What does blockchain transparency mean?
First, what is a blockchain?
- A blockchain is actually a special type of ledger, and a ledger is a record of financial transactions. A blockchain is a special type of ledger where the transaction and recording of the transaction occur at the same time.
- This makes it extremely accurate, like 100% accurate.
- I think blockchain technology can be best explained as a new and more accurate way of keeping track of the movement of goods, services and assets because of the way it is created, because it is resistant to tampering and because the same taper resistant record is distributed around the woorld, so anyome can view it easily. But the focus of this article will be on it's transparency.
Second, how is a blockchain ledger transparent?
- The literal definition of transparent is something you can see through, so it hides nothing from you. And a blockchain ledger is transparent because all transactions on the blockchain are public. Anyone can look up a transaction on the blockchain using a blockchain explorer. So like a glass window on your house, it lets people look into your house and nothing is hidden.
What is the blockchain explorer?
- A blockchain explorer is a software tool which lets you look up transactions by several means:
- Transaction Hash
- This is a number called a transaction hash, every transaction has one, and anyone can look it up.
- Wallet Addresses
- You can also look up wallet transactions by wallet addresses.
- You can look up transactions to a wallet and from a wallet.
- Wallet balances
- You can also look up a wallet address and determine its balances and transactions.
- The wallet doesn’t have someone’s name on it, although it is possible to name wallets.
- So if someone gives you a wallet public address, you can view both its balances and its transactions.
How does a blockchain explorer work?
- The blockchain ledger records all transactions of what was sent, in the form of the asset abbreviation, where the asset originated and where it went in terms of originating wallet address, destination wallet address, amount of asset, time, and date in numerical format.
- The wallet addresses are pseudo anonymous in that the 23 character public key or better explained as the public address of the two wallets is recorded. And this transaction is given a number, so that you can find this transaction in the ledger next week, next month and ten years from now.
- Example:
- So for example, if Bob bought food at a store with one Bitcoin, which is abbreviated BTC, and sent it to the store owner, at 7AM on June 1st, 2023, the transaction would have a number: 456789124a123987456b. And the transaction would record Bobs wallet public address : 456124789a789457123b for the originating wallet, BTC 1.0, and the public address of the stores wallet would listed as the receiving wallet 123789456z789466123y and a date 06/01/2023 and a time 7:am. That’s a transaction record. The blockchain records every transaction which moves Bitcoin on the blockchain on the blockchain ledger.
Cryptocurrency and Blockchains are not anonymous.
- A person’s Bitcoin wallet public address doesn’t have their actual name in it, just like your home’s street address doesn’t have your name in it. But that doesn’t make your address anonymous, it provides only the illusion of anonymity, because there are ways to find out who owns a wallet or at least who controls the keys. There are ways to gather information by looking at account transactions to identify someone using information on accounts which are connected to or interact with the anonymous wallet. So in the cryptocurrency community we refer to tis type of anonymity as pseudo-anonymous.
- For example, if someone manages to obtain the private keys for a project wallet and steals tokens by transferring them to their wallet, then transferring it to an exchange, where they sell the tokens for dollars and withdrawal the dollars to their bank account. We can track the tokens they transfer from the project wallet to their wallet, and track the transfer to their exchange wallet, and then track the transaction from tokens to dollars, and lastly track the transfer from their exchange wallet to their bank account. Lastly, the Police can find out from the bank who they are, and now they are not anonymous. If we give this blockchain explorer information, which concepts of transaction ID numbers and transaction hash numbers the law enforcement agents who understand cryptocurrency, can also follow the trail from the stolen tokens to the thief’s bank account. They will understand how this series of transaction link this person to the crime. And this could result in their arrest and incarceration.
Irony in life regarding cryptocurrency use in crime
- We have just discussed in detail how you can use the blockchain explorer to literally see the theft occurring and track the tokens to the thief’s wallet. It is because of this type of transparency that cryptocurrency is not a good tool to use for crime, unless the Police can’t arrest you because of where you live or the banks you work with refuse to divulge account information to the Police.
- In general, if you could combine this knowledge with banking information thieves would find it very difficult to spend the money they obtain from taking cryptocurrency, which could be a deterrent.
- There are companies like Chainlink who routinely work with Law Enforcement to solve crimes.
Last word: Privacy
- One of the problems created by blockchain explorers is lack of privacy.
- It is good that the blockchain explorer exposes crimes.
- But the blockchain explorer could also reveal all your beer purchases and gambling token purchases.
- The blockchain is set up for transparency, but not anonymity.
- This means that the government can track all your purchases and money transfers, and you have zero privacy. You may be thinking this both fantastic and something to be feared. I think you are right. This is a fabulous tool. But it could be used to spy on people and deprive them of their privacy.
- That is the challenge of internet technology, how to provide the benefits without robbing people of their privacy.
- Some people have created mixers for this purpose. But once created, mixers can also be used by criminal.
- There are some who say mixers are tools used for crimes, so they should be made illegal. There are others who say many things are used for crimes; like cash money, automobiles, guns, knives, pots and pans. But we don’t make them illegal, even though they can be used for crimes. It’s something we need to think through and see what protections can be developed to reduce the use of these tools in crime.
Blockchain : The newest digital ledger technology is 100% transparent; which equals no privacy for financial transactions on the blockchain.