Banks need to keep up with the times! When the three-method accounting becomes the new standard: Why will encrypted ledgers replace bank ledgers?

Blockchain replaces traditional bank double-entry bookkeeping with a three-entry system, eliminating trust and reconciliation costs through an immutable shared ledger. Driven by stablecoins, this is forcing banks to choose between efficiency and marginalization.

Banks rely on ledgers, and at their core, blockchain is also a ledger. But there is a fundamental difference between this ledger and traditional ones. Today’s banks face a choice similar to that of newspapers/magazines in the past: either embrace the internet and become new media, or stick to print media until subscriptions dwindle. The advent of stablecoins further accelerates this trend.

On the surface, we see many banks adopting cryptography. But from a fundamental perspective, why will encrypted ledgers ultimately replace bank ledgers? This involves accounting methods.

Traditional banks mainly use double-entry bookkeeping, while blockchain introduces a three-entry system. Double-entry bookkeeping originated in Italy during the Middle Ages and is the basis for accounting in most countries worldwide. It requires every transaction—such as deposits, loans, transfers—to be recorded with equal amounts in at least two related accounts, ensuring bidirectional verification. For example, one side is the “debit,” which must correspond to a related “credit.” This guarantees that assets = liabilities + equity, maintaining balance and facilitating audits.

When you deposit 1,000 yuan into a bank, the bank records: Debit: Cash 1,000 yuan; Credit: Customer deposits 1,000 yuan (a liability). However, traditional double-entry bookkeeping relies on independent record-keeping by each party, which can be tampered with or lead to reconciliation errors. For instance, the money a person has in the bank is essentially digital data on the bank’s ledger. In theory, the bank can modify this digital record. People can only trust the bank’s brand, third-party audits, or regulators—meaning they must trust that the bank does not act maliciously and that third parties can audit and regulate. For example, the Enron scandal in 2001 exploited loopholes in double-entry bookkeeping to falsify accounts, leading to bankruptcy.

So, if we talk about double-entry bookkeeping, is there a single-entry system? Yes, there is—single-entry bookkeeping, which is just a running account recording only one side. Compared to double-entry, single-entry is less rigorous.

What makes blockchain’s three-entry system different? It adds a “third entry”: a shared, immutable record. This record can now be realized through trustless, intermediary-free blockchain technology. That’s the advantage of a distributed ledger.

This third entry is often a cryptographically signed receipt or timestamp block. To prevent tampering, network consensus mechanisms—like Bitcoin’s PoW and Ethereum’s PoS—are used for verification. This approach solves the trust issues inherent in double-entry bookkeeping. It cannot be tampered with, and reconciliation errors are eliminated. The so-called three-entry system means blockchain acts as a “third-party” arbiter, making transactions trustworthy and auditable.

For example, Ethereum is essentially a decentralized ledger where each transaction is recorded in both the sender’s and receiver’s accounts (similar to debit/credit in double-entry). It also has a network consensus mechanism (PoS) to generate an immutable “third entry”: a cryptographically signed timestamp block.

In essence, the three-entry system means each block creates an unchangeable record. Its existence is more efficient than double-entry bookkeeping, requiring no intermediary to coordinate, thus reducing audit work. Simply put, double-entry is each party keeping one book; three-entry adds a “smart lockbox” that automatically stamps and witnesses across the network. It’s tamper-proof, with instant account verification.

Ultimately, bringing banks onto the blockchain involves shifting from double-entry to three-entry bookkeeping. Once privacy issues (ZK proofs) and compliance issues (KYC) are addressed, blockchain-based banking can greatly improve efficiency. Banks will no longer need to maintain large, outdated financial systems, transitioning instead to a new, crash-proof encrypted chain system.

Either embrace this change or face marginalization. This is one of the most critical challenges for banks and financial institutions over the next 20 years.

• This article is reprinted with permission from: 《Foresight News》
• Original title: 《Why Will Encrypted Ledgers Ultimately Replace Bank Ledgers?》
• Original author: Blue Fox Notes