Blockchain technology is changing how the accounting industry operates and how accountants will continue to perform within the business environment. It is therefore necessary that accountants understand exactly what blockchain is, and what it means to the accounting profession.
In simple terms, blockchain is an accounting technology concerned with the transfer of the ownership of assets. It is a digital ledger where transactions made in bitcoin or other digital currencies are chronologically and publicly recorded.
Blockchain is a dispersed database holding tamper-resistant records of digital data and actions, and although numerous users can access, inspect or add to the data, they are unable to amend or delete it. The original information leaves a permanent and transparent ‘chain’ of information and transactions.
Before blockchain, users had difficulty deciphering how to reliably stop digital currencies from being spent more than once. Instead, they relied on a centralised source to validate transactions or transfers of assets or inventory stock. Blockchain technology helps to resolve this ‘double spend’ issue and will provide accountants absolute clarity over the ownership and history of assets.
Removing the Middleman
Middlemen or intermediaries are traditionally employed to establish trust where none previously existed. They verify ownership to certify that the seller has the right to sell, and they will testify to a clean unencumbered transaction history. However, this incurs fees and operating through third-parties hinders the speed in which transactions occur.
Based on the concept of triple entry accounting, blockchain removes the need for transactions to be processed by a third-party intermediary asyou don’t need a middleman to confirm a transaction has taken place or that the currency has changed hands. With blockchain, an encrypted signed receipt is enabled that confirms a transaction has taken place and stores the data on the binding, secure blockchain.
The blockchain technology will help reduce the costs of maintaining and reconciling accurate ledgers of financial information and could dramatically improve efficiency.
With blockchain the potential for errors will dramatically decrease because the encrypted data provides tamper-proof security and authentication. This ensures the integrity of business because each transaction is recorded on a single ledger that cannot be edited and guarantees a clear audit trail.
This could dramatically reduce costs, time delays and human error that currently affect transactions. For example, each time an asset or inventory stock changes hands, the transaction is documented to create a permanent history from manufacture to sale.
Where participants of individual transactions are identified such as with the movement or sale of inventory stock, the transfer time and date are validated, and the relevant data is secured. The ensuing reduction in errors during ongoing operations and audit processes will add value to clients in a calculable manner.
Accounting with Blockchain
Understanding the challenges and implications that blockchain technology has on the accounting profession is essential for accountants seeking to remain up to date and relevant in a rapidly changing arena.
While many are concerned with the implications that blockchain will have on an accountant’s vocation, moving to a financial system with significant blockchain elements offers many opportunities for the profession.
Accountants are experts in record keeping, setting standards and applying business logic and complex rules. They have the potential to influence the future use and management of blockchain technology.