BC-1.1.1 What is a ledger?
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An open public blockchain can be seen as a (1) “distributed”, (2) “decentralized”, (3) “ledger”. In this section, we will explain what a ledger is. The other two components are for classes further up ahead.
Let’s start with the very first lesson: what is a ledger?
Ledgers play an vital role in societies. They are one of the backbones of current-day society. History has proven many times that when your ledger changes, new capabilities arise, and your community can change with it. With blockchain technology we double this innovation fun:
(1) the form of the ledgers changes. From centralized and closed towards decentralized and open.
(2) the way we record transactions changes. From manual and compliance afterwards towards automated registration with integrated compliance. Done via so-called smart contracts.
All way to techie for class 1 😄 Just remember: blockchains are an innovation of ledgers and enable new capabilities. Chances are that they will have a very substantial impact on society. And you are currently knocking on the front door of this new technology, smart you! A very exciting time in human history, possibly one of a turning point towards new forms of (community driven) societies. Societies where blockchains play a role of “trust tool”, recording transactions in a new fashion.
The basics of a ledger: recording a transaction
Sorry students, let me get a hold on myself…. Let’s start with the very basics: you need to understand what a ledger is and grasp all of its concepts. Let me present you slide #1
So what is a ledger? A ledger is a tool we use to record transactions. But what are “transactions”? “Transactions” are nothing more than (economic) activities where people “exchange value”. So “exchange” means that the value goes from “one person to the other person”. Or, instead of between people, between legal entities like foundations and corporations. Or even between machines nowadays!
💡 Different ‘entities’ can exchange value in a ledger.
❓ Can you think of other types of entities that can interact in a ledger?
And “value” can basically mean “anything, as long as we (humans) deem it valuable”. There are many books written about ‘value’ over history of time, and many would love to enter the philosophical spheres about what value is. What might be valuable to you, now, but not be valuable to somebody else. Or is value always measurable? The types of value we are talking about, are metric by nature. So you can measure them. This is needed to record them in a ledger. Try to record ‘love 💘’ in a ledger? And no: not talking about paid love. So value is often represented as something metric, often monetary, but it could also represent values like a house which can be expressed in monetary terms.
💡 Value can take many forms. In ledgers we record measurable values. ❓ What do you think has value? Can that value be recorded in a ledger?
❓ Let your mind drift for a while: can you think of other values that have a hard time being measured? Are you sure they can not be measured or do we need a new improved ledger to measure them? Tip: thanks to blockchain technology some of our planet’s forests are recorded in ledgers nowadays.
❓ What is ‘intrinsic value’? What has intrinsic value (if anything has….)?
You can see a ledger like a tool for humans. Not one to build a house, but one to record the transfers of value. The tool can take many different forms, and has done so over time. Like a a book, or a digital database. It used to be a clay tablet 7,000 years. The core of the ledger remains the same: it records transactions. How fast, reliable, etc. changes over time. We are now entering a new era of ledgers, the blockchain era, with increased security, reach, transparency, reliability and more. A new form of trust 💡.
❓ Duck-duck Go Search ledgers. What is your favorite ledger?
If you don’t fully grasp the concept, not to worry 😊! Let’s rephrase the entire concept of a ledger, let’s use one of our strongest tools: our imagination!
Another example
Imagine an open book in front of you. You will use this book to record transactions. “Record” or “register” is nothing more than to write something down on the paper of your book. The digital variant would be entering something in a computer or a “database”. Transactions are, like said, nothing more than the transfer of “value” from A to B, where “value” can be anything like money or a house.
So we now have this physical book (or digital database), where we record the transactions. But what kind of transactions? Close your eyes and imagine the following; just imagine that you are in an room with ten of your best friends. Your friends are just standing there, waiting for something to happen. You yourself are stepping towards the side-lines of the room. You then drop a bag of $100 in the middle of the space, to be equally divided between your 10 friends.
