Bitcoin and triple-entry bookkeeping

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Money laundering? Falsifying financial statements to influence the stock markets? Financial transfers from international organizations to corrupt governments?

These blemishes are allowed and, if you like, "legalized" by double-entry accounting, which was invented in the 14th century because the Catholic Church needed a technology to justify debts and loans. Well, not only the Church but also the merchants of the Renaissance who suddenly found that the simple recording of income and expenses (simple entry accounting) was insufficient for the times that were coming.

Double-entry accounting is the only universally accepted system today by all the actors in the corporate capitalist network, be it corporations, international organizations, auditing companies, governments, commercial and central banks, municipalities, parliaments, universities, etc., that which is called in general terms, establishment. And it is a system that is already 700 years old.

It is precisely the establishment that argues against cryptocurrencies saying that they are used to launder money and commit financial crimes. Actually, what they don't want are competitors...

Let me show you how Bitcoin could, among many other things, wipe out the corruption that a technology invented 700 years ago allows.

The first wave of Bitcoin was the land of nerds, lovers and curious of new technologies, cipherpunks, and ideologues of anarchy. (Imagine the level of naivety and financial disinterest that someone bought two pizzas for 10,000 BTC!)

The second wave, which we are still in and who knows how long will it last, is purely economic and speculative terrain. Many of the values engraved in Satoshi Nakamoto's White Paper have been totally forgotten for the moment. Now the whales rule with speculation. Every day millions of units of fiat money are transferred from the accounts of the naive who were promised easy wealth in a short time, to the accounts of whales who create new projects with puppies, kittens, and frogs.

Those of us who have been in the cryptosphere for more than ten years do not stop being surprised by the course of things and the hidden treasures that are being unearthed every day from Satoshi's White Paper Nakamoto. Every day this milestone in the history of humanity is exposing the shamelessness with which corporate capitalism has been robbing and mistreating us.

In time, when the standard of living of millions of people on the planet changes dramatically by being included in a decentralized system that will allow them to achieve monetary independence, the concepts of "wealth" and "poverty" will also disappear, which are constructions of hierarchical systems that need this differentiation to be able to exercise the power they hold. In a decentralized system, people can be paid according to their work in cryptocurrencies or whatever Internet money is called, without the need for anyone to control it or for anyone to intermediate it to offer them any dubious service. This represents a spectacular change in the model to which we boomers and the generations that followed us until the beginning of the millennium are accustomed.

Today I want to analyze one of those spectacular changes promoted by the advent of decentralized systems without hierarchies such as blockchain technology. It is a change that represents a new step in accounting, and it is triple-entry accounting, about which not much has been said at the moment because it implies such a dramatic change in government, tax, financial, banking and corporate systems, that would give the impression that there is even fear of considering it.

It is the access of a third ingredient to the accounting entries, which is the common people.

“As an accounting ledger, Bitcoin represents the first true accounting innovation in more than 700 years, marking transition from the legacy, stakeholder-controlled, private, double-entry accounting systems to a public, triple-entry system.

Triple entry simply means that two-party transactions (debit and credit) are written to a public, immutable LEDGER (the third entry). Public means that the ledger is accessible at any time by anyone on the Bitcoin network.”

Darin Feinstein, Bitcoin Magazine

Source: Decoding Bitcoin's transaction arises: The emergence of history's greatest accounting innovation

Before going into this, it would be good to remember the accounting concepts of single entry and double entry.

Simple Entry is a simple notation of each one of the accounts, but without counterpart. In this way, a note is written when there are incomes and expenses. Until the fourteenth century, this method was the most used, so that the operations used to be recorded in a single account. As credit markets did not yet exist, this way of accounting was more than enough to manage cash, suppliers and customers.

