The Blockchain: the new foundation of economics - Agilis

The Blockchain: the new foundation of economics

First in a new series of articles from expert and guest blogger, Steve Tendon, read on for “The Chain Observer – Episode 1, The Blockchain: the new foundation of economics”.

In 1494, the mathematician Luca Pacioli first described double-entry bookkeeping in his monumental work, “Summa de arithmetica, geometria, proportioni et proportionalita.” By documenting the bookkeeping techniques used by the innovative businesses of his time to keep track of their trades, his work became a milestone in the history of modern economics; and it earned him the reputation of being the “father of bookkeeping.”

Even today, well over 500 years from his work, the entire economic world order is based on double-entry bookkeeping. The economic activities of every business, corporation and nation are built on top of the foundations of double-entry bookkeeping. Without double-entry bookkeeping, contemporary businesses and nations would simply not exist.

It is not an exaggeration to claim that the invention of double-entry bookkeeping truly redefined history, and the entire development of modern economics.

In 2008 a similar revolution took place, though it is not yet widely acknowledged (yet): the invention of the Blockchain. The Blockchain is a mathematical invention that will affect the global economic order as much, if not even more, than Luca Pacioli’s double-entry bookkeeping.

 

“The innovation afforded by the Blockchain is that all the distinct ledgers maintained by distinct businesses disappear”

 

Luca Pacioli taught the fundamentals of double-entry bookkeeping: namely that every financial transaction is recorded in (at least) two accounts in the business’s records, with equal and opposite effects. Since the time of Luca Pacioli, every business has kept their own books. That’s why, when there are transacting parties, it often becomes necessary to reconcile the entries across the parties’ different books. This could become necessary to find and correct errors, or to detect fraud, which is the essence of auditing.

The innovation afforded by the Blockchain is that all the distinct ledgers maintained by distinct businesses disappear. Instead, they are replaced – in concept and principle – by a single, global, shared, consistent and immutable ledger of timestamped entries, that spans the entire globe and covers the activities of all participating business. Such a ledger effectively resolves two of the central problems of financial transactions: reconciliation and auditability. The global ledger becomes effectively the single source of truth, with no need to reconcile or audit its entries. Its effects are disruptive in many ways.

 


Author: Steve Tendon

Steve is a senior, multilingual, executive management consultant, experienced at leading and directing multi­national and distributed knowledge­work organizations. He's an expert in organizational performance transformation programs, specializing in organizational productivity, organizational design, process excellence and process innovation.
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