Establishing the Limits of Decentralised Money

In monetary exchange, holding money is evidence of past transactions of goods sold or services rendered. In effect, money can be seen as a record-keeping device. A monetary system needs a record of who has what and where it has moved.

A master ledger of each individual’s debt to every other member of the system is a theoretical way of doing this. The modern monetary system is based on trusted intermediaries keeping accurate and reliable balances. Central banks maintain centralised transaction ledgers and commercial banks perform the same role with respect to retail users.

The advent of digital ledgers and the emergence of blockchain and other distributed ledger technologies offer the opportunity for decentralised consensus mechanisms that update and maintain transaction records through a network of self-interested record keepers (‘validators’) for whom being part of the decentralised consensus is a matter of self-interested response to incentives.