Blockchain is an emerging technology that’s poised to permanently change many industries, including accounting. It’s a digital, decentralized transaction ledger, available to the public, that uses mathematics and cryptography to verify continual transactions. Due to its structure, blockchain eliminates the need for middlemen in transactions, and in most cases, removes the need for “trust” to be a part of transactions.
How Does Blockchain Affect the Accounting Industry?
There are potentially dozens of ways that blockchain technology can disrupt accounting and force it to evolve. Not all accountants will disappear, but a vast majority of low-level accounting jobs could be eliminated. Because blockchain might lead to an economy where all transactions are publicly posted on the ledger, the days of clients sending boxes of miscellaneous receipts and papers to an accountant may become a thing of the past. Low-level data collection and entry into systems could become automatic. In the same light, the entire auditing process could become magnitudes simpler because of the blockchain ledger since all financial data is readily available and already verified.
The trend in accounting caused by blockchain is one of real-time continuous analysis. Top-level accountants may simply watch clients’ financial health from a remote screen, and with no anomalies or errors to find, simply provide guidance on future financial habits. Blockchain also has the potential to eliminate the need to prepare and file tax returns. Technically, blockchain gives governments the ability to collect all tax data on each individual, ensuring that proper taxes are paid to the exact penny.
Some Miscellaneous Blockchain Information
Blockchain is mostly associated with cryptocurrencies, such as Bitcoin and Ethereum, and has gained the attention of financial professionals since many businesses are starting to accept cryptocurrencies as payment. It’s important to note that these cryptocurrencies are not blockchain. Blockchain is a separate technology and infrastructure that many cryptocurrencies run on as a platform.
Blockchains are secure databases that can be accessed via the internet, though the particular location depends on the blockchain in use. There are public blockchains, such as the one used by Bitcoin, and private permission-based blockchains used by many organizations. An important idea behind the blockchain, whether public or private, is the ability to access the information. A transaction on a blockchain has two security “keys” associated with it and a timestamp. Each side of the transaction has one of the keys, and to view the information on the blockchain, you must have one of the keys. To put it another way, anyone who does not have one of the keys can’t see the full details of the transaction, only that the transaction took place. Blockchain records cannot be altered, but once they are created, all the mathematics used to verify that the transaction is legitimate are done before the record is added to the ledger forever.
Blockchain is revolutionary and changing the way many industries operate. Though new ideas and technologies take some time to get adopted, it’s probably wise for accountants to start learning as much as possible about the technology. This new way of recording and verifying transactions is sure to eliminate some accounting roles, and the professionals who remain will likely need a basic to moderate idea of how blockchain works.