BC-1.1.4 The perfect ledger
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 now you have seen and possibly already understand that humanity keeps striving to improve its current ledger. You might have noticed, same goes for other topics. We are quite the inventive species (imagination!). We need to define what a “perfect” version is in our thrive towards a perfect ledger. That is what this session is all about!
There are some fascinating articles and research written about this, which describe the properties of a perfect ledger. You can find them in the further reading. 💡 Summarized: a perfect ledger had NO (!) “transaction costs”. There is no friction when transacting. Basically, like a delay, some threshold or fee is often created by some form of limitation. This can be a physical wall a few centuries ago that prevented you from trading. Like a castle wall. Or a digital wall age that prevents you from seeing the data that other entities can see. These limitations create opportunities for middlemen, which can manage these limitations (like a gatekeeper). Often creating benefits for some individuals (castle owners) but losing tremendous value for others.
💡 Time has shown us that walls are quite primitive tools. They don’t work as well as they used to. We are moving away from the idea of walls and moving towards more open inter-connected environments. Examples: platform economies, sharing economies, and open-source software.
❓ Duck-Duck-Go search Linux! What do you think about running large parts of society on open-source software?
❓ Do you know other examples of open-source software that play an important role? Or examples of any other wall-less economies?
❓ Duck-Duck-Go search Doughnut Economy! What is your opinion about this model?
So what does this mean? Let’s look at some of the properties as stated in one of the papers and shown on the slides. In a perfect ledger, the recording of transactions should be done instantly. So let’s use the example with you as a bookkeeper. In this example, the first “cost” related to instant recording property is that you need some time because you first need to witness the transactions and then record them. Also, other costs arise, in this case, because you run a centralized ledger like the risk of making errors, (un)willingly. I think you understand by now that we are far from perfect in this example.
So what is a perfect ledger? A perfect ledger mimics the exact real physical and digital world (and therefore has no transaction costs). So transactions are instantly recorded, there are no trusted intermediaries creating limitations. No thresholds, no friction, to make a trade. You will discover many, many shortcomings in our current ledgers. Although an upgrade in technology, there are also still many shortcomings! To give you a scope of the idea, reaching perfection might never even happen. But since Satoshi Nakamoto, duck-duck-go that one, Pandora’s box has been opened. Developments in this technology have rapidly increased. Who knows what significant improvements we’ll see in the next decade 😃!
❓ Before you check out next image, what properties do you think a perfect ledger should score very well on?
We can map the technological history and dynamics of ledgers as movements in this multidimensional space. Blockchain is just another step forward.
Our strive towards the perfect ledger brought us many improvements. They are a lot lighter nowadays. Imagine walking around with a clay tablet instead of a phone. Faster transactions, more connections, new societies. You can also record more on our current ledgers, compare a USB-stick with a paper book. And while we’ve been continuously growing towards that perfect ledger, we keep letting societies grow with it. And like mentioned before, the other way around as well, because sometimes society demands a new form of ledger. We face many global challenges, best tackled by global secure administrations without intermediaries.
So in the next slide, you see an overview of the perfect ledger with its properties. I think you caught the gist so far on this introductory level. But suppose you want to learn more about possible future economies. In that case, I highly recommend reading the further readings of this section.
💡 A blockchain is far from the perfect ledger. It is “just” another big step towards that perfection. However, keep in mind that history has shown that every time the ledger improves, societal structures change.
❓ What limitations do you think there will be in a blockchain? I know this is hard to think about in this phase, but dare to challenge the grey mass we call a brain :-)!
And we are in dire need of that. Why? We will see in the subsequent two sessions where we discuss the shortcomings of our current centralized ledgers!
Conclusion
A perfect ledger has no transaction costs. Transaction cost can be seen as a “friction” that limits entities when transferring value. Examples of this friction are fee, time/delays, lack of transparency, accessibility, etc. So what is a perfect ledger? A perfect ledger mimics the exact real physical and digital world (no transaction costs/frictions). Our strive to improve has brought us many improvements. Keep in mind that a blockchain is far from the perfect ledger. It is “just” another big step towards that perfection.
😋🍽️ 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 meantime 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 📖🖋
Compare your answers about “what do you think a perfect ledger is” with what you have learned in this lesson. For example, were you close? Did you miss something? And do you agree with the perfect ledger that was described in the paper discussed in this lesson? Again, remain critical but constructive.
📓🤓 Further readings (sources or support) 📓🤓
- What are transaction costs? https://en.wikipedia.org/wiki/Transaction_cost
- Explanation Coase Theorem: https://www.youtube.com/watch?v=00HPak2RLlQ
- Paper Ledgers (Chris Berg): https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3157421
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