jakiro
Banks rely on ledgers, and the most essential part of blockchain is also ledgers..But there is a fundamental difference between this ledger and that ledger.The choice faced by banks today is the same as the choice faced by newspapers/magazines in the past: either embrace the Internet and become a new Internet media, or stick to paper media until not many people subscribe.The arrival of stablecoins has further strengthened this trend.
On the surface, we can see that many banks are beginning to adopt encryption technology. If we look at the underlying logic,Why will cryptographic ledgers eventually replace bank ledgers?Accounting is involved here.
Traditional banks mainly use double-entry accounting, while blockchain introduces triple-entry accounting..Double-entry accounting was invented in Italy in the Middle Ages and is the common accounting basis in most countries around the world.It requires that every business, such as deposits, loans, and transfers, must be recorded simultaneously in at least two related accounts in equal amounts to ensure two-way verification of each transaction.For example, if one party is a “debit”, it will definitely correspond to the associated “credit”.This ensures that assets = liabilities + equity, achieves balance, and facilitates auditing.
When you deposit 1,000 yuan into the bank, the bank will record: Debit: cash 1,000 yuan; credit: customer deposit 1,000 yuan (liability subcategory).However, traditional double-entry accounting relies on independent accounting by all parties, and there is a possibility of tampering and inaccurate reconciliation. For example, the money a person deposits in a bank is essentially the number on the bank’s ledger.Theoretically, the bank can modify this number. People can only trust the bank’s brand/third-party audit/supervision, etc. That is to say, they need to trust that the bank does not do evil and that the third party can audit and supervise.For example, in the 2001 Enron scandal, double-entry accounting loopholes were used to falsify accounts, leading to bankruptcy.
Speaking of double-entry accounting, is there single-entry accounting?Really, the single-entry accounting method is a running account, with only one entry recorded.In contrast, double-entry accounting is more rigorous.
So, what is the difference between the three-entry accounting method of blockchain?Triple-entry accounting is based on double-entry accounting and adds a “third entry”:A shared, immutable record.This record can currently be achieved through a trustless and intermediary-free blockchain.This is the benefit of distributed ledgers.
This third entry is often a cryptographically signed receipt or timestamp block. In order to not be tampered with, network consensus is required to verify it, such as BTC’s PoW mechanism and Ethereum’s PoS mechanism.This method solves the trust problem of double-entry accounting. It cannot be tampered with and there is no problem of inaccurate reconciliation.The so-called three-way transaction means that through the blockchain as a “third-party” arbitration, transactions are credible and auditable.
For example, Ethereum is essentially a distributed ledger. Each transaction is recorded in the sender and recipient accounts (similar to debit/credit in double-entry accounting). There is also a network consensus mechanism (PoS mechanism) to generate an untamperable “third entry”: a cryptographically signed timestamp block.
Three-entry accounting essentially means that blocks create unchangeable records, and its existence is more efficient than double-entry accounting. It does not require an intermediary for overall management and reduces audit work.To put it bluntly,For double-entry, each party will keep one copy; for triple-entry, a “smart lock box” will be added, which will be automatically stamped and witnessed by the entire network.It cannot be tampered with and can be checked in seconds.
Ultimately,From the underlying logic, the bank’s on-chain is to change its double-entry accounting method and move towards three-entry accounting. Once privacy issues (ZK certification), compliance issues (KYC), etc. are solved, banking business on-chain can greatly improve efficiency. Banks do not need to maintain huge and old financial systems and switch to new encrypted on-chain systems that will not go down.
Either embrace or marginalize, this is one of the most important issues that banks and other financial institutions will face in the next two decades.
