2022-02-16 00:53:01 -05:00
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From: <Saved by Blink>
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Snapshot-Content-Location: https://iang.org/papers/triple_entry.html#index
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Subject: Triple Entry Accounting
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Date: Sat, 3 Oct 2020 06:02:11 -0000
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Content-Location: https://iang.org/papers/triple_entry.html#index
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<html><!-- page.pl --><head><meta http-equiv=3D"Content-Type" content=3D"te=
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xt/html; charset=3Dwindows-1252">
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<title>Triple Entry Accounting</title>
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</head>
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<body>
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<br><br>
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<center>
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<u><i>Work - in - Progress</i></u>
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<br><br>
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<font size=3D"+2"><strong>
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Triple Entry Accounting
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</strong></font>
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<br><br>
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<font size=3D"+1">
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Ian Grigg<br>
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<i>Systemics, Inc.</i><br>
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</font>
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<br>
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2005
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<br><br>
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</center>
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<!-- PS_DROP -->
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<!-- /PS_DROP -->
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<center>
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<b><big>$Revision: 1.7 $</big></b><br>
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<small>$Date: 2005/12/25 23:04:21 $</small>
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</center>
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<div><br><br><br><blockquote>
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<p> <b>Abstract: </b>
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The digitally signed receipt, an innovation from
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financial cryptography, presents a challenge
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to classical double entry bookkeeping. Rather
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than compete, the two melded together
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form a stronger system. Expanding the usage of
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accounting into the wider domain of digital cash
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gives 3 local entries for each of 3 roles,
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the result of which I call
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<i>triple entry accounting</i>.
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</p>
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<p>
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This system creates bullet proof accounting
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systems for aggressive uses and users.
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It not only lowers costs by delivering
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reliable and supported accounting,
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it makes much stronger governance possible
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in a way that positively impacts on the future
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needs of corporate and public accounting.
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</p>
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</blockquote><br><br></div>
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<h2><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"int=
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ro">Introduction</a></h2>
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<p>
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This paper brings together financial cryptography
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innovations such as the Signed Receipt with the
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standard accountancy techniques of double entry
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bookkeeping.
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</p>
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<p>
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The first section presents a brief backgrounder
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to explain the importance of double entry
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bookkeeping. It is aimed at the technologist,
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and accountancy professionals may skip this.
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The second section presents how the Signed
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Receipt arises and why it challenges double
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entry bookkeeping.
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</p>
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<p>
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The third section integrates the two together
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and the Conclusion attempts to predict wider
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ramifications into Governance issues.
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</p>
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<h3><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"cre=
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dits">Credits</a></h3>
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<p>
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This paper benefitted from comments by
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Graeme Burnett and Todd Boyle
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<small>[<a href=3D"https://iang.org/papers/triple_entry.html#ref_TB" nam=
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e=3D"back_TB">TB</a>]</small>.
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</p>
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<h2><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"acc=
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t">A Very Brief History of Accounting</a></h2>
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<p>
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Accounting or accountancy is these days thought
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to go back to the genesis of writing;
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the earliest discovered texts have been
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deciphered as simple lists of
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the counts of animal and food stock.
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The Sumerians of Mesopotamia, around
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5000 years ago, used <i>Cuneiform</i>
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or wedge shaped markings as a base-60
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number form, which we still remember as
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seconds and minutes, and squared, as the
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degrees in a circle.
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Mathematics and writing themselves
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may well have been derived from the
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need to add, subtract and indeed
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account for the basic assets and
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stocks of early society.
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</p>
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<h3><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"sin=
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gle">Single Entry</a></h3>
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<p>
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Single entry bookkeeping is how 'everyone'
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would do accounting: start a list,
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and add in entries that describe each asset.
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A more advanced arrangement would be
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to create many lists.
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Each list or 'book' would represent a
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category, and each entry would record
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a date, an amount, and perhaps a comment.
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To move an asset around, one would cross it
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off from one list and enter it onto to
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another list.
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</p>
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<p>
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Very simple, but it was a method that
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was fraught with the potential for errors.
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Worse, the errors could be either
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accidental, and difficult to track down and
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repair, or they could be fraudulent.
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As each entry or each list stood alone,
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there was nothing to stop a bad employee from
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simply adding more to the list; even when
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discovered there was nothing to say whether it
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was an honest mistake, or a fraud.
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</p>
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<p>
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Accounting based on single entry bookkeeping
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places an important limitation on the trust
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of the books.
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Likely, only the owner's family or in times
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long past, his slaves could be trusted with
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the enterprise's books, leading to a supportive
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influence on extended families or slavery as
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economic enterprises.
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</p>
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<h3><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"dou=
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ble">Double Entry</a></h3>
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<p>
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<a href=3D"http://en.wikipedia.org/wiki/Double-entry_book-keeping">
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Double Entry bookkeeping</a>
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adds an additional important
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property to the accounting system;
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that of a clear strategy to identify errors
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and to remove them.
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Even better, it has a side effect of
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clearly firewalling errors as <i>either</i>
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accident <i>or</i> fraud.
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</p>
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<p>
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This property is enabled by means of three features,
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being the separation of all books into two groups
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or sides, called <i>assets</i> and <i>liabilities</i>,
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the redundancy of the duplicative
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<i>double entries</i> with each entry
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having a match on the other side,
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and the <i>balance sheet equation</i>, which says that
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the sum of all entries on the asset side
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must equal the sum of all entries on the
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liabilities side.
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</p>
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<p>
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A correct entry must refer to its counterparty, and
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its counterpart entry must exist on the other side.
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An entry in error
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might have been created for perhaps fraudulent
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reasons, but to be correct at the local level,
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it must refer to its counterparty book.
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If not, it can simply be eliminated as an incomplete
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entry.
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If it does refer, the existance of the other entry
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can be easily confirmed, or indeed recreated depending
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on the sense of it, and the loop is thus closed.
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</p>
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<p>
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Previously, in single entry books, the fraudster
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simply added his amount to a column of choice.
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In double entry books, that amount has to come from
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somewhere. If it comes from nowhere, it is eliminated
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above as an accidental error, and if it comes from
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somewhere in particular, that place is identified.
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In this way, fraud leaves a trail; and its purpose
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is revealed in the other book because the value taken
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from that book must also have come from somewhere.
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</p>
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<p>
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This then leads to an audit strategy. First, ensure
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that all entries are complete, in that they refer to
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their counterpart. Second, ensure that all movements
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of value make sense. This simple strategy created a
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record of transactions that permitted an accountancy
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of a business, without easily hiding frauds in the
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books themselves.
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</p>
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<h3><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"dou=
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ble">Which Came First - Double Entry or the Enterprise?</a></h3>
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<p>
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Double Entry bookkeeping is one of the
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greatest discoveries of commerce, and its
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significance is difficult to overstate.
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Historians think it to have been invented
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around the 1300s AD, although there are suggestions
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that it existed in some form or other as far
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back as the Greek empire.
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The earliest strong evidence
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is a 1494 treatise on mathematics
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by the Venetian Friar
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<a href=3D"http://www-groups.dcs.st-andrews.ac.uk/~history/Mathematicians/P=
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acioli.html">
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Luca Pacioli</a>
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<small>[<a href=3D"https://iang.org/papers/triple_entry.html#ref_LP" na=
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me=3D"back_LP">LP</a>]</small>.
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In his treatise, Pacioli documented many standard
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techniques, including a chapter on accounting.
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It was to become the basic text in double entry
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bookkeeping for many a year.
