Triple Entry Accounting

Accounting Update 2.0 from 15th Centry -> 21st Century

Luca Pacioli’s double entry bookkeeping was a real 0 to 1 moment in the world of record keeping. Standardizing the accounting protocol allowed for a base level of trust between record keepers and interested parties of investors and owners. Trust might be a stretch of the word, in reality, it was really just an agreed upon structure or rules which then changed with consensus over time.

The problem we have been dealing with since reaching record keeping consensus is accuracy. The accounting protocol is not perfect. It relies heavily on human implementation and we are still too early in modern attempts at automating record keeping. Audited Financial Statements have typically been the answer to the problem of accuracy (though the level of scrutiny books go through in an audit would surprise most people not familiar with the processes of an audit). An audit, at best, just means that the information you’re looking at is mostly right. Described by an industry word, “material”.

The problem is with the banks. I know . . . you’re shocked a bitcoiner has a problem with banks . . . but it’s not like that. A large part of the record keeping process is comparing the bank record of transactions to the accounting records transactions in what is called a reconciliation. It’s just a comparison of the two ledgers. If those ledgers don’t agree, your records are wrong. You then take those bank ledgers and verify transactions with supporting documents like invoices, shipping records, and checks. It’s a tedious, potentially error-prone process.

Bitcoin, could fix this.

By tying transactions into a public, real-time ledger, there is no need for the bank reconciliation process. Global consensus deemed your transactions as valid and all an organization would have to do is prove they have the key. There’s even potential for organizations to embed invoices directly into payments meaning that each transaction has support for it with verification from an outside party of what the funds were used for. Instead of saying, “we have an audit as of 12/31/20XX” you have the potential for real-time audits of transactions with 100% accuracy. 100% verification of accuracy is not economically freasable or practical with today’s processes.

As of the day of this writing, that possibility is all but a dream, but I look forward to the day where accountants look more like today’s computer programmers than a 15th century monk.