Network Economics of Block Chain and Distributed Ledger Technology
Quadruple Accounting System
Morris Copeland, and Hyman Minsky emphasized quadruple entry accounting system envisioning interrelated interlocking balance sheets of economic agents. Interlocking balance sheets create a network of economic agents.
I attach a slide from a presentation by Marc Lavoie given at Minsky Summer school in 2010 at the Levy Institute of Economics (Bard College).
There are several FINTECH innovations which are bringing about dramatic changes in the financial services business.
- Block Chain and Distributed Ledgers
- Payment Banks
- Retail P2P Payment services
- Mobile Payments
- Secured Wallets
- Domestic Real Time Payments and Transfers
- Cross Border Near Real time Money Transfers
Block Chain and Distributed Ledgers, in my opinion, are/can be implementation of quadruple accounting principles envisioned by Morris Copeland and Hyman Minsky. Two economic agents engage in financial transactions which are recorded in distributed ledgers.
Some of the key components of distributed ledger technology are:
- Peer-To-Peer Networking
- Distributed Data Storage
In contrast with centralized ledgers, distributed ledgers store data at each node in the P2P network. So there is no need for an intermediating institution. From a payment system perspective, each node in the P2P network can be thought of as a bank. Each node will have its own ledger and balance sheet which will record assets and liabilities.
Ripple is a Cross Border money transfer solution which is based on block chain technology.
Recent rise of retail P2P payment services such as
indicates a trend toward real time payments/money transfers domestic and international. This trend also indicates decoupling of these services from traditional deposit/lending banks. XOOM is a service provided by PAYPAL for international Money Transfers. Money transfers are within a few minutes.
In USA, there are new P2P services offered to facilitate faster near real time payments/money transfers through mobile and online interfaces.
- Venmo (Paypal)
- Zelle (clearXchange Network)
- Square Cash
- Braintree (Paypal)
There are also social media payments available now through which consumers can quickly send money using social media applications such as
- Facebook (through Messanger app)
- Snapcash (through SnapChat)
- Apple PayCash (through imessages app)
- TenCent via WeChat
Rise of payment banks such as PayTM is one such example. Reserve Bank of India has granted PayTM a payment bank status. But transfers are still between bank accounts of transacting consumers where deposits are kept. Payment Bank acts as a technology provider and acts as an intermediary.
As per the RBI guidelines, payments banks cannot lend they can only take deposits or accept payments.
There are four payment banks in India now.
- PayTM Payment Bank
- Airtel Payment Bank
- India Post Payment Bank
- FINO Payment Bank
Mobile payments using secured wallets is another such example.
- Consumer to Business payments and transfers
- Consumer to Consumer payments and transfers
- Google Wallet
- Apple Pay
- Android Pay
Cross Border Payment Solutions:
Please see my other related posts:
Key sources of Research:
Minsky and Godley and financial Keynesianism
University of Ottawa
Block Chain: A Primer
Distributed Ledger Technologies/Blockchain: Challenges, opportunities and the prospects for standards
Advait Deshpande, Katherine Stewart, Louise Lepetit, Salil Gunashekar
Banking on Distributed Ledger Technology: Can It Help Banks Address Financial Inclusion?
By Jesse Leigh Maniff and W. Blake Marsh
Distributed ledger technology in payments, clearing, and settlement
Mills, David, Kathy Wang, Brendan Malone, Anjana Ravi, Jeff Marquardt, Clinton
Chen, Anton Badev, Timothy Brezinski, Linda Fahy, Kimberley Liao, Vanessa Kargenian,
Max Ellithorpe, Wendy Ng, and Maria Baird (2016).
Finance and Economics Discussion
Series 2016-095. Washington: Board of Governors of the Federal Reserve System,
Distributed Ledger Technology: beyond block chain
A report by the UK Government Chief Scientific Adviser
Bitcoin, Blockchain & distributed ledgers: Caught between promise and reality
Distributed ledger technology in payment, clearing and settlement
An analytical framework
The Truth About Blockchain
January–February 2017 Issue
THE USE OF BLOCKCHAIN IN CLEARING AND SETTLEMENT
Peer-to-peer payments: Surveying a rapidly changing landscape
By Jennifer Windh
August 15, 2011