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The How and Why of Blockchain Transparency

Before we can answer why transparency is so important for blockchain, we need to address an obvious conundrum of the technology: why are privacy and transparency simultaneously praised as its benefits? How can a blockchain be both private, even anonymous, but also open for all to see?

First, the privacy issue: it is addressed through the powerful cryptography used to approve transactions in the blocks of the distributed ledger. I am not referring to the keys being supplied by cryptocurrency mining to attach blocks on the chain, but rather the two keys (a.k.a. addresses) used for processing each transaction in the block. There is the public key, which is always associated with the transaction and remains visible to all; and the private key, which is required to authorize the transaction and should be known only to the owner. Although any transaction can be found on the ledger using the right search tool and the public key, connecting the public key to the owner of the private key is nearly impossible because the private key is encrypted.

Regarding any other information attached to a transaction record: it should be noted that although Bitcoin transactions allow for a tiny amount of data to be attached, and other coins and tokens have been designed to allow for a lot more (such as Ethereum smart contracts), the actual goods and services involved are generally not recorded. Only the current and past holdings of the cryptocurrency via transaction records are on the blockchain ledger.

So, now that we have covered the privacy issue, let’s get to the heart of the matter: blockchain transparency. As previously noted, all transactions (how much, and between which addresses), are viewable. In addition, the decentralization of the distributed ledger means that those transaction records are identically recorded in multiple locations. Having the same records spread across a large network for all to see is the core of blockchain transparency. It is also why the blockchain is considered hacking-resistant.

So, what possible business or government scenarios might be embraced by blockchain for the sake of transparency?

Smart contracts, the functionality that gave rise to Ethereum, could not run without transparency because one huge problem it solves is to allow for transactions between parties who may not know or trust each other. As you can see from reading this article, the themes of trust, incorruptibility and traceability run through it. As consumers increasingly respond to these values in many aspects of their lives, blockchain will be looked at as a powerful tool for improvement.

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