The Distributed Ledger Is What Makes Bitcoin So Genius

Last Updated on August 4, 2025

I believe that the distributed ledger, rather than the hard supply cap of 21 million coins, is in fact the defining feature of Bitcoin.

When you think of Bitcoin it is normal to think of a digital coin. You can’t touch it or taste it but you might think of yourself as owning a digital unit of money.

This is certainly true, but it isn’t really what Bitcoin is about and isn’t why it is such a revolutionary technology.

What makes Bitcoin so genius is the distributed ledger that operates without the need for a trusted third party like a bank to facilitate transactions.

Saifedean Ammous states in his excellent book The Bitcoin Standard:

“Bitcoin is at its essence a ledger of ownership of virtual coins.”

Yes the monetary unit is there and yes you own the virtual coins, but the ledger is what makes it so beautiful. The ledger is decentralised, verifiable, trustless and does not have a single point of failure.

This really is back to the future for society, as ledger money is one the earliest and most successful forms of money. The Sumerians and the Yap Islanders are two famous examples of ledger money that operate in a very similar way to Bitcoin.

It’s not about the physical handing of a commodity from one person to another, as it was with commodity money, but about money being a unit of account and a mechanism to record who owned what and who owed money to whom.

A Brief History of Ledger Money

Most people think that money emerged as a result of the inefficiencies of the barter economy. The line of reasoning goes that the market settled on a commodity that was deemed valuable by everyone and had the characteristics of money, such as shells or gold, and used that to facilitate commerce.

It makes sense, but recent scholarship has challenged that assumption and suggested a barter economy never existed.

Instead money emerged as a debt instrument. This sounds strange at first, but it actually makes sense.

In a small tribal society with familial ties, nobody wants to see anybody fail to get fed and housed. So for the benefit of the group, at times, people gift goods and services to those who need it. And these gifts are reciprocated at a later time.

A mental or physical ledger is kept of help rendered and help received and there is a continuous flow of assistance.

People don’t need to pay each other with a physical commodity but payments are debited and credited on the ledger.

This is what happened in Ancient Sumeria. Silver was the monetary unit stored in vaults as a reserve asset and transactions against the reserve silver were inscribed on clay tablets.

In the Yap Islands of Micronesia, the monetary unit was giant stone slabs called rai stones. These stones were not moved and exchanged whenever there was a transaction, however a change of ownership of the stone was recognised by the community when a payment needed to be made and the mental ledger was updated. Everybody knew who owned what stone.

Bitcoin operates in a similar way. When a transaction takes place coins move from one wallet to another, so there is an exchange. But what this is really doing is recording on the Bitcoin ledger who owns what coins.

The distributed ledger is money acting as a unit of account rather than acting as a commodity.

How Bitcoin’s Decentralised Ledger Works

I had no concept of how Bitcoin actually worked when I first bought it. While I am very much an amateur when it comes to the math/code/cryptography side of things, I have tried to understand the economics of Bitcoin as best as I can.

However, I will turn to Saifedean Ammous for help here:

“Bitcoin’s shared ledger can be likened to the Rai stones of Yap Island… in that the money does not actually move for transactions to take place. Whereas in Yap the islanders would meet to announce the transfer of the ownership of a stone from one person to the other, and the entire town would know who owned which stone, in Bitcoin members of the network would broadcast their transaction to all network members, who would verify that the sender has the balance necessary for the transaction, and credit it to the recipient. To the extent that the digital coins exist, they are simply entries on a ledger, and a verified transaction changes the ownership of the coins on the ledger from the sender to the recipient. Ownership of the coins is assigned through public addresses, not by name of the holder, and access to the coins owned by an address is secured through the ownership of the private key, a string of characters analogous to a password.”

Key to the function of the Bitcoin ledger is the concept of decentralisation.

What this means is that the Bitcoin ledger, or database is not kept in one centralised place, like Visa or Mastercard’s is for example.

Instead, the ledger is maintained by a global network of miners whose role is to validate transactions in exchange for a reward. The Bitcoin ledger is publically available to anybody anywhere in the world.

What this means is that Bitcoin transactions are verifiable in a trustless way. There is no centralised intermediary such as a bank or a credit card company needed to verify the transaction.

Ammous explains again:

“Nakamoto removed the need for trust in a third party by building Bitcoin on a foundation of very thorough and ironclad proof and verification. It is fair to say that the central operational feature of Bitcoin is verification, and only because of that can Bitcoin remove the need for trust completely. Every transaction has to be recorded by every member of the network so that they all share one common ledger of balances and transactions…As time goes by, it becomes increasingly difficult to alter the record, as the energy needed is larger than the energy already expended, which only grows with time. This highly complex iterative process has grown to require vast quantities of processing power and electricity but produces a ledger of ownership and transactions that is beyond dispute, without having to rely on the trustworthiness of any single third party. Bitcoin is built on 100% verification and 0% trust.”

The Economic Cost of The Decentralised Ledger

Running a decentralised ledger is actually quite an inefficient and expensive way of record keeping – much more inefficient than a centralised ledger.

However, that is the price that needs to be paid for the benefits of decentralised verification and a network that does not require a trusted third party.

Ammous again:

“Bitcoin’s mechanism for establishing the authenticity and validity of the ledger is extremely complex and complicated, but it serves an explicit purpose: issuing a currency and moving value online without the need for a trusted third party. “Blockchain technology,” to the extent that such a thing exists, is not an efficient or cheap or fast way of transacting online. It is actually immensely inefficient and slow compared to centralized solutions. The only advantage that it offers is eliminating the need to trust in third-party intermediation. The only possible uses of this technology are in avenues where removing third-party intermediation is of such paramount value to end users that it justifies the increased cost and lost efficiency.”

In recent times we have seen Bitcoin come under scrutiny for the enormous amount of energy that goes into the maintenance of the Bitcoin network.

However, this is exactly the same argument that critics of the gold standard used to make against gold in favour of paper money, most famously argued by Milton Friedman.

Gold might work as money but mining, he said, was too resource intensive and too wasteful to be justified.

While it is true that both gold and Bitcoin mining are more resource intensive than fiat money, the questions that need to be asked are – “is this price worth it for sound money and will the benefit to society of sound money outweigh the costs incurred?”

My answer is yes and yes.

Conclusion

Bitcoin is the hardest form of money ever created with its cap of 21 million coins.

While this is a critical feature, arguably the more defining feature is the decentralised ledger.

While more expensive and slower than the centralised options we are accustomed to, this model allows for verifiable transactions without the need for a third party intermediary.

This makes the Bitcoin network a sound and secure network of payment with no single point of failure that can have verification without trust.

This is what makes it so revolutionary and so powerful.

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Sources

Ammous, Saifedean. The Bitcoin Standard : The Decentralized Alternative to Central Banking Hoboken, New Jersey: John Wiley & Sons, Inc, 2018.

Image Credits

Bitcoin by Michael Fortsch on Unsplash