Blockchain Is About to Destroy a Centuries-Old Industry

The transformation of record-keeping will have consequences we can’t begin to imagine

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Predictions abound about the myriad ways that blockchain will revolutionize the business world — from currency to transportation to banking to law. The most important effect that blockchain will have, however, is the one that gets the least attention. And the last time such a big change happened in the field, it led to the greatest global commercial, artistic, and intellectual expansion in the history of the world.

Double-entry bookkeeping and the birth of accounting

The field of accounting owes almost its entire existence to the creation of double-entry bookkeeping. It is believed that the double-entry system was invented by medieval Jewish merchants in the Middle East, and later picked up by Genoese merchants in the 14th century. From there it was popularized by the major trading families of the Italian city-states of Florence, Genoa, and Venice.

The system is deceptively simple but has major ramifications. For every intake of money in one account (credit), there must be an equivalent outflow in some other account (debit). The opposite is also true. For those who study accounting or even just general business in school, this is the root of the famous “Assets = Liabilities + Owners’ Equity” formula.

The ramifications of this method pertain to the management of risk. The invention of double-entry bookkeeping allowed for the accurate reflection of financial health at a moment in time. By making two entries when a shipment of goods left the port of Venice, a merchant was able to understand that a) he could no longer count those goods as under his control, and b) the buyer owed him money. This allowed these merchants to keep track of many transactions at once. It allowed them, in other words, to scale up in a way that was previously very difficult or very expensive.

Merchants could now keep track of goods in transit, outstanding loans, lost items, and other regular business occurrences at an unprecedented rate. They could operate more easily with multiple currencies and account for the inflation of those currencies. They could…