A First Principles Look at Decentralized Ledgers

Plumbing

A ledger is simply a record-keeping system for accounting. Historically, ledgers have been error-prone. Mistakes could ruin businesses, and reconciling entries between different parties was slow and manual.

Over time, we moved from pen-and-paper to Excel, then to databases. But the real breakthrough came with Bitcoin. It solved two core problems: double-spending and the Byzantine Generals Problem. For the first time, code could operate a ledger with guarantees that no asset could be spent twice and that tampering would require majority control.

Financial institutions are now recognizing that decentralized ledgers, where code enforces rules, solve core issues of coordination and trust in traditional finance. Counterparty risk is replaced with smart contract and network risk.

Ledger Value

So, what gives decentralized ledgers their value? Like any ledger, the value comes from the data it holds and to whom that data matters. We keep personal ledgers to file taxes. Businesses use ledgers to evaluate performance and maintain compliance. The same logic applies to blockchains.

A blockchain with no meaningful data is worthless. Blockchain founders know this which is why many new L1s offer financial incentives to attract users and developers. They need users to store their data on the ledger.

For example, look at Berachain’s total value locked (TVL) before and after incentives dried up:

Source: DeFiLlama (2025) [1]

Many L1s resort to paying users to move valuable data (digital assets) onto their ledger, but without real utility, this is just mercenary data. Similarly, some chains pay developers to build apps, but if users don’t care, the ledger remains empty.

A mercenary will gladly migrate data from one database to another—if it’s easy and they’re paid, they’ll do it. The real challenge isn’t the technical design of the ledger; it’s the stickiness of the data to that chain. Data is most “sticky” when its producers own and manage the ledger themselves. When evaluating a decentralized ledger, ask: Whose data is on it? How critical is that data to them or their business? Does the value flow back into the system? And, ultimately, will the data stay?

To Create or Not to Create?

If you're a financial institution needing a coordinated, trusted ledger with no double-spend risk, should you use an existing blockchain or start your own?

Public blockchains like Ethereum or Solana are general-purpose. But that generality is also a problem. Your valuable financial data would sit next to NFT trades and meme coins. This violates the principle of separation of concerns. You wouldn’t mix two data types in one database table, nor would you use a one-size-fits-all database for every business function.

Using existing chains also leaks value. Ethereum validators, who have no stake in your business, secure your data and extract value through fees. Worse, they may not act when it matters. Consider the Bitget hack: $1.4 billion in ETH was stolen and laundered through Ethereum. Validators, the chain’s de facto auditors, did nothing [2].

Compare that to Sui. In response to a $220 million exploit, Sui validators froze the hacker’s wallet, limiting the damage to $60 million [3]. Many Ethereum advocates cite inaction as proof of decentralization. But decentralized should not mean paralyzed. A network secured by people who care about the data and have skin in the game is more aligned. Businesses want auditors who understand their industry, not detached generalists.

Defensibility: Contracts Are Copyable, Communities Are Not

Smart contracts can be copied. Networks cannot. The defensibility of a ledger lies in the community that runs it and the data it secures. Chains like Ethereum are slow to upgrade, and their token-centric design forces users to pay fees in native tokens. If a ledger’s value depends on arbitrary tokenomics and tribal loyalty, it won’t last.

Instead, the future lies in interoperable, specialized ledgers, often called “appchains,” secured by the users who depend on them. These users can optimize performance, respond to edge cases, and capture the value their data generates.

Conclusion

At its core, a ledger is just a system of record. And there’s more than one way to store records. Businesses should choose the right ledger for their needs, not the most popular one.

Traditional finance should not migrate to public blockchains like Ethereum or Solana. These institutions are the liquidity. They possess the most valuable data in the financial system. They will determine which ledgers succeed.

The next dominant blockchains will not come from retail speculation. They will come from financial institutions building for themselves, ledgers aligned with their needs, interoperable with public infrastructure, and defensible through ownership and specialization.

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References

1. DeFiLlama. (2025). Berachain Chain Overview. Retrieved from https://defillama.com/chain/berachain

2. Shin, L. (2025, February 22). Exchanges Start to Fill Bybit's $1.4B Hole as Hackers Move Stolen Funds. CoinDesk. Retrieved from https://www.coindesk.com/markets/2025/02/22/exchanges-start-to-fill-bybit-s-usd1-4b-hole-as-hackers-move-stolen-funds

3. Barnes, M. (2025, April 15). How Hacker Used Fake Tokens to Syphon $220M from Sui DEX Cetus. DLNews. Retrieved from https://www.dlnews.com/articles/defi/how-hacker-used-fake-tokens-to-syphon-220m-sui-dex-cetus/