Balancing the books - from BC Babylonia to Bitcoin and beyond

In modern day Iraq we find the remains of clay tablets from ancient Mesopotamia, some dating back around 5000 years. Many of them contain, rather than art, history or great thoughts, simple ledgers: records of payments, taxes and receipts.

Throughout history ledgers have helped us keep track of the exchange of goods and services, and were needed as soon as co-operating groups reached the size and complexity which required trust in order to function. Within family groups or individual tribes, exchange and indebtedness was easy to keep track of - but as soon as those groups wanted to deal with outside entities, like that tribe over the hill, some kind of record keeping was needed. And these accounts are the markings on the clay tablets, which have come down to us over the millennia. (How is the seed phrase for your private key recorded by the way - would it endure 5000 years? That’s something to think about!).

The earliest ledgers were marks in clay made in real-time by both interested parties, and it wasn’t until the Renaissance and the need to transact over greater distances - without the risks attached to couriers laden with gold on behalf of the bearer - that something else was needed, to record statuses of credit and indebtedness. Indeed it was a problem for Judeo-Christian culture, to embrace the whole idea of lending and debt, due to biblical strictures regarding usury.

During the Dark Ages much mathematical understanding was lost in Europe as a result, and it wasn’t until trade with East became established in the 12th century that merchants encountered methods of even counting things properly - Fibonacci’s adventures in Asia and Arabia brought back to the west the understanding of how to calculate profits and percentages, and trade across different units of measurement. He revolutionized mathematical thinking in the West, and his eponymous ratio sequence is still used in so many ways today, including trading in multiple markets to predict price retracements - including, ironically, cryptocurrency support and resistance levels...

But the most impactful outcome of this explosion of learning and understanding was when Europeans learned about double-entry bookkeeping (which the Arabians had been using for half a century already at that time). Fibonacci’s accurate measurements and profiles could now be recorded and accounted for correctly, and in 1494 Franciscan friar Luca Pacioli wrote the first detailed instructions for using this accounting method, Summa Mathematica (published in Italian rather than Latin, so everyday merchant class folks could make use of it).

The fact that he was a member of the clergy obviously helped in making the accurate recording of profits and losses acceptable to god-fearing Christians, provided they followed the instruction “Businessmen should begin their business records with the date AD, marking every transaction so that they always remember to be ethical and, at work, always act mindful of His Holy Name”.

After that it was straightforward. If a merchant in Venice wanted to sell something to a client in Florence, the ledger provided for trust: By debiting the payer’s account and crediting that of the seller using double-entry standards, the bankers were able to transact without the physical transfer of coinage. This transformed the entire system of payments, and laid the foundations for the future of finance - from the Renaissance through to modern capitalism.

So should we blame Pacioli for the almost reverent respect for bookkeeping that pervades to this century, such that it is held as holy truth absolute - even when demonstrated to be absolutely subject to both the ‘garbage in, garbage out’ principle, as well as, at times, outright deceptive manipulation?

We regard audited accounts as a vital layer of trust in our public institutions and business functioning, yet somehow Lehman Brothers were able, according to their ledgers, to earn $4.2 billion one year and be bankrupt in the following one, simply by moving debts around… But since the days when the Medicis and their peers established bankers and the merchant class as society’s centralized bearers of trust, ledgers somehow became imbued with a kind of sanctity and moral rightness, which persisted right through until at least 2008. Those early European clergy and merchants could have had no conception of the way in which accounts could be manipulated and presented to tell any story the institution chose, by vast organisations in centuries to come.

And around that time when many of us were distractedly lining outside our banks hoping to salvage our savings, we now know that somebody using the name Satoshi Nakamoto was working on a new solution - to create a completely transparent and objective picture of the truth instead, which could be viewed by any party.

In fact the term ‘triple-entry bookkeeping’ was first used in 2005 by Systemics computer engineer Ian Grigg, to describe the idea of cryptographically securing a double-entry ledger with immutable timestamps. This built on Nick Szabo’s pre-millennial work on a decentralized digital currency he called "bit gold", seen as a direct precursor to the cypher-based architecture of Bitcoin (and leading to considerable speculation in some quarters as to whether he was in fact the elusive Nakamoto).

It all goes to underline why we need blockchain-based transparent solutions, because trust in traditional financial institutions like banks remains, nearly a decade post-crisis, irrevocably broken. We are more likely to trust our peers than banks for advice and expertise, and goes a long way to explain the growing popularity of the peer-to-peer exchange of cryptocurrencies.

So Local Coin Swap is clearly an idea whose time has come, because of the curious way it combines the use of the latest smart contract technology to take us securely back to that most fundamental and direct way of trading directly with another individual - making our marks on our clay tablets (well actually, some rather slick new exchange tools, but it’s the same principle), without the need for an institutional intermediary.

From single, to double, to triple-entry decentralized ledgers - debits and credits make the world go around. Trustless transacting is what we need for 2018, with the intersection of the necessary cryptographic technology and the growing public hunger for a better way of doing business.

Welcome to the future!

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