A record keeping system using accounting techniques. Here is where balances and transactions are recorded. A ledger shows the account’s opening balance, all debits and credits to the account for the period, and the ending balance.
General ledgers utilize double entry accounting. This means that each time an asset is added, a counterbalancing entry is required on the other side of the ledger. This appears either as a liability or equity.
This is the foundation of financial documents that accountants and business utilize. Updating the records as transactions occur is vital to the ongoing snapshots of the organization.
Some examples of ledger entries:
Ledgers of businesses tend to pull the information off accounting journals which are entries of transactions that include descriptions. Ledgers are only concerned about the monetary component, pulling the numbers from the journals.
The Monetary System
Ledgers were always a vital part of the monetary system. This has taken on added meaning with the advancement of electronic and the ensuing digital technology.
All monetary systems have ledgers as one of the basic components. Even cash is a ledger system albeit a mental one. When one seeks to make a purchase, an accounting of the amount in banknotes or coinage is done. From that point, the price of the item is compared to how much money is available.
Issuing entities also maintain ledgers as to how much physical currency is available.
Throughout the last 600 years, double entry accounting allowed for the creation of ledger based money. Here is where money supplies were expanded through the extension of credit. It was done by merchants and, eventually, banks. The financial institutions through Europe became powerful as they were able to issue credit to expand commerce.
The introduction of fiat currency is based almost entirely on ledgers. It is a system where commercial banks maintain the balances and run the ledgers for the population. This is backed by the central banks which also have their own ledgers.
Going another step further, wholesale banking or Eurodollar system handles international trade. This was initially started using Eurodollars, dollars that were in non-United States banks, as the basis. Currency long left the system. The money is assets located on balance sheets that can be used as collateral.
When people log onto their accounts, they see the balance based upon what the keepers of the ledgers, the banks, present. These financial institutions operate under regulations as put forth by different governments.
Blockchain
With the introduction of the Bitcoin White Paper, the idea of ledgers took a different turn. The Bitcoin network was first to solve the double spent problem in a decentralized manner. Through mining, the ability to reach consensus provides a monetary system which no single entity control the ledgers.
All blockchains are ledgers at their core. They use distributed ledger technology (DLT) which track financial transactions. The ledgers resemble that of a bank or financial institution such as Visa. Debits and credits are made on an ongoing basis.
One of the keys with blockchain is the premise of control. The banking system is in charge of the monetary system that is presently used. Cryptocurrency removes this counterparty from the equation, making node operators around the world the ones responsible for consensus and tracking all movements of coins. These are often termed decentralized databases.
Satoshi Nakamoto, the anonymous developer of Bitcoin, felt the banks were behind the Great Financial Crisis and that a monetary system based upon decentralization was required. Blockchain coupled with cryptocurrency was the result.