What You Actually Own on a Blockchain

A blockchain can be viewed as a shared, ordered record that many computers agree on. In that record, transactions are entries that update who controls which amounts over time. If a blockchain is just this shared history, what does it really mean to “own” something inside it? Everyday ideas like cash in a pocket or coins sitting inside a wallet app do not quite match how this system works. The rest of this article focuses on replacing that coins-in-a-wallet picture with a model that fits a shared record.

In a blockchain system, ownership is best understood as the ability to authorize certain changes in the shared ledger. Those changes are written as transactions that say, in effect, “move this amount from this address to that address.” This authorization power is tied to specific addresses on the blockchain, and each address is controlled by cryptographic keys. Holding the right keys means you can authorize transactions that move funds away from those addresses. The “coins” you think of are not objects on your phone; they are numbers in the shared ledger that your keys allow you to reassign.

Behind the scenes, authorization on a blockchain is expressed with digital signatures. A private key, which only the owner controls, is used to create a signature on a proposed transaction. That signature is attached to the transaction and sent to the network. The network’s nodes check that the signature matches the public information for the address that is sending funds. If the signature is valid and the rules are followed, the transaction is accepted into the blockchain. Once recorded, it updates who can authorize those funds next, by assigning them to new addresses.

In practice, your wallet holds private keys that correspond to certain addresses on the blockchain. Those addresses, and the balances associated with them, are visible to anyone who looks at the shared ledger. When a new transaction is recorded, the history for the affected addresses changes, and so do their balances. What you “own” is the ability, via your wallet and keys, to authorize new transactions from those addresses, which in turn updates the balances that everyone can see.

On a blockchain, a balance for an address is not a single number stored in a personal slot. Instead, the ledger records many individual transactions that either add amounts to the address or subtract amounts from it. To know the current balance, software looks at the history for that address and adds up all the incoming and outgoing amounts, or uses a summary derived from that history. This reinforces the idea that there is no bag of coins in your wallet app; there is only a shared record, from which balances are calculated.

In a blockchain system, the chain’s recorded history is the final reference for who controls what. A plan to send funds, written on paper or agreed verbally, does not change ownership until it appears as a valid, signed transaction on the blockchain. Effective ownership is whatever the shared ledger recognizes through its authorization rules. If there is no signed and included transaction, then, in this system, ownership has not changed.

Imagine a big public board that everyone can see, listing many locks, each with a number written next to it. The board itself is the blockchain, the locks are addresses, and the numbers are the amounts that history currently assigns to each lock. You hold a set of keys, and each key fits only certain locks on the board. Owning a key means you can request that the board be updated so that amounts move from one lock to another. Nothing is stored inside your pocket; what matters is that your keys let you change which locks on the shared board control which amounts.