With blockchain-based applications set to be the topic in accountancy for 2019, it’s high time to familiarize yourself with the underpinnings behind this revolutionary technology, Yes, blockchain is the foundational tech behind cryptocurrencies like Bitcoin and Ethereum, but it’s so much more than that. The potential for blockchain to radically transform the internet is the stuff of thinkpiecesgalore. Wild speculation aside, there’s no denying that the distributed ledger, the concept that makes blockchain so compelling, will alter accountancy dramatically.
You may not be dealing with many blockchain-related issues just yet, but that doesn’t mean you should rest on your laurels. Understanding how a blockchain works—something far too few accounting professionals can honestly claim—will benefit you tremendously. A theoretical background allows you to seamlessly adapt to emerging applications and gives on a leg up to those who steadfastly decide to stick their heads in the sand.
The commonly accepted definition of blockchain comes from a 2017 article form the Harvard Business Review, which states that a blockchain is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way.” Everyone in accounting knows what a ledger is, but they may not quite grasp how blockchain could change it forever.
The key is the word “distributed,” which you may hear interchanged with “decentralized.” The idea behind these two descriptors is the same: rather than being stored in a central location, information is stored across a vast network of users. The distributed nature of the ledger makes it almost impossible to corrupt.
Another important component of the definition is the recording of data “in a verifiable and permanent way.” When information is added to a blockchain, it is there permanently and everyone knows who added it. In other words, there’s no breaking into the office late at night to fudge the numbers. Everything that happens on a blockchain is observable by everyone in the network.
What a Distributed Ledger could mean for accounting
Understanding all the ways distributed ledgers could change the way we do our jobs is a lot to wrap your head around. In a 2016 report Deloitte noted, “From simplifying the compliance with regulatory requirements to enhancing the prevalent double entry bookkeeping, anything is possible.”
The most obvious area to apply blockchain, and the one that’s most likely to arrive soon, is with regards to auditing. Auditing is essential for accounting practices precisely because accounting ledgers are privately held documents susceptible to human error and falsification. Without an audit, it’s impossible to verify that information is accurate, right? Well, due to the permanent and verifiable nature of a blockchain, it’s possible that audits could happen on a continuous basis rather than needing to be done in one shot. Once a piece of information is termed accurate and recorded to a blockchain, it is essentially audited forever just by virtue of residing in a protected, decentralized location.
Honestly, that’s just the beginning. As the years progress, countless creative minds will figure out ways to use the potential of blockchain to make computation easier and records more secure. Now’s the time to learn what a blockchain is, because learning all the things it can do will be an ongoing concern for decades.
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