Blockchain and the new accounting era. To understand more about the revolution brought to us by Bitcoin and blockchain we must understand something first, and that is that it is an accounting system. Those who have more time in this will understand, but the new ones will ask … is blockchain an accounting system? Yes, it is a digital accounting system where all the transactions that occur in the network are recorded, grouped in blocks that are continuously linked linearly with each other.
A common blockchain transaction begins with sending a digital asset from one digital wallet to another. This transaction is seen by several nodes and grouped with other transactions that those nodes have seen. This group of transactions is then sent to the miners as a work to be solved. The miners take the work, which may be different for each group of miners depending on the node that has proposed the work, and compete with each other to get a value that solves a mathematical problem that authorizes the miner who finds him to propose his block, with the transactions in it, to be added to the chain. The proposed block, in addition to containing the transactions, also contains the identification of the previous block and a coin emission value by the network, which are routed to the winning miner’s portfolio.
All this process, which is known as mining, happens ‘after cameras’ in a blockchain transaction. For users, the only thing visible is the number of confirmations that their transactions receive and the time they take to complete them.
But let’s not stray from the subject, here we are going to talk about the most important invention in history that brought us to this moment that brings us new infinite possibilities in how to manage our finances and therefore obtain the much longed for financial freedom that each individual desires.
So what is that invention that I have not mentioned yet? I invite you to read a little more
Accounting: The innovative agent of human history.
Without accounting today we could not create blogs, or send text messages by our favorite application to family or friends, you would not listen to music on your mp3, Spotify, iPad, you would not have your dream car, without accounting there would be no airplanes, trains, immense buildings , there will be no computers, no internet (can you imagine a world without internet?) there will be no ships, no stock exchanges, no globalization, no nation states, especially central banks, without accounting there would be no trade and without trade there would not even be containers They send goods of all kinds to any place on our planet. Interesting, right?
the most important invention in history and for the majority of our species goes so unnoticed, but it does not end here, if you read a little more you will see something more interesting and you have to understand that accounting has only had 2 advances since man created the civilization, and is that without it we could still be living in caves, hunting and the fruits that Mother Nature could give us. both advances in their moment of creation presaged a great increase in human complexity and the innovation that as a society would bring.
1.- Single entry accounting: the awakening
Accounting broke the primitive life cycle and gave us the ability to initiate ourselves into a different kind of life, a type of life that made us see beyond the deer that was going to be hunted or the fruit that was going to be collected.
The first accounting examples came with the Sumerians about 5000 years ago in uniform tablets. These systems were simple, but they changed Humanity forever. Once you can keep a record of who owns what, the trade begins to happen and expand, it is thanks to these that the powerful of antiquity could wealth to build and show their influence and power to their enemies castles, fortresses and armies.
In antiquity those who kept the accounts were only among people close to the kings, it was not accessible to the rest of the population and although I carry the trade very far this avoidance limitation could go further. It could not be audited, if the king’s brother who kept the accounts removes a line of some debt or something that was paid but does not want to inform the king there was no way that two people would agree, this turned the commerce of the time into a matter only family, so they only traded between kings or kings among dukes, everything was between them and the rest received the crumbs that the kings gave (Do you sound familiar?).
2. Double entry accounting: the Illustrious
In 1400 there were already ships that travel around the known world trading different items which made you trade with people you never knew or were not even aware of, at this time ships were the best way to transport trade, which caused port cities they were the economic center of the ancient world and the gateway to world trade, this is where the accounting of an entrance was already obsolete. With so much commercial activity began to show large errors and cracks and the losses of money were huge, books were a total mess and the more exchanges accumulated more errors were added.
Important civilizations in the 1300 AD era. they created their own types of double-entry accounting systems, but one more complicated than the other, but it was not until a Franciscan friar in 1400 AD finally codified double-entry accounting using the most important invention in history: the printing press. The printing press brought the expansion of knowledge, this opened a totally new door to all the population of the time, it meant that any new innovation or knowledge that a person had could be disseminated throughout the known world creating thousands and thousands of copies, before this knowledge was only of a few and was inaccessible to all, this means that knowledge would survive and be transmitted to whoever learned it for others for generations.
From that moment, world trade expanded in a dizzying way, and to this day, while writing these lines, we still use two-entry accounting.
But it turns out that now the accounting of two entries is obsolete, for the sample we see how important companies or companies listed on the world’s most important stock exchange delete their records every day, all this in order to hide billions of dollars (this is another topic that we will discuss at the time).
3.Triple entry accounting: the revolutionary
In 1989, a teacher created something incredible that we ALL go unnoticed, when I say all is literally ALL. His name is Yuji Ijiri. His most famous book, Momentum Accounting & Triple-Entry Bookkeeping, talks about the creation of triple entry accounting.
When people look back hundreds of years from now, only the printing press and Internet will defeat it for an amazing impact on society. Both the network and the press allowed the democratization of information and raised the collective knowledge of people all over the world.
So, what am I talking about? What created Ijiri that is so amazing?
Because the first application did not appear until 2008, its real impact is still to come. But make no mistake, it comes as a tsunami that will remake all aspects of our lives and societies.
Most people missed Professor Ijiri’s breakthrough because it covers two poorly understood fields: cryptography and accounting.
It is quite rare to find a qualified person in one of those disciplines. Without this kind of multidisciplinary understanding, it is not surprising that your invention happened as something of little importance. There was also the “small” problem that his invention was well ahead of its time, no institution or company or individual was thinking of doing something similar, there was no collective consciousness about it, remember that his book was published in 1989.
In 2005, there came a more familiar example of a triple entry accounting system, created by the famous cryptographer Ian Grigg.
Then, in 2006/2007, a self-taught programmer probably stumbled on one or both systems. He was working on an alternative currency, without centralized trust. It was called Bitcoin.
This is the question: we are only in the caveman st age of what we can do with blockchains.
We have been playing with money, making money negotiating money, but the usefulness of these currencies in the real world has remained until now limited to speculators and first adopters.
But block chains can do much, much more, just like the crypts that drive that innovation.
The accounting of three entries and, by extension, blockchains and crypto are a way of agreeing on objective reality. It is not objective reality. There are two parties agreeing on a version of past events. The third entry in the system, entered in the blockchain, is both a receipt and a transaction. It is proof that something happened between two parties, which goes beyond the receipts that each party has in double entry.
But all that is theoretical.
Why does that matter? What can you do with that?
What about voting?
We have a lot of problems with today’s vote that we have covered in the advanced democracies and we have not been able to deal with in the banana republics, the third world countries and the authoritarian regimes around the world.
- How many people voted?
- Have you already voted?
- Was your vote recorded correctly?
- Did your vote reflect your intention?
- How can we audit everything later, easily and quickly?
- Can we trust that audit?
And that’s just the tip of the iceberg …