Blockchain and the Introduction of Single-Entry Bookkeeping

Greg Simon, CEO & Co-Founder, Loyyal (

My day job at Loyyal keeps me insanely busy. Too busy unfortunately to spend enough time thinking about one of the more exciting and disruptive impacts of blockchain technology; the breakdown of double-entry bookkeeping. In a previous life I was once a CPA. Now as I am also a CBP I’ve been wanting to put some of these thoughts out there for a while. I still see few people talking about this despite it potentially bringing into doubt effectiveness of the most fundamental foundation of commerce today.

Tried and True Double-Entry Bookkeeping

But what happens if the counterparty exposure is not known? What if we don’t know who owns, or is liable for, the value of assets recorded on a ledger? In the old paradigm this was simply an impossibility. Counterparty claims to assets were always known because to receive or send an asset of value it must be received by or sent to a counterparty! It seems so basic and fundamental one would think this could never be questioned, until now.

Permissionless and Permissioned Blockchains

A pure permissionless blockchain ecosystem is a type of DAO, or Distributed Autonomous Organization. In a DAO there is no central authority running the show. Control is decentralized across anonymous users in the distributed network and anyone can participate as a user. The blockchain doesn’t know or care who the users are. It introduces the real potential for true universal and global financial inclusion.

This is great! But wait, the road to utopia isn’t that simple. An ecosystem of anonymous users means transactions with counterparties of unknown identity. In other words, it means we no longer know the identity of who has ownership of, or creditor claims to, the assets on the ledger.

Double-Entry Bookkeeping in Legacy Banking

Single-Entry Bookkeeping in a Permissionless Blockchain

To answer that question, we need to figure out who is actually liable for the distributed ledger. Well, the network nodes should be as they are our custodians of the ledger and therefore of the value contained within it. Furthermore, since every network node is of equal importance and authority, then in theory every node should equally share the custodianship liability of the assets recorded in the left hand column of the ledger.

Anonymous Counterparties

The Introduction of Single-Entry Bookkeeping

I omitted one part of the bank deposit example out of the blockchain example, “we still own the asset in our account and at some point the bank is required to return the asset back to us.” It was omitted because possibly the user can never really own value embodied as a blockchain native token. First, the user’s identity may be anonymous. Second, even if the user chooses to reveal its identity the value it claims ownership of always resides within the blockchain ledger. It is literally impossible to have physical possession of the value. To do so would require a counterparty to request the returning of the user’s value to it!

Paradoxically, the deeper one’s understanding of double-entry bookkeeping is the more difficult it may be to understand all of this. More than once I’ve spent over an hour trying explain this to university accounting professors and professional practicing CPAs. They are so close to double-entry bookkeeping asking them to question it is something like asking a physicist to question gravity. It’s like they say, don’t try this at home kids!

Entirely New Challenges and Risks

Challenges for Enterprise Adoption

Entirely New Accounting Standards Are Needed

There will be a real market need to innovate new standards that allow us to account for value in the new paradigm. This probably terrifies the accountants out there. But in reality it is good, as it is human innovation itself that is true source of wealth creation.

If I’ve sparked an interest, feel free to reach out! You may very well be a pencil-pushing geek just like me.

Greg Simon, CPA, CBP

CEO and Co-Founder, Loyyal

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