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What is Minka Ledger, and what it is not.

Context

Disclaimer

Ledger is NOT:
  • a browser-based wallet service that holds private keys on behalf of users.
  • a cryptocurrency like Bitcoin, but enables the creation of units of account.
  • a blockchain like Ethereum's, though it uses the data structure internally.
  • a decentralized, peer-to-peer network, but follows the client-server model.
  • a platform for issuing assets, but a convention for keeping track of liabilities.
  • a payment method like $£€¥₩ Pay/Wallet, but it can be used to build them.
  • a currency exchange service, though it supports multivariate transactions.
Instead, Ledger IS:
  • a currency-agnostic, cryptographically-driven transactional model for the Web.
  • a general-purpose accounting model for creating abstract units of measurement.
  • a protocol for keeping accounts in logically decentralized information spaces.

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Purpose

The main purpose of Ledger is to enable the implementation of different currency systems with a unified transactional model that supports arbitrary units of account. Abstractions and generalizations are made so that any currency system can be implemented by simply configuring parameters, instead of requiring entirely new software or even a separate network.
Focus and priorities
Ledger is not about making payments, but cryptographically signed promises to pay.
Instead of assets in a settlement network, these promises represent liabilities that can be cleared against balances denominated in the same unit of account. There is no focus on controlling the supply, imposing solvency constraints or creating artificial scarcity, but on increasing the velocity, providing liquidity and encouraging diversity of units of account.
  • Promises, not Payments
  • Liabilities, not Assets
  • Clearing, not Settlement
  • Velocity, not Quantity
  • Liquidity, not Solvency
  • Diversity, not Scarcity
Limitations and Trade-offs
Since Ledger is focused on transaction clearing for the Web instead of transaction settlement for the Internet, there are some inherent limitations and trade-offs in terms of immutability and risk management. Therefore, Ledger is not intended to be used as a standalone transactional solution, but as a clearing layer on top of a settlement layer such as Bitcoin.
  • Proof-of-work Compared to the hard promises made by a proof-of-work system, Ledger transaction records are relatively soft promises. This is a constraint imposed by the Web being a logically decentralized information space, in which independent domains will never reach the scale or hashing power of an organizationally decentralized yet logically centralized payment network.
  • Censorship resistance Ledger currently has the same low censorship resistance as the Web. Nonetheless, Ledger IOUs can be sent through relays and proxies with preventive measures against replay attacks, and the same unit of account can be issued and held in different domains or moved continually between their ledgers, so that censorship risk is spread among them.
  • Risk management IOUs denominated in arbitrary units of accounts certainly come with credit and liquidity risks that depend on the creditworthiness and readiness of balances in different units of account. However, creating information about debts relies precisely on the ability to make promises to pay without owning those numbers first, hence this is an acceptable trade-off.

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Technology

  • World Wide Web
    • URLs for naming and addressing in an information space.
    • HTTP request-response protocol in a client-server model.
    • REST architectural style and hypertext-driven constraint.
  • Web Payments
  • Bitcoin Blockchain
    • Double-spending prevention without a central authority.
    • Proof-of-work for providing security and immutability.
    • Consensus by building on top of the longest valid chain.

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Economics

  • Debt-based Currency
    • Fiat currency is mostly created by commercial banks making loans.
    • Currency equals debt and would cease to exist if all debts were repaid.
    • Fractional reserve lending expands and contracts the currency supply.
  • Interest-bearing Credit
    • Opportunity cost charged on a principal that did not exist before the loan.
    • Perpetual inflation needed to cover the interest not created with the principal.
    • The growth imperative as the only way to avoid defaulting or going bankrupt.
  • Mutual Credit Systems
    • Negative balances represent debts that cancel out against positive balances.
    • On-demand issuance is enabled and constrained by negative balance limits.
    • Self-regulating supply that expands and contracts without accruing interest.

Concepts

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Monetary Theory

Assets & Liabilities

Most resources are either owned or owed, whether individually or collectively. Owning something gives rights to the owner, whereas owing something creates obligations. Since assets are things owned and liabilities are things owed, they respectively represent rights and obligations of their holders.

Information about Debts

Debts are quantified obligations to do something. Money can be viewed as a system that handles information about who owes what to whom, and enables participants to offset or transfer the underlying debts. In this sense, a monetary system is an information system that handles monetary liabilities and enables the transfer of payment obligations.

Promises to Pay (IOUs)

One way to generate information about debts is by writing IOUs. An IOU is a signed document that acknowledges a debt, listing information such as the amount owed, the unit of account and the parties involved. Thus, instead of making actual payments in a settlement system, IOUs are a means of making promises to pay in a clearing system.

Information Spaces

An information space is a context in which information resources have location properties and direction relationships between them. On the Web, documents are located by URLs and navigation between them is directed by hyperlinks. In WebWallet, transaction documents are located by their hashes, and navigation between them is determined by the transaction history.
Integrity
Data integrity refers to whether a message has been altered. While digital messages cannot be tamper-proof, cryptographic hashes can be used along with digital signatures to make them tamper-evident and easily detect any content modifications.

Authenticity

Data authenticity refers to whether a message has been forged. A digital signature is a statement that cryptographically proves that a message was created by a specific party, while ensuring the integrity of the message itself.
Privacy
Data privacy is about ensuring that a message is not seen by unauthorized parties. Encryption is used to encode a message so that is unintelligible before being decrypted with the appropriate cryptographic credentials.
Cryptography is a set of tools for achieving information security properties.

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Cryptography

Existence & Context
The existence of a transaction document is confined by its clearing domain and the units of account involved.

Location & Mapping

The addressability of a transaction is determined by its cryptographic hash and the involved webwallet addresses.

Direction & Navigation

Navigation between transactions is possible by following pointers to previous transactions in the clearing graph.