Balanc3: Triple Entry Accounting

Transcript

[Music] all right uh thank you uh Jesse and Matt um very excited to be here um me and Christian to my right um famous for uport and a lot of other contributions to things that we're building in consensus and for the ethereum ecosystem uh is working with me on uh balance the smart contract power triple entry accounting system uh it's mostly a proof of concept uh but I think the

implications are pretty powerful so let's uh Dive Right In oh yeah but a little bit of History uh Christian used to be a Quant at Bloomberg and has a PHD in algebraic geometry I used to work at the New York Stock Exchange and a Bitcoin trading firm and do a lot of the uh evangelism for uh front end and the web 3.0 ecosystem and I'll let Christian talk a little bit more specifically about accounting thank you Jeff so um there is okay so balance is about triple entry accounting and in order to understand that we first have to look at what is double entry accounting so Double Entry

accounting is a relatively recent phenomenon in accounting it was invented about 600 years ago uh and the idea is you want to minimize the U errors on your books so what you do is that for each transaction you do two entries in your books one entry is a called a debit and one entry is called a credit so if we see a transaction here here where Alice purchases a hamburger from ball she's paying 10 ether and you can see that Alice has an an addition to her expense account so

this is a debit of 10 ether she has a a credit of 10 ether for for her assets and then Bob on the other hand uh he receives 10 ethers so that's a debit for his cash register and he has a credit for the income and as you see here the debits equal the credits so the books are balanced um the thing here is that there is not really any connection between these two sets of books each firm has their books and and it's all H it's you know the connection is that they did the

transaction but the books are are themselves separate so if Bob wants to cheat a little bit he can say that oh maybe this transaction was only uh8 ether and he doesn't have to pay as much taxes or whatever okay so let's move on to Triple entry accounting this is an even more recent uh accounting idea and it was proposed by Ian grig I believe in the 80s or maybe early 90s and the idea about triple endry accounting is that instead of each firm having their own books you have the contract mediated by

a an ethereum or sorry the transaction goes through a an ethereum contract a smart contract and this contract includes everything about the uh transaction so what the what the product is what's the price is who's the seller who's the buyer it's digitally signed it can have a an ipfs hash that links to further documentation so here we see a an xbrl document which Jeff is going to talk a little bit more about later and we see instead of having the double entries in their books they now just have a link to this uh the address of this ethereum contract and you see they

both have their same link and so their books are now linked together via this this third entry the triple entry so so this is the main idea to connect the firm's uh accounting books via a smart contract and uh yeah a little bit more about xbrl uh I did some digging recently and found that there is in fact a kocal universal standard for uh accounting practices um so you can imagine not having to reinvent every Excel spreadsheet for or reinterpret one for every organization that you're looking at so what is it it's the extensible business reporting standard

or language um which is based on XML um close go into HTML which makes it uh machine readable so the obvious uh uh benefits would be that you don't have to create your own schema you can just uh leverage right off of the specs that are provided to you there's lots of companies out there that um have some translation tools to help you with that and uh Auditors um can get uh data and ingest it uh easily um uh which is obviously a big win and as you can see um the SEC even requires this um uh outright for large institutions uh to provide um transparency where they can and uh with 15-second block times for

ethereum uh you now have sort of an endtoend data machine readable uh distributed storage and um cryptographic signoff uh Allin one with 15sec block times so something actually that just popped up on my Newsfeed just uh this morning actually um is that the SEC um commissioner Caris Stein is now taking a look at this or not specifically our balance application but the blockchain in general and uh given the relationship uh to xbrl and and the SEC uh I would uh kindly request maybe that we could uh talk some more um but uh moving towards uh the technical imple uh imple

implementation uh you can think of this as a business process assembly line so for every little change that you make whether it's um uh a spreadsheet or it's like within the interface that um it's standards compliance that you're committing it to uh a distributed uh system uh so the the UNS siloing of data uh which sort of maybe equates to a One World Financial um auditing repository and uh as Christian was demoing the uh security and sign off of uh uh different counterparty signatures so uh yes this is a demo time and if anyone's interested the

