Right now, all over the world, there is an idea at the heart of debates both educated and ignorant. This idea is…Disruptive. Controversial. Rebellious. Anti-authoritarian. Smart.

While some call it revolutionary, others call it stupid, a fad, and ironically, untrustworthy.

While some governments are for it, and openly taut its merits, other governments are desperately trying to suppress it and even make it illegal.

But no matter where one falls on this issue, if one has even the faintest idea what it actually is, no one can deny that the same power that this idea represents is both what attracts some to it and yet repels others by it.

The idea is really no less than the simple truth. An elegant, beautiful, modern version of the foundation of finance, transaction, exchange, and trust.

What is this idea?

It’s a ledger.

A bookkeeping method.

Sound boring?

It is. But when you understand its importance and potential to the foundations of our world, it’s really not.

There is a rich history of why the ledger has come back into the forefront of society, and this week that history will be explored. While much of the world currently doubts the current industry of digital ledgers, others understand the historical and very social evolutionary aspect to what is happening. A simultaneous purge of a false truth and an implementation of the true one can be a jarring, even cataclysmic event. Some of us may feel the tremors and even revel in them… but many have their doubts about the function of such an idea. Those who argue against this idea need only to turn to the pages of history to understand that it has been with us for centuries and it desperately needs an upgrade.

We begin with writing, money, and counting. These three things in combination with one another allowed human beings to expand business beyond a mere clan or kinship group and create much larger settlements. In today’s society, the average person is well aware of the benefits and necessity of writing and money, yet when organized counting, or a ledger is brought up, few are well versed in its history or function in how our world operates. We cannot talk about the future of ledgers if we do not understand their past.

Ledgers are not a new technology. In fact, they date back as far as Mesopotamia in 3000 BCE. Much of the archaeological artifacts that remain from this ancient civilization are clay tablets that were used as ledgers. They recorded things like payments, tax records, wealth, and wages. The Babylonian system of law, the Code of Hammurabi, was written on a ledger. These laws or code are some of the oldest in human history, and much of them deal with how to handle payments and exchanges.

Ledgers and accounting have a long history throughout society from antiquity, to the Roman Empire, up to the advanced civilizations in Asia and the Arab world. The appearance of ledgers themselves coincide with the appearance of the first recorded large civilizations. This fact points to the concept that the type of ledgers in a society is in direct influence to the type of civilization that grows out of that society. Ledgers are important. They are mirrors to the values and organizing principles of a society. How people treat their ledgers can say a lot about them.

Ledgers themselves allow for the exchange of goods and services and for different types of information to be recorded and this allows societies to expand. It seems like an overlooked function of society, something so basic that it is unnecessary to discuss, but really, it is absolutely essential, now more than ever. In a more primitive and smaller society, one could keep track of the goods and services that took place. If someone provided food for their village, there would be a record of all those who ate and benefitted and therefore this record was proof that the provider of the food was owed something in return by those who ate it. This system provides trust. If someone gives something, there is trust that they will be given back in an equal return. The concept is quite simple, and this is where its power lies. The record keeping is the trust that the complexity of exchanges and information can be simple and trusted.

Money itself can be used as a record keeping device. Gold and paper money have both been used instead of a written account to represent goods and services exchanged. In this usage, money is in the form of a token and this token is the record.

However, once society began trading across vast distances, the idea of money itself being a record keeper was highly inefficient. If one traded with another across a distance, the facilitator of the trade, or courier, had to be trusted. The expansion of modern society needed a solution to trust exchanges.

Up until the Renaissance, the Judeo-Christian tradition was openly against lending, using the Bible as precedent. “Thou shall not lend upon usury to thy brother.” While ancient civilizations had been open to systems of debt, with the rise of Christianity and its eventual coinciding Dark Ages of Europe, there was a prolonged period of mathematical incomprehension and an anti-lending philosophy. This lack of understanding numbers and the belief that lending money was sinful, staggered not only the economy of Europe, but the intellectual growth of its people.

During the Crusades, Europeans were finally exposed to the advanced math of Asia and the Arab world. By the 13th century, Fibonacci, an Italian merchant and eventual pioneer in mathematics, studied in Egypt, Sicily, Greece, and Syria, and published a book, Liber Abaci, that taught European merchants algebra that enabled them to calculate basic things like fractions and currency calculations, allowing businesses to expand.

But the real solution, the solution that led to capitalism, that led to the modern world as we know it, was popularized in Europe near the end of the 15th century.

Double-entry bookkeeping.

The concept is simple: on one side debt is recorded and on the other side credit is recorded. This allows money to move without physicality — with this, comes economic growth.

While the concept of double-entry accounting may actually have been developed in ancient India, and had been used in the Arab world for centuries, the lineage of the iteration we know today developed out of early Renaissance Italy. Although this bookkeeping method already existed, it was not until it was organized into the form of a published book, that the idea really took off.

