A central ledger is a physical book or a computer file used to record transactions in a centralized manner.
What Is a Central Ledger?
Central ledgers are physical books or digital files used by individuals or organizations to record and total economic transactions in a centralized manner — as opposed to decentralized ledgers used in distributed ledger technology (DLT).
Ledgers have been used since the earliest days of civilization to record and confirm the ownership of assets and the legal identity of individuals, as well as their legal status and political rights.
The popularization of double-entry bookkeeping in 16th century Italy has revolutionized the use of ledgers in banking and accounting, which played a crucial role in expanding the capitalist economic system, according to some experts. The technique of recording every entry to an account along with a corresponding and opposite entry in a different account has significantly improved the accuracy of ledger records.
Traditionally, a central ledger is managed by the accounting department of a business to record all economic activity that the company is involved in for the purpose of financial analysis, tax reporting and more. Although efficient, this approach has disadvantages: relying on a central authority to manage all bookkeeping makes the ledger vulnerable to any mistakes made by that authority — either deliberate or accidental.
Distributed ledger technology is a more recent evolution of the concept of ledgers that aims to decentralize the process of bookkeeping and remove the central authority which acts as a single point of failure. Bitcoin’s (BTC) blockchain is one of the most successful examples of a decentralized ledger.