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</p>
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<p>
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Double Entry bookkeeping arose in concert with the
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arisal of modern forms of enterprise as pioneered
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by the Venetian merchants. Historians have debated whether
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Double Entry was invented to support the dramatically
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expanded demands of the newer ventures then taking place
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surrounding the expansion of city states such as Venice
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or whether Double Entry was an enabler of this expansion.
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</p>
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<p>
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Our experiences weigh in on the side of enablement.
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I refer to the experiences of digital money issuers.
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Our own first deployment of a system was with a
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single entry bookkeeping system. Its failure rate
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even though coding was tight was such that it could
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not sustain more than 20 accounts before errors in
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accounting crept in and the system lost cohesion.
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This occurred within weeks of initial testing and
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was never capable of being fielded. The replacement
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double entry system was fielded in early 1996 and
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has never lost a transaction
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(although there have been some close shaves
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<small>[<a href=3D"https://iang.org/papers/triple_entry.html#ref_IG1" n=
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2022-02-16 00:53:01 -05:00
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ame=3D"back_IG1">IG1</a>]</small>).
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</p>
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<p>
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Likewise, the company DigiCash BV of the Netherlands
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fielded an early digital cash system into a bank in
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the USA. During its testing period, the original
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single entry accounting system had to be field
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replaced with a double entry system for the same
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reason - errors crept in and rendered the accounting
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underneath the digital cash system unreliable.
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</p>
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<p>
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Another major digital money system lasted for many
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years on a single entry accounting system. Yet,
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the company knew it was running on luck. When a
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cracker managed to find a flaw in the system, an
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overnight attack allowed the creation of many
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millions of dollars worth of value. As this was more
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than the contractual issue of value to date, it
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caused dramatic contortions to the balance sheet,
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including putting it in breach of its user contract
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and at dire risk of a 'bank run'. Luckily, the cracker
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deposited the created value into the account of an
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online game that failed shortly afterwards, so the
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value was able to be neutralised and monetarily
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cleansed, without disclosure, and without scandal.
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</p>
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<p>
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In the opinion of this author at least, single
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entry bookkeeping is incapable of supporting any
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enterprise more sophisticated than a household.
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Given this, I suggest that evolution of complex
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enterprises required double entry as an enabler.
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</p>
|
|
|
|
|
|
|
|
|
|
<h3><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"dou=
|
|
|
|
|
ble">Computing Double Entry in Quick Time</a></h3>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Double Entry has always been the foundation
|
|
|
|
|
of accounting systems for computers. The capability
|
|
|
|
|
to detect, classify and correct errors is even more
|
|
|
|
|
important to computers than it is to humans,
|
|
|
|
|
as there is no luxury of human intervention;
|
|
|
|
|
the distance between
|
|
|
|
|
the user and the bits and bytes is far greater
|
|
|
|
|
than the distance between the bookkeeper and
|
|
|
|
|
the ink marks on his ledgers.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
How Double Entry is implemented is a
|
|
|
|
|
subject in and of itself.
|
|
|
|
|
Computer science introduces concepts such
|
|
|
|
|
as <i>transactions</i>,
|
|
|
|
|
which are defined as units of work that are
|
|
|
|
|
<i>atomic</i>, <i>consistent</i>,
|
|
|
|
|
<i>isolated</i>, and <i>durable</i>
|
|
|
|
|
(or ACID for short).
|
|
|
|
|
The core question for computer scientists is how to add an
|
|
|
|
|
entry to the assets side, then add an entry to the liabilities
|
|
|
|
|
side, and not crash half way through this sequence.
|
|
|
|
|
Or even worse, have another transaction start half way through.
|
|
|
|
|
|
|
|
|
|
This makes more sense when considered in the context of the
|
|
|
|
|
millions of entries that a computer might manage, and a
|
|
|
|
|
very small chance that something goes wrong; eventually
|
|
|
|
|
something does, and computers cannot handle errors of that
|
|
|
|
|
nature very well.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
For the most part, these concepts simply reduce
|
|
|
|
|
to "how do we implement double entry bookkeeping" ?
|
|
|
|
|
As this question is well answered in the literature,
|
|
|
|
|
we do no more than mention it here.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<h2><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"rec=
|
|
|
|
|
eipt">A Slightly Less Brief History of the Signed Receipt</a></h2>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Recent advances in financial cryptography have provided
|
|
|
|
|
a challenge to the concept of double entry bookkeeping.
|
|
|
|
|
The digital signature is capable of creating a record
|
|
|
|
|
with some strong degree of reliabilty, at least in the
|
|
|
|
|
senses expressed by ACID, above.
|
|
|
|
|
A digital signature can be relied
|
|
|
|
|
upon to keep a record safe, as
|
|
|
|
|
it will fail to verify if any
|
|
|
|
|
details in the record are changed.
|
|
|
|
|
</p><p>
|
|
|
|
|
|
|
|
|
|
</p><p>
|
|
|
|
|
If we can assume that the the record was originally
|
|
|
|
|
created correctly, then later errors are revealed,
|
|
|
|
|
both of an accidental nature and of fraudulent intent.
|
|
|
|
|
(Computers very rarely make accidental errors,
|
|
|
|
|
and when they do, they are most normally done
|
|
|
|
|
in a clumsy fashion more akin to the inkpot
|
|
|
|
|
being spilt than a few numbers.)
|
|
|
|
|
In this way, any change to a record that makes
|
|
|
|
|
some sort of accounting or semantic sense is
|
|
|
|
|
almost certainly an attempt at fraud, and a
|
|
|
|
|
digital signature makes this obvious.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<h3><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"dig=
|
|
|
|
|
icash">The Digital Signature and Digital Cash</a></h3>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
A digital signature gives us a particular property,
|
|
|
|
|
to whit:
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<blockquote><i>
|
|
|
|
|
"at a given point in time, this information
|
|
|
|
|
was seen and marked by the signing computer."
|
|
|
|
|
</i></blockquote>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
There are several variants,
|
|
|
|
|
with softer and harder claims to that property.
|
|
|
|
|
For example, <i>message digests</i> with
|
|
|
|
|
<i>entanglement</i> form one simple and
|
|
|
|
|
effective form of signature, and
|
|
|
|
|
<i>public key cryptosystems</i> provide
|
|
|
|
|
another form where signers hold a private
|
|
|
|
|
key and verifiers hold a public key
|
2022-02-18 15:59:12 -05:00
|
|
|
<small>[<a href=3D"https://iang.org/papers/triple_entry.html#ref_MB" na=
|
2022-02-16 00:53:01 -05:00
|
|
|
me=3D"back_MB">MB</a>]</small>.
|
|
|
|
|
|
|
|
|
|
There are also many ways to attack the
|
|
|
|
|
basic property.
|
|
|
|
|
In this essay I avoid
|
|
|
|
|
comparisons, and assume the basic property
|
|
|
|
|
as a reliable mark of having been seen by
|
|
|
|
|
a computer at some point in time.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Digital signatures then
|
|
|
|
|
represent a new way to create reliable
|
|
|
|
|
and trustworthy entries, which can be
|
|
|
|
|
constructed into accounting systems.
|
|
|
|
|
At first it was suggested that a
|
|
|
|
|
variant known as the
|
|
|
|
|
<i>blinded signature</i>
|
|
|
|
|
would enable digital cash
|
2022-02-18 15:59:12 -05:00
|
|
|
<small>[<a href=3D"https://iang.org/papers/triple_entry.html#ref_DC" na=
|
2022-02-16 00:53:01 -05:00
|
|
|
me=3D"back_DC">DC</a>]</small>.