In 1494, a religious man, a magician, a lover of puzzles, and a Franciscan friar, named Luca Picioli, not only wrote the first manual on accounting, but in turn became known as the father of modern accounting.

Double-entry accounting created the modern world by allowing banks to become payment providers and lenders of money. The issue of trust would now fall on the record keepers themselves, a massive solution and a massive problem for trust at the same time.

The Medici of Florence became prominent middle men and facilitated the flow of money across Europe. By being able to debit one person’s account and credit another’s, in a double entry practice, bankers could now move money without moving money. Out of this was born the Renaissance and modern capitalism. But that’s not all. Also out of this practice, bankers would become the arbiters of trust and cement themselves as an essential part of society by positioning themselves in a very centralized role.

From this, the ledger became almost religious in itself. Religious justification at the time came from the Book of Revelations.

“And I saw the dead, small and great, stand before God; and the books were opened; and another book was opened, which is the book of life; and the dead were judged out of those things which were written in the books, according to their works.”

The dead open their book. God opens his book. We have a double entry account of a person’s life. Now, we have Biblical justification for a society that is very religious.

Ledgers and record keeping took on a very important role for centuries. There was a certain sacrosanctity and trust mechanism built into this concept. The “books” as they later became known, were where the real truth could be found. Or so we thought.

2008, the now infamous zenith of distrust in a system put in place over 500 years prior, started with a Wall Street firm named Lehman Brothers reporting their gains for the prior year, 2007. Their revenue, 59 billion. Their earnings, 4.2 billion. These earnings were double what they had been only four year earlier and an exemplary look at just how impressive the firm’s book were. Impressive indeed…

Within 9 months, Lehman Brothers were closing their doors for good.

What Lehman Brothers represents is the most obvious example of how ledger tampering, or book manipulation, can cause epidemics in the financial systems worldwide. The world learned that year, the our trust in ledgers is only as good as the people overseeing those ledgers, and Wall Street, where much of the money in the world is managed, proved to be the opposite of trustworthy. The details of how these firms created fake wealth and manipulated the trust mechanisms with the public is vast and worth researching, but it is not nearly as important as the fact that very few saw it coming. In the aftermath of that crisis, trillions were spent by governments worldwide to help restore order to a financial catastrophe caused by ledgers and the people who maintain them, and yet, all of this restoration resulted in preserving the very same system that existed before it.

This breach of trust led to a devastating fallout. Political and financial mistrust became commonplace to the degree that America saw its own two party political system divide itself exponentially further apart, both in a direction away from the “system” that was once trusted to a much higher degree. Worldwide, trust is still at the center of debate and at historical lows in many sectors of global society, especially in America.

But before we arrive at Halloween 2008, at the now famous whitepaper that was released as a sort of trick or treat for humanity’s grim disguise of “Trust,” it is worth saying that digital ledgers were already in existence prior to Satoshi Nakamoto.

In the 1990’s, a Cypherpunk named Nick Szabo, developed something called the “God Protocol.” The idea created a spreadsheet that runs on a virtual machine or group of networked computers that enables transparency of information to all parties involved. With a combination of private and public data, users sent their information to a trusted third party entity, or deity, which Szabo envisioned as a way to enable trust in transactions. In 1996, Szabo coined the term “smart contract” in a paper published in a magazine called Extropy. In 1998, Szabo designed, although never implemented, plans for a digital currency that used a proof of work consensus algorithm to solve cryptographic puzzles. Solutions were processed through a Byzantine Fault Tolerant peer-to-peer network, followed by the creation of a cryptographic hash chain link. Each solution would become part of the next puzzle, creating a chain and validating blocks of transactions. The project was called Bit Gold. All of this has led some to believe that Nick Szabo is Satoshi Nakamoto. He denies it.

In 2005, Ian Grigg, a computer expert working for a company called Systemics, developed a prototype for a “triple-entry bookkeeping method.” Grigg was also a cryptographer, and his idea took double-entry bookkeeping and added an open ledger that was independent of the first two, and was immutable through cryptographic methods. Grigg used the idea of a time stamp to cryptographically sign each transaction and prevent fraud. If the first two ledgers did not match the third independent ledger, then there was a problem. In the era of Wall Street fraud, of men like Bernie Madoff, whose ledgers were able to be hidden and manipulated and literally demolish people’s life savings, their retirement, their lives…these ideas of digital ledgers were in the air so to speak.

When Satoshi Nakamoto released his whitepaper for Bitcoin, the world was in desperate need of a new system. Blockchain was the promise of a new idea. But if the world took thousands of years to settle on double-entry bookkeeping, and another 500 to find its way to the idea of an immutable ledger, this new idea was never the kind that would be implemented overnight. The truth is, he or she who controls the ledger, controls the money or the information. But what if no one controlled it? Even though the world’s institutions had proven to be corrupt, toppling them would take more than an idea. It would take people.