developers um I'm uh building a new uh react framework based on Reflux called acid reflux um which aims to simplify um the uh store and action and view layers more um into almost a two-step or single process so on to the demo I wish this was a little bit bigger but anyways so yeah um we have Kobe Shaq and LeBron as personas uh in this system uh there's supposed to be some kind of funny story um but uh we'll just go with I guess Kobe being uh a freelance consultant on the side doing um

coding so choosing between different personas oh and LeBron's in there too yeah he's hang it out so we would choose Kobe uh and we were just skipping right to the scent invoices that Kobe has um for sake of the demo so you see the contract ID you see the creation date deadline receiver signature sender uh signature date uh payment date and then the addresses for both of the personas uh at which point we can create an invoice uh and this is pretty standard Fair um accounting software kind of stuff um you've probably seen this done over and over and over again it's almost the hello world uh of accounting I guess you could think of um we hopefully in

the future would opt to allow for different currency choices um whether that's a token or it's a peg or uh whatever the case may be fill in a little bit of text um for you know General invoicing and we will select sha from the dropdown uh some more product specific description uh Kobe's a software engineer so he's billing him for software engineering a lot of it um and a little bit of text so he'll submit it and you will see some popup come up so it's been created and signed um signed being that you know Kobe is the one submitting it so he says I you

know attest that this is cool and uh it's uh what I want to see um in other cases you might um have an a process before that but here we have the invoice ID uh or the the contract ID um and you know Bare Bones information about the due dates and such and the price and the quantity and you can see that uh he's uh shipped it to sha uh quantity price and that he is awaiting sign off and payment cuz he's already given his okay so we'll head over to sha now and you will see uh received invoices list and you'll see the unsigned and unpaid uh invoice that's sitting there waiting for

him click into that and there we go we have the same exact invoice from Kobe um with that contract ID and we can go ahead and sign and say that it's all right so we get a popup uh saying that this contract has been signed from Shack's end then we can just pay automatically no more T3 uh this is pure t0 and it will say that he has paid uh this exorbitant fee and uh that is pretty much end to end really simple uh proof concept for invoicing uh and there's a screen coming up that I will let uh Christian uh show off yeah yeah so the idea here is that each each

of the firms have this invoicing in between them and the invoice acts as not just an invoice but the uh payment mechanism as well as the digital receipt once the invoice has been Main and so you can imagine a an auditing firm looking at various businesses and and checking on the blockchain what kind of transactions have gone on between them and you could take that and use data visualization tools to have a a view of that particular U uh segment of the economy and maybe infer that you know everything

looks good you know maybe uh a uh maybe a finan National regulator could look at that and see various U systemic risks in in the in the economy that certain businesses have a lot of um liabilities to each other Etc so the uh this technology can bring a lot of uh benefits for for uh transparency for regulators and and for businesses themselves which you know has this uh basically in um you know this this data

store that that cannot be altered so oh and also to mention uh under the hood it uses uh eign uh the smart contract and document management system um so this really is um sort of uh a conglomerate of uh abstracted uh Technologies um like all together um hoping to build uh something that is accessible anywhere and by anyone uh and uh I think that about covers it thank you thank [Applause] you time for one question question so as far as I understand all

this information is uh on ipfs unencrypted linked into the blockchain through hashes is that true so with or do you have any uh privacy uh facilities whereby for example my competitor wouldn't see my entire supply chain so right now since this is a pro of concept everything is fully transparent but you could imagine uh taking some of the information putting it uh encrypted on ipfs for instance you could also Imagine combining it with with heos Hydra chains so that some of the information could be

on on private chains and uh you could kind of uh take you know digests or hashes of information and and map it onto the public chain so so there there are uh privacy is of course one uh a big aspect and one use case that it's is immediate is for companies that want uh complete transparency like nonprofits Etc and uh so that could be one where where they want this transparency but you're right uh more more privacy protections need to be built in for the general use case great thank you guys thank you