What is Blockchain and Why Should Accountants Care?
Digital strategist, Dan Tapscott, posed the following question in a recent TED talk:
"What if there were not only an internet of information, what if there were an internet of value - some kind of vast, global, distributed ledger running on millions of computers and available to everybody?"
This internet of value already exists and it is called blockchain.
Blockchain Interest is Exploding
If you haven't heard about blockchain, you are probably not alone. However, interest in blockchain has exploded recently especially when you look at what is trending in internet searches. Google Trends for searches on "blockchain" show that the number of searches for blockchain have doubled in the last 6 months and have quadrupled in the last 18 months.
So, why is interest in blockchain exploding?
What is Blockchain?
A lot of blockchain's interest is being driven by its connection to the electronic currency bitcoin, but blockchain is more than bitcoin.
According to the Strategist's Guide to Blockchain, blockchain is "used broadly to refer to any distributed electronic ledger that uses software algorithms to record transactions with reliability and anonymity."
Blockchain uses peer-to-peer database technology spread among millions of computers for managing and recording transactions with no middleman, bank or clearinghouse involvement. Blockchain reduces redundancy since every transaction is only recorded in once and increases security because every transaction is encrypted and added to a "chain" of other transactions stored on multiple computers which makes the data virtually immune to tampering.
Why Should Accountants Care about Blockchain?
Throughout time, accountants have been the historical keepers of transactional ledgers even as they have transitioned from paper-based books to electronic digital records. Since blockchain is just a distributed global electronic ledger that contains information and business logic about transactions, accountants have the natural advantage to be the masters and gatekeepers of this technology.
Accountants need to pay attention because blockchain will transform their industry by:
- Enabling real time accounting - Blockchain will let accountants monitor financial performance and business inflows and outflows in real time which will free up accountants for higher value activities such as advising businesses.
- Reducing accounting errors - Blockchain will reduce the number of errors associated with data input, transpositions and reconciliations. Many of the routine accounting and clerical activities will also be replaced by automated processes which will lead to changes in responsibilities and duties of your accounting staff.
- Increasing data security - Every blockchain transaction is encrypted and the involved participants are identified by a string of characters. After a certain period of time has passed (which may vary depending on the blockchain) all of these new transactions become part of the block. When the block has been finalized, it is broadcast to all parties associated with that network and any changes to the block in the future will be identified with a timestamp. Blockchain technology will drastically reduce the time to confirm or verify balances and will change how financial audits are performed.
How Can I Get a Quick Intro to Blockchain?
To get a quick and engaging overview of blockchain technology, you should watch Don Tapscott's TED talk from the 2016 TEDSummit. Don's 20-minute talk provides a great overview of what Blockchain is and how it will transform business and the economy in the coming years.
Where Can I Learn More About Blockchain?
Some additional resources on Blockchain are summarized below:
- Accounting Today - What Accountants Need to Know about Blockchain beyond Bitcoin?
- Deloitte - Blockchain: a Gamechanger in Accounting
- EY - Blockchain and the Future of Audit
- KPMG - Securing the Blockchain
- MIT Sloan School of Management - Blockchain Explained
- PwC Strategy + Business - A Strategist's Guide to Blockchain