|
|
|
|
|
Then, <i>certificates</i> would
|
|
|
|
|
circulate as rights or contracts, in much
|
|
|
|
|
the same way as the share certificates
|
|
|
|
|
of old and thus replace centralised accounting
|
|
|
|
|
systems
|
2022-02-18 15:59:12 -05:00
|
|
|
<small>[<a href=3D"https://iang.org/papers/triple_entry.html#ref_RAH" n=
|
2022-02-16 00:53:01 -05:00
|
|
|
ame=3D"back_RAH">RAH</a>]</small>.
|
|
|
|
|
|
|
|
|
|
These ideas took financial cryptography part of
|
|
|
|
|
the way there. Although they showed how to
|
|
|
|
|
strongly verify each transaction, they stopped
|
|
|
|
|
short of placing the the digital signature in an
|
|
|
|
|
overall framework of accountancy and governance.
|
|
|
|
|
A needed step was to add in the redundancy implied
|
|
|
|
|
in double entry bookkeeping in order to protect
|
|
|
|
|
both the transacting agents and the
|
|
|
|
|
system operators from fraud.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<h3><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"rec=
|
|
|
|
|
eipt">The Initial Role of a Receipt</a></h3>
|
|
|
|
|
|
|
|
|
|
<table cellspacing=3D"30" width=3D"50%" align=3D"right">
|
|
|
|
|
<tbody><tr><td>
|
|
|
|
|
<table border=3D"1" cellpadding=3D"10">
|
|
|
|
|
<tbody><tr><td bgcolor=3D"#F0F0F0">
|
|
|
|
|
<p align=3D"center"><i>1: An Interim Receipt</i></p>
|
|
|
|
|
<center>
|
|
|
|
|
<table bgcolor=3D"#99FFFF" border=3D"1">
|
|
|
|
|
<tbody><tr><td>
|
2022-02-18 15:59:12 -05:00
|
|
|
<table cellspacing=3D"5">
|
|
|
|
|
<tbody><tr>
|
|
|
|
|
<td>From</td>
|
|
|
|
|
<td>Alice</td>
|
|
|
|
|
</tr><tr>
|
|
|
|
|
<td>To</td>
|
|
|
|
|
<td>Bob</td>
|
|
|
|
|
</tr><tr>
|
|
|
|
|
<td>Unit</td>
|
|
|
|
|
<td>Euro</td>
|
|
|
|
|
</tr><tr>
|
|
|
|
|
<td>Quantity</td>
|
|
|
|
|
<td>100</td>
|
|
|
|
|
</tr><tr>
|
|
|
|
|
<td>Date</td>
|
|
|
|
|
<td>2005.12.25</td>
|
|
|
|
|
</tr>
|
|
|
|
|
</tbody></table>
|
2022-02-16 00:53:01 -05:00
|
|
|
</td></tr>
|
|
|
|
|
<tr><td>
|
2022-02-18 15:59:12 -05:00
|
|
|
<table cellspacing=3D"5">
|
|
|
|
|
<tbody><tr>
|
|
|
|
|
<td><i>digital signature</i></td>
|
|
|
|
|
</tr>
|
|
|
|
|
</tbody></table>
|
2022-02-16 00:53:01 -05:00
|
|
|
</td></tr>
|
|
|
|
|
</tbody></table></center>
|
|
|
|
|
|
|
|
|
|
</td></tr>
|
|
|
|
|
</tbody></table>
|
|
|
|
|
</td></tr>
|
|
|
|
|
</tbody></table>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Designs that derived from the characteristics of
|
|
|
|
|
the Internet, the capabilities of cryptography
|
|
|
|
|
and the needs of governance
|
|
|
|
|
led to the development of the
|
|
|
|
|
<i>signed receipt</i>
|
2022-02-18 15:59:12 -05:00
|
|
|
<small>[<a href=3D"https://iang.org/papers/triple_entry.html#ref_GH" na=
|
2022-02-16 00:53:01 -05:00
|
|
|
me=3D"back_GH">GH</a>]</small>.
|
|
|
|
|
In order to develop this concept, let us assume
|
|
|
|
|
a simple three party payment system,
|
|
|
|
|
wherein each party holds an authorising
|
|
|
|
|
key which can be used to sign their instructions.
|
|
|
|
|
We call these players <i>Alice</i>, <i>Bob</i> (two users)
|
|
|
|
|
and <i>Ivan</i> (the Issuer)
|
|
|
|
|
for convenience.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
When Alice wishes to transfer value to Bob in some
|
|
|
|
|
unit or contract managed by Ivan, she writes out the
|
|
|
|
|
payment instruction and signs it digitally,
|
|
|
|
|
much like a cheque is dealt with in the
|
|
|
|
|
physical world. She sends this
|
|
|
|
|
to the server, Ivan, and he presumably agrees and
|
|
|
|
|
does the transfer in his internal set of books.
|
|
|
|
|
He then issues a receipt and signs it with his
|
|
|
|
|
signing key.
|
|
|
|
|
As an important part of the protocol,
|
|
|
|
|
Ivan then reliably delivers the
|
|
|
|
|
signed receipt to both Alice and Bob,
|
|
|
|
|
and they can update their internal books
|
|
|
|
|
accordingly.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<h3><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"cla=
|
|
|
|
|
sh">The Receipt <i>is</i> the Transaction</a></h3>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Our concept of digital value sought to eliminate as
|
|
|
|
|
many risks as possible. This was derived simply from
|
|
|
|
|
one of the high level requirements, that of being
|
|
|
|
|
extremely efficient at issuance of value. Efficiency
|
|
|
|
|
in digital issuance is primarily a function of support
|
|
|
|
|
costs, and a major determinant of support costs is
|
|
|
|
|
the costs of fraud and theft.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
One risk that consistently blew away any
|
|
|
|
|
design for efficient digital value at
|
|
|
|
|
reasonable cost was the risk of <i>insider fraud</i>.
|
|
|
|
|
In our model of many users and a single
|
|
|
|
|
centralised server, the issuers of the unit
|
|
|
|
|
of digital value (as signatory to the contract)
|
|
|
|
|
and any governance partners such as the server
|
|
|
|
|
operators are powerful candidates for insider fraud.
