Central Ledger

What Is a Central Ledger?

Compared to decentralized ledgers used for distributed ledger technology (DLT), central ledgers are physical books or digital copies used by people or organizations to track and total financial transactions in a centralized manner.

Ledgers have been around since the dawn of civilization to record and validate asset ownership and persons' legal identities, legal status, and political rights. However, according to some experts, the rising popularity of double-entry bookkeeping in 16th century Italy redefined the use of ledgers in banking and accounting. 

It figured prominently in the expansion of the capitalist economic system. In addition, the approach of documenting every entry to an account coupled with a similar and opposing entry in a separate report has greatly improved ledger record accuracy.

Diving Deep Into the Concept of Central Ledger

Traditionally, a central ledger is kept by a firm's accounting department to record every economic activity the company engages in for financial analysis, tax filing, and other purposes. Although efficient, this system has drawbacks: depending on a central authority to conduct all bookkeeping exposes the ledger to any errors that the authority makes, intentional or unintentional. 

Distributed ledger technology is a much more modern iteration of the ledger concept that tries to decentralize the bookkeeping process and eliminate the central authority that operates as a single point of failure. The blockchain of Bitcoin (BTC) is among the most prominent cases of a decentralized ledger.

Central Ledger and Distributed Ledger

A central ledger requires a central authority for transacting parties to trust it, but, in the case of a distributed ledger, the necessity for a third party is eliminated, which is one of the fundamental factors driving the attraction to Distributed Ledger Technology (DLT).