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Matt Levine

Keeping Track of Crypto Is Hard

Accounting, trust, blockchain, claims trading, arbitrage, etc.

At its core, the vision of crypto is about finding a better way to keep a list of who has money. Society has, over the centuries, evolved some decent ways to keep those lists. There are banks, and your money consists mostly of deposits at banks, and the banks keep lists of who has money. In the olden days they would keep the lists on paper, but in modern times they keep the lists on computers. At a high level, their processes are easy to describe: My bank keeps a record of how much money I have, and when I send money to you my bank decreases the money in my account and tells your bank to increase the money in your account. In practice there are ways for this process to be messy and complicated and error-prone. My bank and your bank might run on different systems and have different views of the world, and information and transactions can be delayed, and our transaction might have to happen quickly and with imperfect information, and then later there might have to be a tedious manual reconciliation process where my bank double-checks to make sure I actually had the money in my account, etc. Banks are in a lot of businesses, but one business that they’re in is the technological business of keeping track of the money and making sure that it moves reliably to where it’s supposed to go.

And then crypto came along and promised, among other things, better list-keeping. When I send crypto to you, we do it on the blockchain, a distributed database that keeps a record of who has how much crypto. The blockchain is trustless and decentralized: Instead of relying on a bank to get it right, we can be sure that the code of the blockchain gets things right. It is censorship-resistant: No one makes ad hoc decisions about what transactions to allow or forbid; all transactions that meet the open public requirements go through. It is immutable and public: If I send Bitcoin to you, I can’t take it back, and everyone can verify that you have it and I don’t. There are costs to this — the blockchain is kind of a slow database, and the Bitcoin blockchain wastes a lot of energy — but it keeps a good list.