
An on-ledger currency refers to a type of digital currency that is recorded directly on a blockchain ledger. This means that transactions involving the currency are recorded on the blockchain network, providing a public and transparent record of all transactions. On-ledger currencies are decentralized, meaning that they are not controlled by any central authority or institution, but are instead maintained and validated by a network of nodes that work together to secure the blockchain. This eliminates the need for intermediaries, such as banks, to facilitate transactions, making it possible for users to directly control and manage their own digital assets. One of the key benefits of on-ledger currencies is that they offer increased security and transparency compared to traditional fiat currencies. Transactions are recorded on a public ledger that is resistant to tampering or alteration, making it possible to track the flow of funds and detect potential fraud.
Additionally, on-ledger currencies are typically faster and more efficient than traditional currencies, as they do not require intermediaries to process transactions. This can result in lower fees and reduced processing times, making it easier for users to manage their digital assets.
Simplified example
On-Ledger currency is like play money that you can use in a specific play store. Imagine you have a play store where you and your friends can buy and sell toys. To buy toys, you need to have play money, which you can earn by doing chores or playing games. This play money can only be used in the play store and can't be used anywhere else. Similarly, on-ledger currency is a type of digital money that can only be used in a specific blockchain network and can't be used outside of it. Just like play money in the play store, on-ledger currency is used to buy and sell things within the network.
History of the Term On-ledger Currency
The term "on-ledger currency" emerged alongside the rise of blockchain technology, specifically to delineate cryptocurrencies that function exclusively within a specific blockchain network. It became prevalent as blockchain platforms like Bitcoin introduced their native tokens, emphasizing the currency's existence and transactional capabilities directly on the blockchain, without reliance on centralized authorities. As the crypto landscape expanded with the advent of various blockchain projects and tokens, the distinction became crucial to differentiate between currencies operating within their native blockchains and those utilized across multiple networks or platforms.
The term "on-ledger currency" has since become foundational in discussions about blockchain-based financial systems, highlighting the intrinsic relationship between a cryptocurrency and the underlying ledger or blockchain where it operates.
Examples
Bitcoin (BTC) is considered an on-ledger currency because it operates on a decentralized, blockchain ledger that records all transactions in a secure and transparent manner.
Ethereum (ETH) is also an on-ledger currency because it uses blockchain technology to securely and transparently record transactions on its ledger. In addition to its use as a currency, Ethereum also supports smart contracts and decentralized applications.
Ripple (XRP) is an on-ledger currency because it operates on a decentralized ledger that uses consensus algorithms to validate transactions and maintain the integrity of the ledger. Ripple is designed to facilitate fast and secure cross-border transactions, making it a popular choice for financial institutions and payment providers.
Related terms
Cryptocurrency: Cryptocurrency refers to a digital or virtual currency that uses cryptographic techniques to secure and verify transactions as well as to control the creation of new units.
Blockchain: Blockchain is a decentralized, digital ledger that records transactions across a network of computers.