Brother Luca Bartolomeo de Pacioli is the father of double entry. During the Venetian Renaissance he developed his system, advising the use of ledgers, balances and inventories. His contributions gave rise to modern accounting. Under double-entry bookkeeping, the taker is the debtor and the deliverer is the creditor. In this way, what we have is because we owe it to someone, including ourselves. Equity balance requires that everything that comes in must be equal to what comes out. Resources always come from somewhere. The debtor (who owes) exists because there is a creditor (who has). Accounts must be able to be canceled the same way they are created. In this way, if a value enters through one, it must exit through the same one.

The practical reflection of this method are the daily and ledger books, as well as the balance sheet composed of assets and a liabilities. In this way, the accounting entry is the way to record operations in the Daily ledger and has a debit (on the right) and a credit (on the left). Every notation on one side has a counterpart on the other. The general ledger, with the same format, includes the operations in the same account. The balance sheet reflects the economic and financial structure of the company. It has an asset section with assets and collection rights and a liability section with net worth and payment obligations. It is a reflection of the company in its faithful image and is used for decision-making by the different economic agents.

As can be seen, both in the single entry and in the double entry, the records are private, secretly kept by those who record them, and have the enormous possibility of being altered as they wish to do so. The records are in the hands of people, who can easily be bribed to alter them.

On the other hand, the records in the Bitcoin blockchain are public, freely accessible by anyone, and cannot be altered by anyone, since there are no people in the middle, no auditors, and the miners who are the ones who ensure the veracity and the confidence of the chain, have a real incentive to keep it assured. Of course there is a 51% possibility of the attack, but so far, it has never happened and there is nothing to suggest that it will happen. Mining is growing as an industry, hash rates are at all-time highs, and many rulers who know they can't stem the tide have started to “join” the movement and facilitate legislation for miners.

The Bitcoin blockchain is not contaminated by people acting as auditors, shareholders, or officials of governments or international organizations. It is pure mathematics and unalterable code. There is nothing to audit. If a block of the chain was confirmed, it is because the information in it was checked and confirmed, and there is no longer anyone on Earth who can alter it. Therefore, if any person in the world wants to take the trouble to verify its accuracy, they can do so without going through any intermediary such as a bank or a government office, or a company registry that keeps company balance sheets.

In this way we have simply added a third item to our ledger, the immutable blockchain. This may be the most revolutionary of all advances in accounting technology since the Renaissance.

Can you imagine what this could mean for civilization and for the control of international finance by the elite bookkeepers and their auditing companies?

How money laundering work?

Once the legal money is received, the criminal must dispose of it quickly to avoid problems, especially from some vigilante journalist who wants to change the world, a character who is always annoying for the establishment. The entry of these illicit funds into the "legal" system is done cautiously through financial institutions that establish successive national and international operations to confuse any type of monitoring and analysis, buying shares of remote companies, then selling and repurchasing them, selling instruments of debt in tax havens, transforming assets into real estate, mixing illegal money with legal money to disguise the origin. All this swarm of actions that some call financial engineering, ultimately consists of a large number of double-entry entries in ledgers that justify the operations and that can be audited by "specially chosen" auditors. But everything remains in secretly kept private books, which are audited by people or officials who have a high probability of being bribed. Money or assets placed in the legal economy will be mobilized multiple times, in a large number of operations and methods. The launderer leaves a long trail of documents so that the authorities cannot trace their origin, with which it is intended to hide the trail of the illicit source or justify the rapid increase in his/her fortune. The purpose of this movement of funds is to create a series of operations that complicate the task of determining how the funds entered the legal economy or how they were disposed of.

Laundered money returns to the economy or financial system now disguised as "legitimate money", either through fictitious or exaggerated value import and export transactions, through payments for imaginary services, or by contributing interest on fictitious loans, and through a whole series of financial ploys disguised as legality. That liquid money or those assets placed between economic agents are recycled and converted into other movable and immovable assets or front businesses that allow the launderer to enjoy his/her ill-gotten wealth. A good part of the result of the illegal money entering the legal system is used to ensure the impunity of the launderer, and obviously to buy consciences and loyalties. A civil servant suddenly appears with a spectacular new house, or a new Ferrari.

