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0 pointsglobular-toast4y ago0 comments

In an accounting system, everything must always sum to zero. That means every transaction has to balance, so nothing can "appear" or "disappear", it has to come from somewhere and has to go somewhere.

Imagine you ran a private currency called Mate Dollars (M$) for you and your mates to exchange with each other "off grid". You decide to introduce the concept of loans. A transaction which lends 1000M$ to MateA would look like this (in ledger[0] format):

  2022-01-30 Loan to Mate A
      Accounts:MateA       1000.00M$
      Liabilities:MateA   -1000.00M$

This a perfectly valid transaction. It sums to zero. Now Mate A can "spend" this money, maybe he buys some goods from Mate B:

  2022-02-01 Goods
      Accounts:MateA    -500.00M$
      Accounts:MateB     500.00M$

Now Mate A and Mate B both have 500 Mate Dollars.

Eventually Mate A will have to pay back his loan because the bank (you) will charge interest on any current liability:

  2022-02-30 Loan repayment
      Accounts:MateA      -1000.00M$
      Liabilities:MateA    1000.00M$

Now he's paid back the loan.

Now from inside the system, nothing was ever created or destroyed. But from outside the system (ie. the real world) it looks like money was "created" at "Loan to Mate A" and destroyed at "Loan repayment". From Mate B's point of view, Mate A always had that money. He doesn't know anything about the bank loan.

Between those two transactions, 1000 Mate Dollars existed, but it was just a ghost in the machine.

Replace "you" with Barclays Bank, "Mate Dollars" with Pounds Sterling and "you and your mates" with the public above and you now understand how "real" currency works. 97% of money we use is just a ghost in the machine between a bank creating it via a loan and the borrower paying it back.

So, you see, money appearing and disappearing from thin air is not a feature of crypto at all. It's just an illusion. It's what it looks like to anyone outside of the ledger (ie. everyone except the bank).

The ETH transaction is the equivalent of you (the banker) making a promise to Mate A to keep his money in an account that can never be accessed by anyone, including him:

  2022-01-30 Silly transaction
      Accounts:MateA      -1000.00M$
      Dungeon:MateA        1000.00M$

The account "Dungeon:MateA" will now always have a positive balance for as long as you keep your promise.

Unlike you, the Ethereum blockchain is incapable of ever breaking this promise.

[0] https://www.ledger-cli.org/

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2 comments · 1 top-level

djhworld4y ago· 1 in thread

I use plaintextaccounting too.

So in your example Dungeon:MateA is a balance for the other side of the transaction - it does exist, there's a record of it. The money/tokens/matebucks have not "disappeared", but the mechanics of the "promise" means that nothing/no-one can do this operation

  2022-01-30 Silly transaction
      Dungeon:MateA      -1000.00M$
      Account:MateA       1000.00M$

globular-toastOP4y ago

Exactly. They've "disappeared" from outside of the ledger, in the sense that those tokens will never be involved in another transaction so won't be "seen" again by anyone else. But they can never disappear from inside the ledger. That would violate the rules of accounting.

My main point with this is this is how the current money system works! People seem to think money can disappear in crypto but not in the real system. In fact it's quite the opposite. In both systems from the ledger's point of view nothing can appear or disappear. But in the current system, since the ledgers are controlled by private entities they can make stuff appear from the public point of view by creating loans. In crypto the ledger is not controlled by anyone.

Essentially the big problem with finance currently is the people who control the ledger are also allowed to create loans inside the ledger! It's a huge conflict of interest and obscenely privileged position.

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