And that’s where you & your ledger start to become active. Because you, from the side-lines, start recording stuff in your book. Where the book acts as a “ledger tool” in this case. You start with writing down (= recording) the names and identities of your friends in your book. Then, behind that name, you will record $10 per person. So you’ve got friend A, friend B, friend C, who all got $10. Congrats, you are now the proud owner of a ledger that contains the account balance for each of your friends (10$ per friend, $100 in total).
💡 This overview of ‘who owns what, when in time’ is also known as the ‘state of the ledger’. A good ledger mimics the real world as best as possible.
With each transaction, the state of the ledger changes. A transaction would be for example;
Friend B: “can you scratch my back? I have an itch there.”
Friend D: “Yeah, sure. But it will cost you $1.”
Friend B: “I will give you a dollar, if you scratch my back.”
The transfer of this 1$ from friend B to friend D needs to be recorded. Not only does the dollar physically transfer, from hand to hand, where your friend D now has $11, and your friend B has $9. It also needs to be recorded in your ledger. You are on the sidelines, witnessing the transaction, so you register $ -1 at friend B en $+1 for friend D. So the ledger, in this case, is the tool that you use to record the transfer of value. Your ledgers mimics the world, the world of physical cash in this case, as best as possible. We will explain later why you want to keep track of those transactions / why this is important! So far, you should understand that a ledger is a tool we use to record transactions, a.k.a. value exchanges, in.
Assets
Value in the previous example was in dollars, but it can be many things, also commonly known as “assets”. There are two main categories of assets: (1) tangible assets & (2) intangible assets. Assets can also be divided into current assets & fixed/long term assets. Tangible assets are physical things that you can touch, and intangible assets are things you can’t touch. Examples of tangible assets are cash money, such as a banknote, a car, or a house. Things you can physically touch. Examples of intangible assets are the money on your bank account, which is only available in the digital ledgers of banks, or copyrights. It is important to note that intangible, a.k.a. untouchable assets, only exist because of ledgers. Most of our current ledgers hold intangible assets, like our money or stock ledgers. You would have no way to check the record-state with a real-life physical supply as was possible in the previous example with your friends. Intangible assets are not there in the “real” physical world and only exist according to the registers. 💡 They are imaginary, a ‘story’ we humans tell each other. And that is why it is essential to keep a record of transactions, it is a record of the story and the current ‘state’ of who owns what. With each transaction this story, this state of the ledger changes.
❓ Challenge yourself before next class: what makes a ledger important?
Conclusion
Ledgers are tools to record economic activities, known as transactions, which transfer value. These tools, these ledgers, can take many different forms, and evolved from clay tablets to digital blockchains in 7,000 years. As ledgers evolve, communities / society tends to involve as well because new options are introduced. Just as we use regular books to record our stories, like Cinderella, we use ledgers to record our stories of value exchanges. New ways of recording have enabled us to tell better stories. This goes for regular stories (try to write Game of Thrones on a clay tablet if you don’t believe me), but also for stories of value exchange (try to set up the current world economy without digital ledgers).
In the next class, we will explain WHY ledgers have an essential role.
😋🍽️ Food for thought (= your answers on ❓)
Post your answers in the class Twitter Thread. Can be done from anonymous accounts as well! You can pretend to help us improve the quality of conversation and help your fellow peers learn. But in the mean time take a sneak peek at the answers…😉
📖🖋 Homework 1.1 Ledgernomics 📖🖋
- Which transfers of value do you have in your life that could be recorded in a ledger (or perhaps already are)? Think beyond the examples mentioned in the video and come up with at least five new examples.
- Pro-tip: check out the answers for inspiration in the class Twitter thread.
📓🤓 Further readings (sources or support) 📓🤓
What is a ledger? https://en.wikipedia.org/wiki/Ledger
What is a transaction? https://en.wikipedia.org/wiki/Transaction
What are assets? https://en.wikipedia.org/wiki/Asset
What are assets? https://www.youtube.com/watch?v=nHg4IPX59JE
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