We could do a similar analysis in a board of directors of a corporation that decides to alter the transactions carried out to show non-existent profits and raise the price of its shares, or in the field of international organizations, altering the transactions made previously in order to demonstrate that they cannot be imputed in cases of electoral fraud or corruption for arms trafficking, or some other niceties.

Now, imagine an economy in which all operations are done P2P without intermediaries, and are recorded for all eternity in a chain of blocks secured by thousands of nodes that work with incentivized PoW so that the chain remains immutable and cannot be altered. In this case, we are in the presence of triple-entry accounting, and no one could ever launder money for the simple fact that there would be no money to launder. The immutability of the chain of records makes illegal money totally useless. Yes, that's right, triple-entry accounting eliminates illegal money. What was previously illegal money passes through the art of code and mathematics to be legal money available to all the inhabitants of the planet, who then become sovereignly independent in financial terms, which also means that they are sovereignly independent in all aspects of their lives, because no one can decide how much their work is worth, or how much their money is worth, nor can they force them to pass their operations through an intermediary entity.

In other words, what for many today is a game to see if they can get rich by trading, is actually the seed of a transcendental link in the evolution of humanity towards the elimination of elites and hierarchies.

Some 700 years passed before humanity found a technology that would allow it to eliminate the unilateral corruption of those who claim the power to print the money that we all use.

It took about 10 years before timidly began to talk about issues such as triple-entry accounting in public. We have begun to unearth treasures that derive from technology invented by a genius a decade ago.

If I were a banker, or a BIS official, or an IMF official, or a CEO of some corporation, I would be really concerned about the course things are taking. Mainly because of the impotence that comes from being totally vulnerable to a network of computers that nobody can't stop without destroying themselves. This is often called a "poison pill" in VC.

I remember a scene from SkyFall, a James Bond 007 movie in which Bond and the new "Q" meet for the first time. Bond cannot believe that such a young individual could be his new technological support. Q answers "I can do more damage with my computer in my pajamas before my first cup of coffee, than you can do in a year on the field."

But of course, there is a danger that should keep us more alert than ever. We may be opening Pandora's box.

myth of Pandora’s box is considered one of the most descriptive myths of human behavior in Greek mythology. Ancient Greeks used this myth to explain several misfortunes of the human race.

Pandora was given a box or a jar, called “pithos” in Greek. Gods told her that the box contained special gifts from them but she was not allowed to open the box ever. Then Hermes took her to Epimetheus, brother of Prometheus, to be his wife. Prometheus had advised Epimetheus not to accept anything from the Gods, but he saw Pandora and was astonished by her beauty, thus he accepted her right away.

Pandora was trying to tame her curiosity, but at the end she could not hold herself anymore; she opened the box and all the illnesses and hardships that gods had hidden in the box started coming out. Pandora was scared, because she saw all the evil spirits coming out and tried to close the box as fast as possible, closing Hope inside.

According to Hesiod, Hope indeed stayed inside because that was Zeus’ will; he wanted to let people suffer in order to understand that they should not disobey their gods. Pandora was the right person to do it, because she was curious enough, but not malicious…”

As Pandora, Satoshi Nakamoto disobeyed his gods. The Greeks did not want their slave-owning “democracy” in which only the elites voted to be altered in the slightest, which is why they left Hope inside the box. But this time, far from all those dinosaurs of the past, Hope was released, and no one can stop it anymore.

Thank you for reading! Decentralize yourselves as much as you can, and much more! Work for yourselves, not for others. When you work for someone else, they pay you what YOUR POSITION is worth, when you work for yourself, they pay you what YOU are worth. No one achieves financial independence by working as an employee. Live long and prosper!

Never forget:

As usual, none of the things written in this post are financial advice and are not intended to replace personal research. My sole intention in writing this post is informative. Several of the things discussed here could be wrong, so in no way can this post be construed as financial advice, and in no way should it replace your own research.

If you have any questions or comments, please feel free to leave them down below

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