|
|
|
|
|
Events over the last few years such as the mutual
|
|
|
|
|
funds and stockgate scandals are canonical cases
|
|
|
|
|
of risks that we decided to address.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<table cellspacing=3D"30" width=3D"50%" align=3D"right">
|
|
|
|
|
<tbody><tr><td>
|
|
|
|
|
<table border=3D"1" cellpadding=3D"10">
|
|
|
|
|
<tbody><tr><td bgcolor=3D"#F0F0F0">
|
|
|
|
|
<p align=3D"center"><i>2: A Signed Receipt</i></p>
|
|
|
|
|
<center><table bgcolor=3D"#99FFFF" border=3D"1">
|
|
|
|
|
<tbody><tr><td>
|
2022-02-18 15:59:12 -05:00
|
|
|
<table cellspacing=3D"5">
|
|
|
|
|
<tbody><tr>
|
|
|
|
|
<td>User's Cheque</td>
|
|
|
|
|
<td>
|
|
|
|
|
<table bgcolor=3D"#FFBBFF" border=3D"1">
|
|
|
|
|
<tbody><tr><td>
|
|
|
|
|
<table>
|
|
|
|
|
<tbody><tr><td>
|
|
|
|
|
</td>
|
|
|
|
|
</tr><tr>
|
|
|
|
|
<td>From</td>
|
|
|
|
|
<td>Alice</td>
|
|
|
|
|
</tr><tr>
|
|
|
|
|
<td>To</td>
|
|
|
|
|
<td>Bob</td>
|
|
|
|
|
</tr><tr>
|
|
|
|
|
<td>Unit</td>
|
|
|
|
|
<td>Euro</td>
|
|
|
|
|
</tr><tr>
|
|
|
|
|
<td>Qty</td>
|
|
|
|
|
<td>100</td>
|
|
|
|
|
</tr><tr>
|
|
|
|
|
<td>Com</td>
|
|
|
|
|
<td>Pens</td>
|
|
|
|
|
</tr>
|
|
|
|
|
</tbody></table>
|
|
|
|
|
</td></tr>
|
|
|
|
|
<tr><td>
|
|
|
|
|
<table cellspacing=3D"5">
|
|
|
|
|
<tbody><tr>
|
|
|
|
|
<td><i>Alice's sig</i></td>
|
|
|
|
|
</tr>
|
|
|
|
|
</tbody></table>
|
|
|
|
|
</td></tr>
|
|
|
|
|
</tbody></table>
|
|
|
|
|
</td>
|
|
|
|
|
</tr><tr>
|
|
|
|
|
<td>From</td>
|
|
|
|
|
<td>Alice</td>
|
|
|
|
|
</tr><tr>
|
|
|
|
|
<td>To</td>
|
|
|
|
|
<td>Bob</td>
|
|
|
|
|
</tr><tr>
|
|
|
|
|
<td>Unit</td>
|
|
|
|
|
<td>Euro</td>
|
|
|
|
|
</tr><tr>
|
|
|
|
|
<td>Quantity</td>
|
|
|
|
|
<td>100</td>
|
|
|
|
|
</tr><tr>
|
|
|
|
|
<td>Date</td>
|
|
|
|
|
<td>2005.04.10</td>
|
|
|
|
|
</tr>
|
|
|
|
|
</tbody></table>
|
2022-02-16 00:53:01 -05:00
|
|
|
</td></tr>
|
|
|
|
|
<tr><td>
|
2022-02-18 15:59:12 -05:00
|
|
|
<table cellspacing=3D"5">
|
|
|
|
|
<tbody><tr>
|
|
|
|
|
<td><i>Ivan's signature</i></td>
|
|
|
|
|
</tr>
|
|
|
|
|
</tbody></table>
|
2022-02-16 00:53:01 -05:00
|
|
|
</td></tr>
|
|
|
|
|
</tbody></table></center>
|
|
|
|
|
|
|
|
|
|
</td></tr>
|
|
|
|
|
</tbody></table>
|
|
|
|
|
</td></tr>
|
|
|
|
|
</tbody></table>
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
In order to address the risk of insider fraud,
|
|
|
|
|
the written receipt was historically introduced
|
|
|
|
|
as being a primary source of evidence.
|
|
|
|
|
Mostly forgotten to the buying public these
|
|
|
|
|
days, the purpose of a written receipt in
|
|
|
|
|
normal retail trade is not to permit returns
|
|
|
|
|
and complaints by the customer, but rather to
|
|
|
|
|
engage her in a protocol of documentation that
|
|
|
|
|
binds the shop attendant into safekeeping of
|
|
|
|
|
the monies.
|
|
|
|
|
A good customer will notice fraud by the
|
|
|
|
|
shop attendant and warn the owner to look
|
|
|
|
|
out for the monies identified by the receipt;
|
|
|
|
|
the same story applies to the invention of
|
|
|
|
|
the cash till or register, which was originally
|
|
|
|
|
just a box separating the owner's takings
|
|
|
|
|
from the monies in the shop attendant's
|
|
|
|
|
pockets.
|
|
|
|
|
We extend this primary motive into the
|
|
|
|
|
digital world by using a signed receipt
|
|
|
|
|
to bind the Issuer into a governance
|
|
|
|
|
protocol with the users.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
We also go several steps further forward.
|
|
|
|
|
Firstly, to achieve a complete binding,
|
|
|
|
|
Alice's original authorisation
|
|
|
|
|
is also included within the record.
|
|
|
|
|
The receipt then includes all the
|
|
|
|
|
evidence of both the user's
|
|
|
|
|
intention and the server's action
|
|
|
|
|
in response, and it now becomes a
|
|
|
|
|
<i>dominating record</i> of the event.
|
|
|
|
|
This then means that the most efficient
|
|
|
|
|
record keeping strategy is to drop all
|
|
|
|
|
prior records and keep safe the signed
|
|
|
|
|
receipt.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
This domination effects both the Issuer and the
|
|
|
|
|
user, and allows us to state the following principle:
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<blockquote><i>
|
|
|
|
|
The User and the Issuer hold the same information.
|
|
|
|
|
</i></blockquote>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
As the signed receipt is delivered from Issuer
|
|
|
|
|
to both users, all three parties hold the same
|
|
|
|
|
dominating record for each event. This reduces
|
|
|
|
|
support costs by dramatically reducing problems
|
|
|
|
|
caused by differences in information.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Secondly, we bind a signed contract
|
|
|
|
|
of issuance known as a
|
|
|
|
|
<i>Ricardian Contract</i>
|
|
|
|
|
into the receipt
|
|
|
|
|
<small>[<a href=3D"https://iang.org/papers/triple_entry.html#ref_IG2" nam=
|
|
|
|
|
e=3D"back_IG2">IG2</a>]</small>.
|
|
|
|
|
This invention relates a digitally signed
|
|
|
|
|
document securely to the signed receipt by
|
|
|
|
|
means of a unique identifier called a
|
|
|
|
|
<i>message digest</i>,
|
|
|
|
|
again provided by cryptography.
|
|
|
|
|
It provides strong binding for the unit
|
|
|
|
|
of account, the nature of the issue, the
|
|
|
|
|
terms, conditions and promises being made
|
|
|
|
|
by the Issuer, and of course the identity
|
|
|
|
|
of the Issuer.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Finally, with these enabling steps in place,
|
|
|
|
|
we can now introduce the principle:
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<blockquote><i>
|
|
|
|
|
The Receipt </i>is<i> the Transaction.
|
|
|
|
|
</i></blockquote>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Within the full record of the signed receipt,
|
|
|
|
|
the user's intention is expressed, and is
|
|
|
|
|
fully confirmed by the server's response.
|
|
|
|
|
Both of these are covered by digital
|
|
|
|
|
signatures, locking these data down.
|
|
|
|
|
A reviewer such as an auditor can confirm the
|
|
|
|
|
two sets of data, and can verify the signatures.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<h2><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"cla=
|
|
|
|
|
sh">The Signed Receipt as a Bookkeeping system</a></h2>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
The principle of the Receipt as the Transaction
|
|
|
|
|
has become sacrosact over time.
|
|
|
|
|
In our client software, the principle has been
|
|
|
|
|
hammered into the design consistently, resulting
|
|
|
|
|
in a simplified accounting regime, and delivering
|
|
|
|
|
a high reliability.
|
|
|
|
|
Issues still remain, such as the
|
|
|
|
|
loss of receipts and the counting of balances
|
|
|
|
|
by the client side software, but these become
|
|
|
|
|
reasonably tractable once the goal of receipts
|
|
|
|
|
as transactions is placed paramount in the
|
|
|
|
|
designer's mind.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<h3><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"sr1=
|
|
|
|
|
">As Single Entry</a></h3>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
In order to calculate balances on a related
|
|
|
|
|
set of receipts, or to present a transaction
|
|
|
|
|
history, a book would be constructed
|
|
|
|
|
on the fly from the set.
|
|
|
|
|
This amounts to using the Signed Receipt
|
|
|
|
|
as a basis for single entry bookkeeping.
|
|
|
|
|
In effect, the bookkeeping is derived from
|
|
|
|
|
the raw receipts, and this raises the
|
|
|
|
|
question as to whether to keep the books
|
|
|
|
|
in place.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
The principles of Relational Databases
|
|
|
|
|
provide guidance here.
