The blockchain ecosystem
A cryptocurrency transfer is a peer-to-peer transaction. Peer-to-peer means that this transfer is sent from one account to another account without an intermediary other than the network. In the cryptocurrency world, the network is called blockchain.
Today, the majority of blockchains are decentralized. Decentralized means that there is no central point of control over the entire network. To achieve this decentralization, each blockchain is run through nodes. A node is a server on which the entire blockchain network is fully synchronized. This is important because if one node fails, all of the other active nodes allow the blockchain network to continue to work smoothly.
A peer-to-peer cryptocurrency transaction occurs on a decentralized network called a blockchain.
What exactly is a blockchain? It is a literal chain of blocks. Each block contains an irregular amount of validated (or confirmed) transactions. This validation is processed by individuals or companies called miners, and the act of processing these transactions is referred to as mining. Mining is done by using computing power to confirm transactions and validate the blocks. This process guarantees the integrity and security of the dedicated blockchain ledger. Miners spend money on computers, internet connection, gear, facilities and other things. They earn money through two methods:
- block validation (which grants a reward paid out in the specific cryptocurrency that is processed)
- fees on transactions (users decide on what level of fees to pay out to miners for confirming their transactions. Higher fees provide faster transaction times, while lower fees take longer to process)
The blockchain is secured by miners who validate transactions on each cryptocurrencies blockchain.
Transferring cryptocurrencies with Ledger products
A cryptocurrency is not a physical asset. It always remains on its blockchain. This is similar to dollars or euros exchanged through credit card payments or bank transfers which also stay on the Internet until they are withdrawn at an ATM.
Thus, when you transfer a cryptocurrency from a wallet or an exchange to your Ledger Wallet, it does not mean that you transfer this cryptocurrency onto your Ledger device. Your Ledger device does not store cryptocurrencies. You transfer a cryptocurrency from one wallet to another wallet on a cryptocurrencies dedicated blockchain. You do not transfer a cryptocurrency from an online wallet, located on a blockchain, to a Ledger device, out of this blockchain.
A cryptocurrency is not a physical asset, it remains on the blockchain and can not be transferred onto a physical product like a Ledger device.
The Ledger device is a means to accessing your very own cryptocurrencies on each blockchain. As an analogy, you could consider that accessing your Ledger Wallet in any cryptocurrency supported by Ledger is the same as your right to claim that those cryptocurrencies displayed on your balance are yours and not someone else’s cryptocurrencies on the same blockchain. No one is able to access your cryptocurrencies on this blockchain without accessing your Ledger Wallet.
To protect your Ledger Wallet and guarantee secure access to your cryptocurrencies, each Ledger product generates a 24 word recovery phrase (also called “private key”). This is your private identification on the blockchain. Your funds can not be stolen unless the 24 word recovery phrase has been shared online or offline and is visible to someone aware of its usage.
The Ledger Wallet (Ledger product + Ledger software wallet) guarantees secure access to your cryptocurrencies on each dedicated blockchain.
To learn more about the security of Ledger products, read this article.