Accounting is needed for the survival of humans, especially in the 21st century. It not only keeps track of the financials of a business but also every step in our lives. As long as there are people in the world, there will be businesses, and as long as the businesses survive there should be accounting. It is used in most of our daily lives. directly or indirectly. Its importance is often overlooked. Everything needs accounting, from the book you read, the games you play, the music you hear, and many more, accounting is a MUST.
Let us checkout how accounting is done!
(5000 BC - Present) Single Entry Accounting
Only 1 participant in a transaction records the transaction on their own ledger. This is mainly used for personal purposes to keep track of your own finances and you know you can trust yourself. This method is simple to register and maintain records thereby potentially supporting unlimited number of transactions. But fraudulent activities are easy to create and hard to prove.
Example: Your financial records stored/maintained with a bank.
(1100 - Present) Double Entry Accounting
Here 2 records are maintained. Each participant in the transaction records the transaction on their own respective ledgers. A debit/credit on their own ledger and the corresponding credit/debit of the other participant. (i.e. a credit for one participant is a debit for another and vice versa). This is again, simple and easy to register and maintain records. Fraudulent activities are easy to create (not as easy as single entry accounting)
Example: Financial records between 2 banks.
(2000s - Present) Triple Entry Accounting
Here not only each participant in the transaction records the debit and associated credit of the transaction for each party, but also every participant in the entire network gets a receipt of this transaction. Thereby eliminating the need for third party trust! The transactions generated by this system consumes a lot of time and energy to register and maintain records, hence the system can process a limited number of transactions (7 transactions for Bitcoin). But the advantage is that the data/transactions have high security, reliability and transparency. The data is secure until 51% of the participants in the network are truth tellers. In other words, the triple entry accounting is compromised by 51% attack.
Example: Bitcoin (2008)
- (2018 - Present) Double-Triple Entry Accounting
The Lightning Network is simply a double entry accounting (high scalability) system built on top of Bitcoin’s triple entry accounting system (high security). Lightning network combines both the advantages of double and triple entry accounting. The double-triple entry accounting is also compromised by 51% attack.
(2014 - Present) Sharded Triple Entry Accounting
After the blockchain revolution started, and every transaction is being recorded by every participant in the network thereby limiting the number of transactions handled by the network. People thought, do we really need to keep the records of all the transactions in all the nodes?
Then, the blockchain sharding came into place. With sharding the scalability is drastically increased thereby increasing the number of transactions handled by the network.
Here not only each participant in the transaction records the debit and associated credit of the transaction for each party, but also a limited number of other participants (300 - 600 for most blockchains) in the network gets a receipt of this transaction. The 300 - 600 participants are selected based on the various blockchains protocols and their respective algorithm.
(2017 - Present) Heuristic Sharded Triple Entry Accounting
Created by Uniris, where not only each participant in the transaction records the debit and associated credit of the transaction for each party, but also 200 randomly selected other participants in the network get a receipt of this transaction to verify. This further increases the scalability, where the scalability is close to double entry accounting. The security of the network is the highest of all above where the data is secure until just 10% of the participants are truth tellers. In other words, this type of accounting is capable of handling 90% attack.
(check ARCH Consensus to know more)
To take this a step further 'Heuristics' are introduced to randomly select (<200) participants. Where not only each participant in the transaction records the debit and associated credit of the transaction for each party, but also N (<200) randomly selected other participants in the network get a receipt of this transaction to verify. The N is calculated by the Uniris Prediction Module, which is based on the nature of the network. Most of the blockchains calculate mathematically and provide a fixed number of participants for sharding, but there is a need to consider and take into account the nature of the network. (are there any malicious participants, number of transactions in the network, the number of participants, etc...).
This method further increases the scalability, where the scalability is close to single entry accounting. The security of the network is the highest of all where the data is secure until just 2.5% of the participants are truth tellers, i.e. this accounting is capable of working even when 97.5% of the participants are malicious. In other words, this type of accounting is capable of handling 97.5% attack.
If you are interested to know more about Uniris, checkout