|
|
|
|
|
The <i>fourth normal form</i>
|
|
|
|
|
directs that we store the primary records,
|
|
|
|
|
in this case the set of receipts, and we
|
|
|
|
|
construct derivative records, the accounting
|
|
|
|
|
books, on the fly
|
2022-02-18 15:59:12 -05:00
|
|
|
<small>[<a href=3D"https://iang.org/papers/triple_entry.html#ref_4NF" n=
|
2022-02-16 00:53:01 -05:00
|
|
|
ame=3D"back_4NF">4NF</a>]</small>.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<h3><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"sr2=
|
|
|
|
|
">Recovering Double Entry</a></h3>
|
|
|
|
|
<p>
|
|
|
|
|
Similar issues arise for Ivan the Issuer.
|
|
|
|
|
The server has to accept each new transaction
|
|
|
|
|
on the basis of the available balance in the
|
|
|
|
|
effected books; for this reason Ivan needs
|
|
|
|
|
those books to be available efficiently.
|
|
|
|
|
Due to the greater number of receipts and
|
|
|
|
|
books (one for each user account), both
|
|
|
|
|
receipts and books will tend to exist, in
|
|
|
|
|
direct contrast to fourth normal form.
|
|
|
|
|
A meld
|
|
|
|
|
between relationally sound sets of receipts
|
|
|
|
|
and double entry books comes to assist here.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Alice and Bob both are granted a book
|
|
|
|
|
each within the server's architecture.
|
|
|
|
|
As is customary, we place those
|
|
|
|
|
books on the liabilities side.
|
|
|
|
|
Receipts then can be placed in a separate
|
|
|
|
|
single book and this could be logically
|
|
|
|
|
placed on the assets side.
|
|
|
|
|
Each transaction from Alice to Bob
|
|
|
|
|
now has a logical contra entry,
|
|
|
|
|
and is then represented in 3 places
|
|
|
|
|
within the accounts of the server.
|
|
|
|
|
Yet, the assets side remains in fourth
|
|
|
|
|
normal form terms as the liabilities
|
|
|
|
|
entries are derived, each pair from one
|
|
|
|
|
entry on the assets side.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
By extension, a more sophisticated
|
|
|
|
|
client-side software agent,
|
|
|
|
|
working for Alice or Bob,
|
|
|
|
|
could employ the same techniques.
|
|
|
|
|
At this extreme, entries are now in place in
|
|
|
|
|
three separate locations, and each holding
|
|
|
|
|
potentially three records.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<h3><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"sr3=
|
|
|
|
|
">Triple Entry Accounting</a></h3>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
The digitally signed receipt, with the entire
|
|
|
|
|
authorisation for a transaction, represents
|
|
|
|
|
a dramatic challenge to double entry bookkeeping
|
|
|
|
|
at least at the conceptual level. The cryptographic
|
|
|
|
|
invention of the digital signature gives powerful
|
|
|
|
|
evidentiary force to the receipt, and in practice
|
|
|
|
|
reduces the accounting problem to one of the
|
|
|
|
|
receipt's presence or its absence. This problem
|
|
|
|
|
is solved by sharing the records - each of the
|
|
|
|
|
agents has a good copy.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
In some strict sense of relational database theory,
|
|
|
|
|
double entry book keeping is now redundant;
|
|
|
|
|
it is normalised away by the fourth normal form.
|
|
|
|
|
Yet this is
|
|
|
|
|
more a statement of theory than practice, and
|
|
|
|
|
in the software systems that we have built, the
|
|
|
|
|
two remain together, working mostly hand in hand.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Which leads to the pairs of double entries
|
|
|
|
|
connected by the central list of receipts;
|
|
|
|
|
three entries for each transaction.
|
|
|
|
|
Not only is each accounting agent led to
|
|
|
|
|
keep three entries, the natural roles
|
|
|
|
|
of a transaction are of three parties,
|
|
|
|
|
leading to three by three entries.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
We term this <i>triple entry bookkeeping</i>.
|
|
|
|
|
Although the digitally signed receipt dominates
|
|
|
|
|
in information
|
|
|
|
|
terms, in processing terms it falls short. Double
|
|
|
|
|
entry book keeping fills in the processing gap,
|
|
|
|
|
and thus the two will work better together
|
|
|
|
|
than apart. In this sense, our term of triple
|
|
|
|
|
entry bookkeeping recommends an advance in
|
|
|
|
|
accounting, rather than a revolution.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<h3><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"con=
|
|
|
|
|
c">Software Considerations</a></h3>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
The precise layout of the entries in software
|
|
|
|
|
and data terms is not settled,
|
|
|
|
|
and may ultimately become one of
|
|
|
|
|
those ephemeral <i>implementation issues</i>.
|
|
|
|
|
The signed receipts may form a natural
|
|
|
|
|
asset-side contra account, or they
|
|
|
|
|
may be a separate non-book list underlying
|
|
|
|
|
the bookkeeping system and its two sides.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Auditing issues arise where construction
|
|
|
|
|
of the books derives from the receipts,
|
|
|
|
|
and normalisation issues arise when a
|
|
|
|
|
receipt is lost. These are issues for
|
|
|
|
|
future research.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Likewise, it is worth stating that
|
|
|
|
|
the technique of signing receipts works
|
|
|
|
|
both with private key signatures and also
|
|
|
|
|
with entanglement message digest signatures;
|
|
|
|
|
whether the security aspects of these
|
|
|
|
|
techniques is adequate to task is dependent
|
|
|
|
|
on the business environment.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<h3><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"rol=
|
|
|
|
|
es">Roles of the Agents</a></h3>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
It will be noted that the above design of
|
|
|
|
|
triple entry bookkeeping assumed that Alice
|
|
|
|
|
and Bob were agents of some independence.
|
|
|
|
|
This was made possible, and reflected the
|
|
|
|
|
usage of the system as a digital cash system,
|
|
|
|
|
and not as a classical accounting system.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Far from reducing the relevance of this work
|
|
|
|
|
to the accounting profession, it introduces
|
|
|
|
|
digital cash as an alternate to corporate
|
|
|
|
|
bookkeeping.
|
|
|
|
|
If an accounting system for a corporation or
|
|
|
|
|
other administrative entity is recast as a
|
|
|
|
|
system of digital cash, or <i>internal
|
|
|
|
|
money</i>, then experience shows that
|
|
|
|
|
benefits accrue to the organisation.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Although the core of the system looks exactly
|
|
|
|
|
like an accounting system, each department's
|
|
|
|
|
books are pushed out as digital cash accounts.
|
|
|
|
|
Departments no longer work so much with budgets
|
|
|
|
|
as have control over their own corporate money.
|
|
|
|
|
Fundamental governance control is still held
|
|
|
|
|
within the accounting department by dint of their
|
|
|
|
|
operation of the system, and by the limited scope
|
|
|
|
|
of the money as only being usable within the
|
|
|
|
|
organisation; the accounting department might
|
|
|
|
|
step in as a <i>market maker</i>, exchanging
|
|
|
|
|
payments in internal money for payments in
|
|
|
|
|
external money to outside suppliers.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
We have operated this system on a small scale.
