A general ledger is an accounting tool in which the transactions corresponding to each of the accounts of a company or organization are recorded, thus allowing access to information (in detail) and better management of the company or organization.
It is significant at the financial level that medium-sized companies have a general ledger in which they report all their operations or transactions during a set period (generally from its creation to the last days of operation). However, nowadays, there are different general ledgers; the most outstanding are the FIAT and the VC ledgers (virtual currency). Below, we will explain the main differences between these alternatives.
FIAT Ledgers
The term FIAT refers to a government-issued “fiat” currency, which is not supported by a physical commodity such as gold or silver but relies on the government’s declaration that it has value besides being controlled by the government’s monetary policy of the day. Examples of FIAT currencies are the dollar, the euro, and the yen.
A FIAT general ledger is a traditional financial ledger or accounting system used by financial institutions or governments to keep track of their monetary operations/transactions.
These ledgers record financial transactions involving fiat currencies (FIAT), including revenues, expenses, assets, liabilities, and general financial information. It is important to note that these ledgers play a crucial role in the financial management of many companies and government entities.
Digital Currency Ledgers or Virtual Currency (VC) Ledgers
It is essential to clarify that the acronym “VC” is also used to refer to Venture Capital (VC), so it will depend on the context in which it is mentioned. In this opportunity, we will talk about Virtual Currency Ledgers (VC Ledgers).
When we talk about Digital Currency Ledgers or Virtual Currency Ledgers (VC Ledgers), we refer to a blockchain ledger or cryptographic ledger, in which all transactions related to a specific digital asset are recorded, generating a record characterized by being immutable. In this context, “virtual currencies or VC” refers to cryptocurrencies such as Bitcoin and Ethereum.
Differences between FIAT ledgers and VC Ledgers
Type of access: One of the main differences between these two alternatives is that the FIAT ledgers generally are limited in access (no one can view them) and are centralized since their owners are the companies, financial institutions, or governments themselves, and only certain persons or entities with a certain level of authority can “supervise” them. Regarding VC Ledgers, they are publicly accessible and decentralized since all blockchain network users can use them besides accessing them from anywhere in the world.
Type of currency: Another notable difference is the currency type they record in their transactions. As their name suggests, FIAT Ledgers are tools used to record transactions involving money or FIAT currency (fiduciary currency), while in the case of VC Ledgers, these record transactions related to cryptocurrencies or virtual/digital currencies.
Security and transparency: This characteristic is a very significant factor that differentiates both types of ledgers since FIAT ledgers can be vulnerable to changes in their records, which can generate uncertainty in the security and transparency of the people in charge of handling and managing such records, since if there is a lack of ethics or honesty, determined “changes” could be generated in such records that could benefit some individuals and harm the rest of the company, organization or government.
VC Ledgers, on the other hand, generate immutable records, so once a transaction is made, it will be recorded without being able to be modified. Because of this, some central banks are exploring the possibility of issuing their digital currencies (known as central bank digital currencies or CBDCs), which could use blockchain or distributed accounting technology to represent and track digital versions of traditional fiat currencies.
These digital ledgers offer greater transparency and efficiency in the management of financial transactions, which would not only benefit central banks or governments but could also benefit different businesses and companies that wish to have more transparent and efficient management of their resources.
What do you think about this topic? Would you like to learn more about FIAT Ledgers and VC Ledgers?
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