Semiannual reporting? Hey, how about daily?

The God Protocol
There has been a long-standing argument – not exactly a loud argument but it’s been there – in favor of allowing companies to report earnings only twice a year rather than four times a year. This is already the standard in the E.U. and U.K.. The rationale usually is along the lines of changing to semiannual from quarterly would ease some of the pressure on executives to be focused on purely short-term goals in order to satisfy impatient shareholders, and it would reduce the time and money spent compiling all those reports every three months.

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The Securities and Exchange Commission, with prodding from the president, now appears to be actively preparing to make this change, our Catherine Leffert reports. The SEC is preparing a proposal to go to semiannual reports and could make it public next month. For banks, such a switch could lead to less-risky behavior and more stable deposits, some have argued. Others have criticized the move because it reduces transparency, especially amid a downturn in regulatory oversight.

I’m sympathetic to the argument of reducing the short-term pressure of serving the market. But I also think the way technology is moving, we could just as well go in the other direction, toward more frequent reporting, not less.

Back in 2005, a cryptographer named Ian Grigg proposed a system he called triple-entry bookkeeping. Grigg’s work was one of the pre-bitcoin efforts into digital ledgers, and what he proposed was basically a bitcoin-like, digital ledger for accounting (actually, this is exactly what bitcoin is, a piece of software that records transactions, and this is all bitcoin is, no matter what the proselytizers rant and rave about).

Double-entry bookkeeping became popular in Europe in the 1400s, though the concept was an import from the Islamic world. With double-entry bookkeeping, as most of you probably know, every transaction gets recorded twice, once as a credit and once as a debit. This was a big improvement on the single-entry system Europeans used before that. With double-entry, reconciliation was simplified because finding errors was just a matter of seeing where the two sides of the ledger stopped agreeing with each other.

What Grigg proposed was a system where every transaction would have three entries – the debit and credit entries, as well as a third verification, a signed, digital timestamp from a computer program. With the program overseeing the accounting and verifying that every transaction was correct, it would essentially be impossible to make a mistake. Nick Szabo, another cryptographer, had even earlier proposed a similar system he called the God Protocol, for reasons that should be fairly obvious.

Both Grigg’s and Szabo’s systems were influential in the development of what would eventually become bitcoin, and if you step back and think about it, the absolute single, most important element of the bitcoin system is that timestamp, a cryptographically unbreakable record of a transaction. You can imagine, too, that with all the AI bots coming online, accounting could get radically more and more automated. A ledger that records those timestamps automatically and continuously could be a pretty powerful tool. 

For instance, it is feasible that a company could use triple-entry bookkeeping to keep a near-live, continuously updated record of its operations. A publicly traded company could then rather trivially provide reports on its operations at any degree of frequency. Rather than quarterly reports, or semiannual reports, companies could provide daily reports, or even real-time reports. How radical would that be! 

Okay, okay, I get it. First off, I’m radically oversimplifying the logistics of it. Second, it’s hard to believe any executive would willingly give the public that kind of immediate access. My point is just that it’s possible, and while it probably wouldn’t be better for the executives to have that kind of visibility into their performance – talk about pressure – would it be better for the public? I think there’s a real debate to be had around that, and I think those kinds of debates are going to start happening. The advent of blockchain technology isn’t just about wildcat currencies and tokenized real estate. There is much more than can be done with the technology, and we’re only starting to explore it.

And all of that is also an excuse for me to say keep an eye out for reports and videos today and tomorrow from our two-day On-Chain executive summit here in midtown Manhattan. Executives from Citi, BNY, Coinbase, Grayscale and dozens of other firms will be talking about traditional markets, digital markets and the future of both of them.