|
|
|
|
|
Rather than be inefficient on such a small
|
|
|
|
|
scale, the system has generated dramatic
|
|
|
|
|
savings in coordination. No longer are bills
|
|
|
|
|
and salaries paid using conventional monies;
|
|
|
|
|
many transactions are dealt with by internal
|
|
|
|
|
money transfers and at the edges of the
|
|
|
|
|
corporation, formal and informal agents work
|
|
|
|
|
to <i>exchange</i> between internal money and
|
|
|
|
|
external money. Paperwork reduces dramatically,
|
|
|
|
|
as the records of the money system are reliable
|
|
|
|
|
enough to quickly resolve questions even years
|
|
|
|
|
after the event.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
The innovations present in internal money
|
|
|
|
|
go beyond the present paper, but suffice
|
|
|
|
|
to say that they answer the obvious question
|
|
|
|
|
of why this design of triple entry accounting
|
|
|
|
|
sprung from the world of digital cash, and
|
|
|
|
|
has relevence back to the corporate world.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<h2><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"poc=
|
|
|
|
|
"> Patterns of Commerce </a> </h2>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Todd Boyle looked at a similar problem from the point
|
|
|
|
|
of view of small business needs in an Internet age,
|
|
|
|
|
and reached the same conclusion - triple entry
|
|
|
|
|
accounting
|
2022-02-18 15:59:12 -05:00
|
|
|
<small>[<a href=3D"https://iang.org/papers/triple_entry.html#ref_1" nam=
|
2022-02-16 00:53:01 -05:00
|
|
|
e=3D"back_1">1</a>]</small>.
|
|
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|
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|
His starting premises were that:
|
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|
</p>
|
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|
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|
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<ol><li><p>
|
2022-02-18 15:59:12 -05:00
|
|
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The major need is not accounting or payments, per se,
|
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|
|
|
but patterns of exchange - complex patterns of trade;
|
2022-02-16 00:53:01 -05:00
|
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</p></li><li><p>
|
2022-02-18 15:59:12 -05:00
|
|
|
Small businesses could not afford large complex
|
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|
systems that understood these patterns;
|
2022-02-16 00:53:01 -05:00
|
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</p></li><li><p>
|
2022-02-18 15:59:12 -05:00
|
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|
They would not lock themselves into proprietary
|
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frameworks;
|
2022-02-16 00:53:01 -05:00
|
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</p></li></ol>
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<p>
|
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|
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From those foundations, Boyle concluded that
|
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therefore what is needed is a shared access repository
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that provides arms-length access. Fundamentally, this
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repository is akin to the classic double-entry accounting ledger
|
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of transaction rows ("GLT" for General Ledger - Transactions),
|
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yet its entries are dynamic and shared.
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</p>
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<p>
|
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Simple examples will help.
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When Alice forms a transaction, she enters it into her software.
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Every GLT transaction requires naming her external
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counterparty, Bob. When she posts the transaction,
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her software stores it in her local GLT and also
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submits it to the shared repository service's GLT.
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</p>
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<p>
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The Shared Transaction Repository ("STR") then forwards
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the transaction on to Bob. Both Bob and Alice are now
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expected to store the handle to the transaction as
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an index or stub, and the STR then stores the entire
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transaction.
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</p>
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<p>
|
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Boyle's ideas are logically comparable to Grigg and Howland's,
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although they arive from different directions
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(the STR is Grigg's Ivan, above) and are not totally
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equivalent.
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Where the latter limited themselves to payments,
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the accuracy of amounts,
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and protection with hard cryptographic shells,
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|
|
|
|
Boyle looked at wider patterns of transactions,
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and showed that the STR could mediate these transactions,
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|
|
if the core shared data could be extracted and made into
|
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a single shared record.
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|
|
|
Boyle's focus was on the economic substance of the
|
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|
|
transaction.
|
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|
</p>
|
|
|
|
|
|
|
|
|
|
<h3> <a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"po=
|
|
|
|
|
c_inv"> Extending the Humble Invoice </a> </h3>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Imagine a simple invoicing procedure.
|
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|
|
Alice creates an invoice and posts it to her software (GLT).
|
|
|
|
|
As she has named Bob,
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|
|
the GLT automatically posts it to Ivan,
|
|
|
|
|
the STR, and he forwards it to Bob.
|
|
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|
|
At this point Bob has a decision to make, accept or
|
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|
|
|
reject. Assuming acceptance, his
|
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|
|
software can then respond by sending
|
|
|
|
|
an acceptance message to Ivan.
|
|
|
|
|
The STR now assembles an accepted
|
|
|
|
|
invoice record to replace the earlier
|
|
|
|
|
speculative invoice record and posts that threeways.
|
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|
|
|
At some related time (to do with payment policy)
|
|
|
|
|
Bob also posts a separate transaction to pay for the
|
|
|
|
|
invoice. This could operate in much the same way as
|
|
|
|
|
a separate transaction, linking directly to the
|
|
|
|
|
original invoice.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
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|
|
<p>
|
|
|
|
|
Now, as the payment links back,
|
|
|
|
|
and the invoice is a live transaction within the three
|
|
|
|
|
entries in the three accounting systems, it is possible
|
|
|
|
|
for a new updated invoice record to refer back to the
|
|
|
|
|
payment activity.
|
|
|
|
|
When the payment clears, the new record can
|
|
|
|
|
again replace the older unpaid copy and
|
|
|
|
|
promulgate to all three parties.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<h3> <a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"po=
|
|
|
|
|
c_tx"> Patterns of Transactions </a> </h3>
|
|
|
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|
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|
<p>
|
|
|
|
|
Software could be written to facilitate and monitor
|
|
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|
|
this flow and similar flows.
|
|
|
|
|
If the payments system is sufficiently
|
|
|
|
|
flexible, and integrated with the needs of the users,
|
|
|
|
|
if might be possible to merge the above invoice
|
|
|
|
|
with the payment itself, at the Receipts level.
|
|
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|
|
Seen in this light, the Signed receipt of Ricardo
|
|
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|
|
is simply the smallest and simplest pattern within
|
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|
the more general set of patterns.
|
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|
|
We could then suggest that the narrow principle of
|
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|
|
<i>the Receipt <u>is</u> the Transaction</i>
|
|
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|
|
could be extended into
|
|
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|
|
<i>The Invoice <u>is</u> the Transaction</i>.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
A particular transaction in business almost never
|
|
|
|
|
stands alone. They come in patterns.
|
|
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|
|
For example offers and acceptances form a wider
|
|
|
|
|
transaction but seldom encapsulate the entire
|
|
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|
|
fulfillment and payment cycle.
|
|
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|
|
Even if there has been a payment
|
|
|
|
|
accompanying a PO message,
|
|
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|
|
the customer then waits for fulfillment.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
There is a large body of science and literature
|
|
|
|
|
built around these <i>patterns of transactions</i>.
|
|
|
|
|
These have been adopted by the Business Process
|
|
|
|
|
workgroup of ebXML and other standards bodies,
|
|
|
|
|
where they are called "Commercial Transactions."
|
|
|
|
|
Where however the present work distinguishes itself
|
|
|
|
|
is in breaking down these transactions into the
|
|
|
|
|
atomic elements. It is to that we now turn.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<h2> <a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"po=
|
|
|
|
|
c_req"> The Requirements of Triple Entry Accounting </a> </h2>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
The implementation of Triple Entry Accounting
|
|
|
|
|
will in time evolve to support
|
|
|
|
|
patterns of transactions.
|
|
|
|
|
What has become clear is that double entry does
|
|
|
|
|
not sufficiently support these patterns, as it
|
|
|
|
|
is a framework that breaks down as soon as the
|
|
|
|
|
number of parties exceeds one.
|
|
|
|
|
Yet, even as double entry is "broken" on the net
|
|
|
|
|
and unable to support commercial demands,
|
|
|
|
|
triple entry is not widely understood,
|
|
|
|
|
nor are the infrastructure requirements
|
|
|
|
|
that it imposes well recognised.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Below are the list of requirements that we
|
|
|
|
|
believed to be important
|
2022-02-18 15:59:12 -05:00
|
|
|
<small>[<a href=3D"https://iang.org/papers/triple_entry.html#ref_2" nam=
|
2022-02-16 00:53:01 -05:00
|
|
|
e=3D"back_2">2</a>]</small>
|
2022-02-18 15:59:12 -05:00
|
|
|
<small>[<a href=3D"https://iang.org/papers/triple_entry.html#ref_3" nam=
|
2022-02-16 00:53:01 -05:00
|
|
|
e=3D"back_3">3</a>]</small>.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
<b>1. Strong Psuedonymity, At Least</b>.
|
|
|
|
|
As there are many cycles in the patterns, the
|
|
|
|
|
system must support a clear relationship of
|
|
|
|
|
participants. At the minimum this requires
|
|
|
|
|
a nymous architecture of the nature of Ricardo
|
|
|
|
|
or AADS. (This requirement is very clear,
|
|
|
|
|
but space prevents any discussion of it.)
