‘Digital currencies’ aren’t needed to explain why distributed ledgers are important. In this post, IBM’s Richard Gendal Brown develops an argument for replicated shared ledgers from first principles.
This is intended to be an ‘education piece’ aimed at those, particularly in the finance industry, who prefer explanations of new technologies to be rooted in a description of a real-world business problem rather than beginning with a description of a purported solution.
So, in this piece, you’ll find no mention of digital currencies, because it turns out you don’t need them to derive an argument for distributed ledger technologies.
We’ll start with banking systems
Start by thinking about today’s banking systems. In what follows, I use a bank deposit and payments example. But the same logic applies everywhere you look, as I’ll argue later.
Let’s imagine a world with three banks: Bank A, Bank B and Bank C and two customers, Customer A and Customer B. Each bank runs their own IT systems that they use to keep track of balances. This is a world very much like today.
So Bank A’s systems record the balances for Bank A’s customers, Bank B’s systems record the balances for Bank B’s customers