Despite not being a technology or a banker, friar Luca Pacioli is recognized today for creating the dual-entry accounting system, which forms the foundation of a large portion of the contemporary economy. Debits and credits were added to the practice of documenting transactions in two distinct accounts by his clever model.
In addition to ensuring accuracy and reducing fraud, this seemingly tedious and onerous adjustment to a crucial business function also provided owners with new insights into how to manage and enhance their companies while reducing expenses. Efficiency skyrocketed, trade quickened, and the Renaissance took off under Pacioli’s system. Because double-entry accounting was straightforward, readily disseminated, and indisputably beneficial, it rose to prominence in economic activity. Centuries later, every company was required to provide financial accounts based on Pacioli’s research. That is the capacity of upgrading fundamental infrastructure.
The more general takeaway is that a breakthrough that survives to be widely adopted usually passes three levels of public scrutiny: Is it functional? Is it beneficial? Is it secure? Stated differently, users anticipate proficiency, worth, and dependability.
The blockchain technology that underpins Bitcoin was skillfully implemented by its creator(s) by building upon the groundwork established by Pacioli. What if every other merchant’s ledger entry from a Florentine merchant from the fourteenth century appeared on their books at once? By establishing triple-entry accounting, or essentially infinite-entry accounting, such a distributed ledger renders the data unchangeable and unchallengeable.
Mistrusts on Blockchain
Naturally, one of the biggest ironies facing the cryptocurrency market is that so much mistrust has been created by a technology that was intended to increase financial confidence. Although The Economist was probably incorrect to refer to blockchain as a trust machine almost ten years ago, its analysis might not have been comprehensive. Blockchain’s core promise to enable the trustworthy exchange of value has been amply demonstrated after literally trillions of transactions have been settled. Although it brings little comfort to individuals who lost money in the recent collapses of the industry, distributed-ledger protocol vulnerabilities had nothing to do with those occurrences; rather, they were the result of irrational exuberance and traditional fraud.
These missteps were regretful but also foreseeable. Disappointments sometimes follow excitement about breakthrough technologies that outpaces their usefulness. Even the most intriguing innovations suffer from poor initial design. AI chatbots have hallucinations. Extreme heat or cold can cause batteries in electric vehicles to fail. New software frequently has bugs. Furthermore, blockchain networks are not impervious to performance problems and hackers. However, they are in a good position to improve the way we transfer money because of their tried-and-true endurance.
What about utility?
This attribute is more individualized. It goes without saying that merely speculative trading and collectible cartoon apes do not constitute a revolutionary, more inclusive update to the global financial system.
Fortunately, responsible market players are already using blockchain for a number of other purposes: providing refugees with mobile, anti-corruption humanitarian aid; reducing the expenses of remittances, charitable giving, and cross-border payments by 80%; increasing access to basic financial services; providing a portable store of value for workers in high-inflation countries; establishing provenance to drive the “creator economy”; transmitting money at scale with the comfort, security, and speed of data transmitted over the internet; and modernizing legacy financial rails that were built in the 1970s.
Is a blockchain a mechanism for trust? We might receive a clear response in the upcoming year.