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
<b>2. Entry Signing</b>.
|
|
|
|
|
In order to neutralise the threats to and by the
|
|
|
|
|
parties, a mechanism that freezes and confirms
|
|
|
|
|
the basic data is needed.
|
|
|
|
|
This is signing, and we require that all entries
|
|
|
|
|
are capable of carrying digital signatures
|
|
|
|
|
(see 1, above, which suggests public key signatures).
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
<b>3. Message Passing</b>.
|
|
|
|
|
The system is fundamentally one of message passing,
|
|
|
|
|
in contrast to much of the net's connection based
|
|
|
|
|
architecture.
|
|
|
|
|
Boyle recognised early on that a critical
|
|
|
|
|
component was the generic message passing nature,
|
|
|
|
|
and Systemics proposed and built this
|
|
|
|
|
into Ricardo over the period 2001-2004
|
|
|
|
|
<small>[<a href=3D"https://iang.org/papers/triple_entry.html#ref_4" name=
|
|
|
|
|
=3D"back_4">4</a>]</small>.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
<b>4. Entry Enlargement and Migration</b>.
|
|
|
|
|
Each new version of a message coming in represents
|
|
|
|
|
an entry that is either to be updated or added.
|
|
|
|
|
As each message adds to a prior conversation,
|
|
|
|
|
the stored entry needs to enlarge and absorb the
|
|
|
|
|
new information, while preserving the other properties.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
<b>5. Local Entry Storage and Reports</b>.
|
|
|
|
|
The persistent saving and responsive availability
|
|
|
|
|
of entries.
|
|
|
|
|
In practice, this is the classical accounting
|
|
|
|
|
general ledger, at least in storage terms.
|
|
|
|
|
It needs to bend somewhat
|
|
|
|
|
to handle much more flexible entries,
|
|
|
|
|
and its report capabilities become more key
|
|
|
|
|
as they conduct instrinsic reconciliation
|
|
|
|
|
on a demand or live basis.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
<b>6. Integrated Hard Payments</b>.
|
|
|
|
|
Trade can only be as efficient as the payment.
|
|
|
|
|
That means that the payment must be at least as
|
|
|
|
|
efficient as every other part; which in practice
|
|
|
|
|
means that a payment system should be built-in
|
|
|
|
|
at the infrastructure level. C.f., Ricardo.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
<b>7 Integrated Application-Level Messaging</b>.
|
|
|
|
|
As distinct to the messaging at the lower protocol
|
|
|
|
|
levels (1 above), there is a requirement for Alice and Bob
|
|
|
|
|
to be able to communicate. That is because the
|
|
|
|
|
vast majority of the patterns turns around the
|
|
|
|
|
basic communications of the agents. There is no
|
|
|
|
|
point in establishing a better payment and invoice
|
|
|
|
|
mechanism than the means of communication and
|
|
|
|
|
negotiation. This concept is perhaps best seen
|
|
|
|
|
in the SWIFT system which is a messaging system,
|
|
|
|
|
first and foremost, to deliver instructions for
|
|
|
|
|
payments.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
<h2><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"con=
|
|
|
|
|
c">Conclusion</a></h2>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Double Entry bookkeeping provides evidence of
|
|
|
|
|
intent and origin, leading to strategies for
|
|
|
|
|
dealing with errors of accident and fraud.
|
|
|
|
|
The financial cryptography invention of the
|
|
|
|
|
signed receipt provides the same benefits,
|
|
|
|
|
and thus challenges the 800 year reign of
|
|
|
|
|
double entry.
|
|
|
|
|
Indeed, in evidentiary terms, the signed receipt
|
|
|
|
|
is more powerful than double entry records due to
|
|
|
|
|
the technical qualities of its signature.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
There remain some weaknesses in strict comparison
|
|
|
|
|
with double entry bookkeeping. Firstly, in
|
|
|
|
|
the Ricardo instantiation of triple entry
|
|
|
|
|
accounting, the
|
|
|
|
|
receipts themselves may be lost or removed,
|
|
|
|
|
and for this reason we stress as a principle that
|
|
|
|
|
<i>the entry <u>is</u> the transaction</i>.
|
|
|
|
|
This results in three
|
|
|
|
|
active agents who are charged with securing
|
|
|
|
|
the signed entry as their most important
|
|
|
|
|
record of transaction.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Secondly, the software ramifications of the
|
|
|
|
|
triple entry system that are less convenient than that
|
|
|
|
|
offered by double entry bookkeeping. For this
|
|
|
|
|
reason, we expand the information held in the
|
|
|
|
|
receipt into a set of double entry books;
|
|
|
|
|
in this way we have the best of both worlds on each node:
|
|
|
|
|
the evidentiary power of the signed entries and
|
|
|
|
|
the convenience and local crosschecking power of
|
|
|
|
|
the double entry concept.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Both of these imperitives meld signed receipts in
|
|
|
|
|
with double entry bookkeeping. As we end up with
|
|
|
|
|
a logical arrangement of three by three entries,
|
|
|
|
|
we feel the term <i>triple entry bookkeeping</i>
|
|
|
|
|
is useful to describe the advance on the older form.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<h3><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"con=
|
|
|
|
|
c_ag">Drawing in the Agents</a></h3>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
To fully benefit from triple entry bookkeeping,
|
|
|
|
|
we have to expand accounting systems out to
|
|
|
|
|
agents and offer them direct capabilities to
|
|
|
|
|
do transactions.
|
|
|
|
|
That is, we make the agents stakeholders by
|
|
|
|
|
giving them internal money
|
|
|
|
|
<small>[<a href=3D"https://iang.org/papers/triple_entry.html#ref_5" name=
|
|
|
|
|
=3D"back_5">5</a>]</small>.
|
|
|
|
|
Use of digital cash to do company accounts
|
|
|
|
|
empowers the use of this concept as a general
|
|
|
|
|
replacement for accounting using books and
|
|
|
|
|
departmental budgets, and is an enabler for
|
|
|
|
|
verifying and auditing the centralised
|
|
|
|
|
accounts system by way of signed receipts.
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<h3><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"con=
|
|
|
|
|
c_fraud">Solving Frauds</a></h3>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
Once there, governance receives substantial
|
|
|
|
|
benefits. Accounts are now much more difficult
|
|
|
|
|
to change, and much more transparent. It is
|
|
|
|
|
our opinion that various scandals and failures
|
|
|
|
|
of governance would have been impossible given
|
|
|
|
|
these techniques: the mutual funds scandal
|
|
|
|
|
would have shown a clear audit trail of transactions
|
|
|
|
|
and thus late timing and otherwise perverted or
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dropped transactions would have been clearly
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identified or eliminated completely
|
2022-02-18 15:59:12 -05:00
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<small>[<a href=3D"https://iang.org/papers/triple_entry.html#ref_NG" na=
|
2022-02-16 00:53:01 -05:00
|
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me=3D"back_NG">NG</a>]</small>.
