ledger
The term ledger is an accounting term describing a system that keeps records of various accounts’ financial transactions, such as debit and credit entries. A ledger could be classified into a general ledger and a subledger. Each subledger records the details of a business ’s actual transactions. The details of various subledgers serve as the sources of a business entity’s general ledger, showing the summaries of transactions in various subledgers.
A ledger is typically a centralized system. The centralized nature means that both a general ledger and subledger may only be accessible to a limited number of parties within a business. Such a centralized nature would also mean that a ledger is under the control of just a limited number of parties, such as a business’s acco unting team. Adding or deleting a ledger’s entries is subject to laws and regulations, such as those related to accounting, auditing, tax, as well as the rules of professional organizations for accountants , such as GAAP . Yet, modifying a ledger’s entries is technically possible even with existing laws, regulations, and rules in place.
To ensure the accuracy of a ledger, distributed ledger technology (DLT) focuses on decentralization rather than centralization. DLT aims to prevent any single parties from modifying a ledger without the consensus of the entire community. By distributing the entire ledger among all members of the entire community, each member could receive a synchronized and complete copy of the ledger. Whenever changes occur in a ledger, the synchronized copy of the entire ledger held by each member of the entire community will be updated accordingly. The benefit of such a functional mechanism is that, even if a party can modify its own copy, it is unable to modify the copies held by members of the rest of the entire community. This means that modifying a ledger is possible only if the entire community agrees. Thus, unlike in the traditional accounting world, no single party could modify a ledger on its own, thereby ensuring that the ledger accurately shows the actual transaction histories.
There are various forms of distributed ledger technology (DLT), such as Blockchain , Direct Acyclic Graphs (DAG), Holochain, Hashgraph, and Tempo. Since Satoshi Nakamoto, pseudonymous individual or a group of individuals who developed Bitcoin, published the famous whitepaper titled A Peer-to-Peer Electronic Cash System , Blockchain has been the most widely-known example of distributed ledger technology (DLT), which refers to a cryptographically secured ledger that supports the transactions of various categories of cryptocurrency , such as Bitcoin. (See: United States v. Harmon ) While the Bitcoin blockchain is publicly accessible, there are other categories of blockchains that are accessible to only a limited number of parties. The former refers to permissionless blockchains, and the latter refers to permissioned blockchains. Yet, regardless of the accessibility, all blockchains are not controlled by any single party, meaning that modifying the data in a blockchain would require approvals from the entire community, each member of which maintains a copy of the entire blockchain, or ledger.
[Written in September of 2024 by Kai Wang with the Wex Definitions Team ]
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