The phrase blockchain is mentioned so frequently in academic articles, practitioner publications and the general media landscape, however it may not be fully understood. This article will explain what blockchain technology is, and the impact that it may have on business, and especially accountancy.
A blockchain is a digital ledger in which transactions made in most commonly bitcoin, or another cryptocurrency, are recorded chronologically and publicly. Cryptography ensures tamper-proof security, authentication, and integrity of transactions.
Transactions are recorded on a single ledger (the blockchain), which are unable to be edited, is secure and provides a clear audit trail based on transaction addresses. Blockchain technology is based on a concept called triple-entry accounting, which removes the need for transactions to be processed by a financial institution, third party or middlemen.
How Blockchain Secures Information
The basis for the spread of blockchain technology is through the internet and the source of the technology is the encryption that secures transactions and records. To put it simply, every transaction that is conducted using blockchain technology is encrypted, the involved participants are identified by a string of characters, and after a certain period of time has passed, all of these transactions become part of the block. After this block has been finalised, it is then broadcast to all parties associated with that network or chain. If it is altered at a future date, reviewers of the block using a record, will be able to identify when this has occurred due to a time stamp function. It is foreseeable that this technology will lead to changes in how audits are performed and could also drastically reduce the amount of time needed to verify or confirm certain balances.
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How Blockchain Will Reduce Errors
Especially as it concerns accounts payable or accounts receivable, the potential for blockchain to be accretive from the very beginning is a relatively straight forward concept. The participants in a certain transaction are identified, the time and date of the transaction is verified, and the associated data is secured, meaning the possibility of errors decreases dramatically. Specifically, the number of transposition corrections, verification of payments, and other lower-value activities can be automated by blockchain and ultimately replaced with higher-value activities. Reducing errors, both during the audit process itself as well as during ongoing operations, will add value to clients in a quantifiable manner. This could potentially threaten some current accounting jobs, but also provides numerous opportunities for accounting practitioners willing to learn and be the conversation leaders and advisors in blockchain technology.
The Impacts on Accounting
Blockchain technology will help enable accountants to monitor financial performance in real time. Due to the fact that blockchain technology is based on, and leverages, an internet-based and decentralised platform, it will be more simple than before to track and monitor the inflows and outflows from a business. Building on the increasing use of cloud computing technology by both accounting organisations and clients, this facet of blockchain represents a logical step in this same direction. Accountants will not need to be engineers with detailed knowledge of how blockchain works. But they will need to know how to advise on blockchain adoption and consider the impact of blockchain on their businesses and clients. They also need to be able to act as the bridge, having informed conversations with both technologists and business stakeholders. Leveraging these advances in technology and the ability for both business owners and accountants to keep on top of changes in the business will only help accountants elevate their position to that of trusted business advisor.