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The emerging scandal in the USA known as
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<i>Stockgate</i> would have been impossible
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as forgery of shares and value for manipulative
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trading purposes is revealed by signed receipts.
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Likewise, Barings would still be a force in
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investment banking if accounts had been
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organised around easily transparent digital cash
|
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with open and irreducible signed receipts that
|
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|
|
evidence invisible accounts (<i>88888</i>).
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Enron style scandals would have permitted more
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direct "follow the money" governance lifting
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the veil on various innovative but economically
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meaningless swaps.
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</p>
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<h2><a href=3D"https://iang.org/papers/triple_entry.html#index" name=3D"ref=
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"> References </a></h2>
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<font size=3D"-1">
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<p>
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<b><a name=3D"ref_TB">[TB]</a></b>
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A draft form of this paper credited Todd Boyle
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|
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as an author, but this was later withdrawn at
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his request due to wider differences between
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the views.
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</p>
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<p>
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<b><a name=3D"ref_LP">[LP]</a></b>
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Friar Luca Pacioli,
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<cite><a href=3D"http://www.acsac.org/2001/papers/110.pdf">
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Summa de Arithmetica, Geometria,
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|
Proportioni et Proportionalita
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</a></cite>
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1494, Venice.
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</p>
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<p>
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|
<b><a name=3D"ref_IG1">[IG1]</a></b>
|
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|
|
Ian Grigg
|
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|
"<a href=3D"http://www.financialcryptography.com/mt/archives/000442.html">
|
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|
The Twilight Zone
|
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|
</a>,"
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|
<cite>Financial Cryptography blog</cite>
|
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|
16th April 2005
|
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</p>
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<p>
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|
<b><a name=3D"ref_MB">[MB]</a></b>
|
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|
|
Entanglement is discussed in:
|
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|
Petros Maniatis and Mary Baker,
|
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|
|
"Secure History Preservation through Timeline Entanglement,"
|
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|
Proc. <cite>11th USENIX Security Symposium</cite>,
|
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|
|
|
August 2002.
|
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</p>
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|
<p>
|
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|
<b><a name=3D"ref_DC">[DC]</a></b>
|
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|
|
David Chaum,
|
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|
|
"Achieving Electronic Privacy,"
|
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|
|
<cite>Scientific American</cite>,
|
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|
|
v. 267, n. 2 Aug 1992.
|
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|
</p>
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<p>
|
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|
<b><a name=3D"ref_RAH">[RAH]</a></b>
|
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|
|
|
Robert A. Hettinga
|
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|
|
|
"<a href=3D"http://www.shipwright.com/rants/rant_02.html">
|
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|
|
|
The Book-Entry/Certificate Distinction
|
|
|
|
|
</a>"
|
|
|
|
|
1995, Cypherpunks
|
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|
</p>
|
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|
<p>
|
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|
|
<b><a name=3D"ref_GH">[GH]</a></b>
|
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|
|
|
Gary Howland
|
|
|
|
|
"<a href=3D"http://www.systemics.com/docs/sox/overview.html">
|
|
|
|
|
Development of an Open and Flexible Payment System
|
|
|
|
|
</a>
|
|
|
|
|
1996, Amsterdam, NL.
|
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|
</p>
|
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|
<p>
|
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|
|
|
<b><a name=3D"ref_IG2">[IG2]</a></b>
|
|
|
|
|
Ian Grigg
|
|
|
|
|
"<a href=3D"http://iang.org/papers/ricardian_contract.html">
|
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|
|
|
The Ricardian Contract
|
|
|
|
|
</a>,"
|
|
|
|
|
<cite>First IEEE International
|
|
|
|
|
Workshop on Electronic Contracting</cite>
|
|
|
|
|
(WEC) 6th July 2004
|
|
|
|
|
|
|
|
|
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|
|
|
</p>
|
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|
|
<p>
|
|
|
|
|
<b><a name=3D"ref_4NF">[4NF]</a></b>
|
|
|
|
|
E.F. Codd,
|
|
|
|
|
"<a href=3D"https://iang.org/papers/triple_entry.html">
|
|
|
|
|
A Relational Model of Data for Large Shared Data Banks
|
|
|
|
|
</a>,"
|
|
|
|
|
<cite>Comm. ACM</cite> 13 (6), June 1970, pp. 377-387.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
<b><a name=3D"ref_1">[1]</a></b>
|
2022-02-18 15:59:12 -05:00
|
|
|
Todd Boyle,
|
|
|
|
|
"<a href=3D"http://ledgerism.net/GLT-GLR.htm">
|
|
|
|
|
GLT and GLR: conceptual architecture for general ledgers</a>,"
|
|
|
|
|
Ledgerism.net, 1997-2005.
|
2022-02-16 00:53:01 -05:00
|
|
|
|
|
|
|
|
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
<b><a name=3D"ref_2">[2]</a></b>
|
2022-02-18 15:59:12 -05:00
|
|
|
Todd Boyle,
|
|
|
|
|
"<a href=3D"http://www.ledgerism.net/STR.htm">
|
|
|
|
|
STR software specification</a>,"
|
|
|
|
|
Goals, 1-5.
|
|
|
|
|
This section adopts that numbering convention.
|
2022-02-16 00:53:01 -05:00
|
|
|
|
|
|
|
|
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
<b><a name=3D"ref_3">[3]</a></b>
|
2022-02-18 15:59:12 -05:00
|
|
|
Ian Grigg,
|
|
|
|
|
various design and requirements documents,
|
|
|
|
|
Systemics, unpublished.
|
2022-02-16 00:53:01 -05:00
|
|
|
|
|
|
|
|
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
<b><a name=3D"ref_4">[4]</a></b>
|
|
|
|
|
A substantial part of the programming and design was conducted
|
|
|
|
|
by Edwin Woudt (first demo, SOX layers, UI)
|
|
|
|
|
and Jeroen van Gelderen
|
|
|
|
|
(message passing client architecture).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
<b><a name=3D"ref_5">[5]</a></b>
|
|
|
|
|
Using internal money instead of an accounting system
|
|
|
|
|
is not a new idea but has only been recently experienced:
|
|
|
|
|
Ian Grigg,
|
|
|
|
|
<a href=3D"http://iang.org/rants/systemics_psd.html">
|
|
|
|
|
How we raised capital at 0%, saved our
|
|
|
|
|
creditors from an accounting nightmare, gave our suppliers
|
|
|
|
|
a discount and got to bed before midnight.</a>
|
|
|
|
|
Informal essay (rant), 7 Jul 2003.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
</p>
|
|
|
|
|
|
|
|
|
|
<p>
|
|
|
|
|
<b><a name=3D"ref_NG">[NG]</a></b>
|
|
|
|
|
James Nesfield and Ian Grigg
|
|
|
|
|
"<a href=3D"http://iang.org/papers/mutual_funds.html">
|
|
|
|
|
Mutual Funds and Financial Flaws
|
|
|
|
|
</a>,"
|
|
|
|
|
<cite>U.S. Senate Finance Subcommittee</cite>
|
|
|
|
|
27th January, 2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
</p>
|
|
|
|
|
</font>
|
|
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|
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|
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|
|
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</body></html>
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------MultipartBoundary--ZJLbQ4mRwLhAHsHENVppcDUXKvpxlvNoq0H6MRFUAo------
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