BC-1.1.3 The history of ledgers
This article is part of a blockchain program at The Hague University. The program is created in collaboration with field specialists and in an open-source fashion💓. It is freely available on the Koios platform, which is run by a community (DAO).
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So you know now what a ledger is, a tool to record transactions that transfer value, and why they are important: the four aspects discussed before. But what you most likely never gave a second thought is that they keep evolving over time. This is relatively easy to figure out. Just compare our current forms with the very first ones we found as humanity: a massive clay tablet. Found nearly 7,000 years ago in Mesopotamia, present-day Iraq.
So we have some experience as a species with recording value. A critical keynote for this entire course and possibly for your world view: if the ledger changes, society changes with it. It is a bit like the chicken or the egg story of which came first. Sometimes society (chicken) demands a new form of the ledger (egg). But sometimes, a new form egg creates a new society (chicken). So it seems like it can go both ways. To conclude: history has proven again and again that ledgers and society change hand in hand. But takes more research to be sure which one initiates the other.
❓ What do you think: did blockchains arise to solve challenges we faced?
❓ What is the origin of the world’s very first open public blockchain Bitcoin? Was that even world’s first blockchain or where there other different ones before (yes, there were)?
❓ What challenges would you like to tackle with this new ledger? Write them down somewhere, you can use this for later assignments!
A few examples
Imagine running current day society on clay tablets. Our global banking systems and all their transactions on a physical clay tablet…. Not going to happen…. So the form we use enables and limits our capabilities. Improvements allow us to reshape society. Just think about the impact of introducing digital ones last century.
Another famous example brings us all the way back to 494 AD. An Italian monk named Luca Pacioli invented a new way to record transactions. So not a change of ledger, but a difference in how you record transactions WITHIN that ledger.
💡 So there are, at least, two ways how you can improve ledger technology:
1. By enhancing the ledger itself
2. By improving how you record transactions
❓ Honest question, no tricks: am I overseeing something here, is there another way?
1500 years ago, Luca invented “double-entry accounting”. A new way of recording each transaction twice. In two different places instead of the previous single place (more about this later!). For now: why is this important? Well…this upgrade in transaction recording enabled us to lend out money! Previous versions could not do this. Re-imagine the example where you recorded the tx’s of friends. This was single-entry accounting. You only entered each transaction once. Try to visualize a recording of debt in that type? The money was either with friend A or friend B. You had no system in place to record debt. This problem, how to structure these types of transactions like lending out money (you give it away, but it is yours), was solved 1500 years ago.
Well. All good and that…But who cares?! Well…we are talking about immense new rising powers here. World domination and all.
Powerrr
In this case, a new world power arose. The concept of debt and increase in liquidity created immense economic growth in Italian regions (fun fact: we still use this method of accounting).
There, in the middle regions of Italy, a new form arose. A system where people could lend out money but still had a recorded claim of ownership. New businesses popped up. Italy grew out to become a more powerful entity and force to reckon with in the world. Very powerful families, like the Medicis, arose as well. There is even a Netflix series about it a millennium later?! If you would like to see this with your own eyes, you should definitely visit Firenze. It shows all the wealth this family gathered.
Do note that I am not a historian and that I used to be an accountant. So I might be biased regarding the importance. Many other factors need to be weighed in as well. But a simple claim could be made: improvement in ledgers allows for improvements in recording and attributing value. Which allowed for new forms of transacting with more efficiency and new values (like debt).
Whether we are better off than 5000 years ago, I do not know. Still, we have improved our financial storytelling and economic growth. So let’s find out if we can catch other values than monetary values. The blockchain seems up for this task. But more about that in later classes 😊!
And we are not finished yet…😊
💡 Also, the influence of ledgers, their impact, and their role in our lives keep increasing. This is because we kept on building further and further, creating more extensive and complex systems. You could perfectly function in society without using ledgers 7,000 years ago, like live of the land. But current-day society has become so complicated that it is nearly impossible (and most likely not wanted) to survive without ledgers in current society. You can survive off course, live a “simple” living somewhere in the woods, but “civilized” societies run on ledgers and are immensely dependent on them.
So ledgers evolve…
The way we record transactions evolve…
…and they have an increasingly growing impact on our everyday life.
One more final important thing in this session. Although we use these ledgers ourselves, we often appoint some party to record all our transactions and maintain the books. The well-known TTP. These TTP’s grew over time, eventually resulting in several centralized, powerful entities. Getting increasingly more and more powerful. Imagine the possibilities if you maintain a money ledger. Like you did in the previous example. A world where you decide who owns what money and where you have insight into all the transactions. You hold all the power. And you are hard to be verified because your ledger is not openly accessible. And it has grown very complex over the centuries. So there are several risks in this example where you, as a centralized entity, run a “centralized” ledger.
💡 These parties that maintain these ledgers are called Trusted Third Parties (TTP = important term!!). Trusted Third Parties, a.k.a. TTP’s, support the ledgers our society runs on and therefore have a lot of power which we will show you later on.
Conclusion
Ledgers keep evolving over time. History has proven that every time a ledger develops, society evolves with it. Or, if communities are in dire need of a new solution to face challenges, a new form is invented. Just imagine the challenges we face in the 21st century. We lack a tool that can adequately record other values than money, on a global scale, without being manipulated by powerful entities. This is not desired. We as a species keep on striving to improve the ledger.
But to what end goal, where do we stop? In other words, how might a perfect ledger looks like? That we will see in next course 😊!
😋🍽️ Food for thought (= answers ❓)
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…😉
How would you explain the importance of a ledger to somebody who is five years old?
Find versions and/or post yours here 😃
📖🖋 Homework assignment 📖🖋
Before we move forward to the next lesson, brainstorm with yourself, a friend, or a Koios member what you think a perfect ledger could and/or should look like. How would it function, and which unique characteristics would it have in an ideal world? Tip: you can look up papers online about this topic. During class, you might be invited to discuss why you think your perfect ledger is perfect. Remember, opinions can change, and it’s not bad if yours does too. We are here to learn with each other.
“The greatest teacher failure is” — Yoda
📓🤓 Further readings (sources or support) 📓🤓
- Who was Luca Pacioli? https://en.wikipedia.org/wiki/Luca_Pacioli
- What is double-entry accounting? https://en.wikipedia.org/wiki/Double-entry_bookkeeping_system
- Ledgernomics https://bitemycoin.com/opinion/ledger-nomics/
- The beautiful Florence: https://en.wikipedia.org/wiki/Florence
- House of Medici: https://en.wikipedia.org/wiki/House_of_Medici
- Medici’s TV series: https://en.wikipedia.org/wiki/Medici_(TV_series)
- Trusted Third Party: https://en.wikipedia.org/wiki/Trusted_third_party
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