Public blockchains have been touted as cure-alls by enthusiasts over the last decade. Promoters have promised faster securities settlement, decentralized social media, instant payments, cheaper remittances, and everything in between. And indeed, these benefits may come in time. But there’s one domain in which blockchains clearly outperform their traditional counterparts today: accounting.
Blockchains track debits and credits to accounts on a ledger, just like an ordinary accounting system, but in a real-time, transparent, and immutable fashion (once transfers are settled). The existence of any asset that resides on a blockchain—whether a tokenized security, or a digital commodity like Bitcoin—is fully verifiable at any time by anyone with an internet connection. The entire supply of Bitcoin, down to the tiniest unit—one satoshi—can be verified in real time by anyone running a node. What’s more, any entity can prove mathematically to any third party that they own a digital asset via a cryptographic signature, without the need for any guarantor. This isn’t the case for traditional assets or commodities, which rely on a network of intermediaries to attest to their existence. In practice, this means financial assets end up concentrated in large custodians, like the DTC with equities, or gold with organizations like the LBMA. The high cost of auditability for conventional assets tends to have a concentrating effect.
