Blockchain Explained and Implications for Accountancy
Blockchain technology underlies cryptocurrencies such as Bitcoin and Ethereum and is capable of storing data that has notably useful characteristics, especially for accounting data. Blockchain technology has been described as a highly secure version of a Google document that can be shared with many, but changes are secure:
A decentralized archive utilizing the blockchain as a storage mechanism could offer an uncontested space from which records could be accessed. Documents and other sets of data can be validated by the blockchain—even if an application you used to get it there is not working. It is decentralized proof which can’t be erased or modified by anyone; competitors, third parties, governments. This is what distinguishes using the blockchain from other forms of data timestamping and authentication […] The technology potentially offers a means for society—or at least groups within society—to keep their own records with some assurance about inviolability and longevity that was not possible before.1
A large amount of attention and capital currently is being allocated toward virtually anything related to blockchain technology. It is important to examine blockchain first by getting a better understanding of the technology and then examining the accounting and auditing implications.
For an experienced practitioner, blockchain might create a feeling of déjà vu recalling the hype and excitement of the World Wide Web in the early 1990s. Many saw resources flocking to it and efforts to develop the best ideas. Blockchain technology development is still in its early stage, fraught with failures and will certainly look very different in a few years. With the World Wide Web, the first websites were rudimentary, but now are deeply embedded in daily lives and economies. So with blockchain, it will likely develop into and become a more prevalent feature of daily and economic life.
The implications mean that accounting data can be stored and accessed in a way that is:
- Uncontested, unmodifiable and validated—Are the data error-free with no audit necessary?
- Decentralized—Accounting data can be accessed by anyone possessing proper authorization/permission using different systems and software, therefore, offering enhanced efficiency regarding reporting and other regulatory disclosure requirements.
Broadly speaking, financial systems—especially accounting systems—are being pushed from the physical world to the digital world. Blockchain technology will likely play a role in that transition. To some, blockchain represents a “movement” rather than a technology and describes migration to blockchain technology as a form of risk mitigation to avoid technological obsolescence. To others, blockchain technology is essentially about reducing information risk and providing trust regarding accounting data. The implementation of the technology involves addressing significant challenges, but also has numerous potential advantages.
Addressing blockchain technology with respect to accountancy (accounting and auditing) will eliminate misconceptions, answer questions and, most importantly, look for the true value that blockchain technology can bring to the accounting world.Learn More