It is hard to turn on the news these days and not see something about cryptocurrencies or blockchains. It sounds futuristic and for some, it is not fully understood. How is this technology is going to shape the accounting industry?
What is Blockchain Technology?
For those who are new to blockchain, it is effectively accounting technology. Normally, when people use money, it must go through a third party for the transaction to be complete. Blockchain is challenging the need for a third party. Essentially, with the use of math and cryptography it has developed a decentralised and open database that allows for transactions that have value. This doesn’t have to just be money – it also takes into account other things with value, like assets such as property, goods and businesses. A record is then kept of the user, which authenticates it and has a verification feature by anyone else who uses this system.
This technology has the power to revolutionise the global economy. It means that anyone with internet access can harness the use of blockchain technology. This capability may soon make third party organisations redundant.
What Will it Mean for Businesses?
Transactions happen faster because they don’t have to go through this third-party middle man and at they occur at a lower cost. Blockchain has the capability to make small micro-payments a reality and supports small contracts to use multiple assets as transactions.
Since blockchains remove the middleman, it may change the ordering cost of a product for a business. Companies may choose to operate with suppliers who only use blockchain technology to keep their ordering cost down. Fortunately, blockchain issues a cryptographically signed receipt that verifies the ordering cost and it will be saved on the ledger that can’t be tampered with.
What are the Implications for Accounting?
It is important to understand that all cryptocurrency transactions made are recorded in a single ledger – the blockchain. This is done chronologically and published for the public to view. Moreover, this transaction record cannot be edited. For auditing purposes, there is a clear trail of all the transactions made. Therefore, blockchain technology utilises a triple-entry accounting system, removing the need for transactions to go through a third-party or financial institution.
With blockchain technology, the accounting industry will be able to decrease the cost of maintenance and reconciliation of ledgers. Previously, accountants had to be the ones who provided assurance and certainty over assets. They needed to be able to track who owned it and the history of that asset. Blockchain technology can help accountants in record keeping and free up time for them to spend on more value added tasks.
The overall scope of accounting may shift and increase the complexity of an accountant’s job with blockchain technology. Since accountants won’t have to spend their time doing reconciliations, they will have more capacity to tackles difficult tasks. For example, accountants might be able to assess the value of data that a company has stored. However, it is important to note that since blockchain can take over reconciliations and valuations, it could pose a risk to accountants who specialise in those departments.
This technology is still relatively new and blockchain’s future alongside accountancy is something to watch closely.