Banks rely on ledgers, and blockchain is fundamentally about ledgers as well. However, there is a fundamental difference between these two types of ledgers. The choice facing today's banks is similar to the one faced by newspapers and magazines in the past: either embrace the internet and become new media on the internet, or cling to print media until few people subscribe. The advent of stablecoins has further accelerated this trend.
On the surface, we can see many banks starting to adopt encryption technology. But from the most fundamental logic, why will encrypted ledgers eventually replace bank ledgers? This involves accounting methods.
Traditional banks primarily use double-entry bookkeeping, while blockchain introduces triple-entry bookkeeping. Double-entry bookkeeping was invented in Italy during the Middle Ages and serves as the accounting foundation for most countries worldwide. It requires that every transaction, such as deposits, loans, and transfers, must be recorded with equal amounts in at least two related accounts, ensuring bidirectional verification of each transaction. For example, one side is the "debit," which must correspond to an associated "credit." This ensures that assets = liabilities + equity, achieving balance and facilitating audits.
When you deposit 1,000 yuan into a bank, the bank records: Debit: Cash 1,000 yuan; Credit: Customer deposits 1,000 yuan (a subcategory of liabilities). However, traditional double-entry bookkeeping relies on independent record-keeping by various parties, which leaves room for tampering and reconciliation inaccuracies. For instance, the money a person deposits in a bank is essentially a number in the bank's ledger. Theoretically, the bank could modify this number. People must trust the bank's brand, third-party audits, regulations, etc.—in other words, they must trust that the bank will not act maliciously and that third parties can audit and regulate effectively. For example, the Enron scandal in 2001 involved falsifying accounts using vulnerabilities in double-entry bookkeeping, leading to bankruptcy.
Speaking of double-entry bookkeeping, is there such a thing as single-entry bookkeeping? Yes, there is. Single-entry bookkeeping is simply a running tally, recording only one entry. In comparison, double-entry bookkeeping is more rigorous.
So, how is blockchain's triple-entry bookkeeping different? Triple-entry bookkeeping adds a "third entry" to double-entry bookkeeping: a shared, immutable record. This record can now be achieved through trustless, intermediary-free blockchain technology. This is the advantage of distributed ledgers.
This third entry is often an encrypted signed receipt or timestamped block. To prevent tampering, it requires network consensus for validation, such as Bitcoin's Proof-of-Work (PoW) mechanism or Ethereum's Proof-of-Stake (PoS) mechanism. This method addresses the trust issues of double-entry bookkeeping—it is tamper-proof and eliminates reconciliation inaccuracies. The so-called triple-entry means that, with blockchain acting as a "third-party" arbiter, transactions are trustworthy and auditable.
For example, Ethereum is essentially a distributed ledger. Each transaction is recorded in the sender's and receiver's accounts (similar to debit/credit in double-entry bookkeeping), while a network consensus mechanism (PoS mechanism) generates an immutable "third entry": an encrypted signed timestamped block.
Triple-entry, in essence, means that the block creates an unalterable record. Its existence makes it more efficient than double-entry bookkeeping, eliminating the need for intermediaries to manage and coordinate, and reducing audit work. In simple terms, double-entry involves both parties keeping their own records; triple-entry adds a "smart lockbox" that automatically stamps and is witnessed by the entire network. It is tamper-proof, and account checking is instantaneous.
Ultimately, for banks to go on-chain, from a fundamental logic perspective, means changing their double-entry bookkeeping to triple-entry bookkeeping. Once issues like privacy (ZK proofs) and compliance (KYC) are resolved, moving banking operations on-chain can significantly improve efficiency. Banks would no longer need to maintain large, outdated financial systems but could transition to全新的, never-failing encrypted on-chain systems.
Embrace it or be marginalized—this is one of the most critical issues banks and other financial institutions will face in the next twenty years.