Let’s look at the idea first.

Working with a general definition of blockchain as used by authors Michael J. Casey, a senior advisor at MIT Media Lab’s Digital Currency Initiative, and Paul Vigna, a reporter for the Wall Street Journal, we can see what exactly began to rise out of the collapse of 2008.

Blockchain —

A decentralized, append-only ledger of provably signed, sequentially linked, and cryptographically secured transactions that’s replicated across a network of computer nodes, with outgoing updates determined by a software-driven consensus.

This definition may not seem overwhelming to many reading this, but it is assuredly written in a foreign language to the average person who may soon be using blockchain in their everyday life.

What does it mean?

The word decentralized represents that the ledger is not merely in one place anymore, but in many places all at the same time. Each computer, or node, is now a bookkeeper, and each bookkeeper is required to update this ledger independently and responsibly, and to coordinate with all the other bookkeepers or computers. When a bookkeeper updates the ledger and proves that it is correct, all of the other bookkeepers update their ledger with the same information. This process keeps the ledger continuously updating, except now, the information has been deemed to be true by many bookkeepers and there is no one master or centralized ledger anymore, but many decentralized copies.

The term append-only means that information can only be added to the ledger and that nothing can be removed. This is a key feature. One cannot go back anymore and change the ledger. Once it has been agreed to be the truth, it remains the truth forever.

The term provably signed refers to users of the ledger having one publicly viewable key, and one private key, that when combined, or signed, allows that person or entity to unlock information or value on the ledger. A key is a string of numbers, letters, or words. When someone signs their public key with their private key, the rest of the users of the ledger know that the person signing has authorization to access that part of the ledger, and can then move that information, or digital currency, to another part of the ledger.

The term sequentially linked and cryptographically secured refers to how the information on this ledger is formed in a chronological order and secured using cryptography. Each entry on the ledger is protected by a sort of mathematical lock, and because each entry was already verified, this chain of blocks of information on this ledger is very hard to ever alter, thus making it immutable and secure.

The term replicated refers to the ledger being copied and spread out across all of the nodes or computers that make up the ledgers integrity.

Finally, the term software-driven consensus refers to a program that all bookkeepers run independently. This program guides everyone to reach agreements using requirements and incentives so that each bookkeeper can agree on which transactions should be on the ledger and which transactions should not be. Reaching a consensus allows ledgers to harmonize and keeps the process of updating the ledger moving along.

Blockchain is the technical implementation of the immutable ledger. Its potential and variations are vital to understand, and many will be looked at. While this week focused on the history that led to blockchain, subsequent articles will focus on the current state of blockchain, its future, and how Elastos is the evolution not only of blockchain, but the internet itself.

The quote that opened this week’s report ends with a fascinating question.

“Perhaps something else will come along and fulfill for the age of cryptocurrency what the Transmission Control Protocol/Internet Protocol, or TCP/IP, pair of protocols did for the age of the Internet. Something will emerge as a standard, base-layer protocol that dictates how all computers everywhere exchange value with each other. Will it be Bitcoin, Ethereum, or something else entirely, perhaps a protocol that allows computers with digital assets on any one of these competing blockchains to trade directly with each other without going through a third party?”

That something else has come along and this mini series will explore how we got there and where we are going. We need to look at Bitcoin and Ethereum and other blockchain projects, and we need to look at what blockchains can do for the world, and then we need to look at Elastos in this grander context. Because Elastos does exactly what the authors prophesies will come along. It is trying to fix all of the problems that the TCP/IP protocol currently has. Elastos does away with IP addresses and even disables the http/https protocol on this new decentralized internet that it is pioneering, that it is creating. On Elastos, applications request a resource (data) instead of a URL and the Elastos Carrier goes out into the vast Elastos Smart Web and it grabs the data and brings it back. All of the data from every website and every application is decentralized and distributed with no central authority and information is exchanged via a peer to peer network. This is that something that “will come along,” that will, “emerge as a standard, base-layer protocol,” and use blockchain to change the internet by not over-relying on blockchain but understanding that the internet itself also has to change. These are the concepts that people who do their research understand are integral to a very large scale overhaul of the way we currently access and operate in our fundamentally flawed internet infrastructure. Blockchain has a long way to go — and so does the internet. We need to think about what projects offer actual innovation and solve real problems that actually improve upon the current internet and systems of trust and organization. The ledger is very old, but the internet is very young. We need to anchor the internet with an immutable foundation of society — something that has never really existed until now. But we cannot stop there. We need to re-architect how we access the internet and how we exchange value and information on the internet. We need to understand the one project that can put so many of these pieces together at once and interlope with other projects that are also emerging to create a very smart, very secure, very decentralized version of the standard form of transfer and communication in our world. We need to keep looking at the big picture and keep looking at where Elastos rests within it. Stay tuned.

Onward! Upward! Elastos!