Back in 2008, a cryptocurrency known as Bitcoin brought many new opportunities to the table for online transactions. While Bitcoin sparked change in the financial world with a new form of digital currency, it’s the blockchain technology behind it that can potentially cause huge waves of disruption in several industries.
What gives blockchain so much attention in the financial world is that it removes the intermediary when it comes to transactions, making them more transparent and efficient. The basic structure of blockchain is a distributed ledger that is public to an entire network and helps ensure security. The members of the network then agree on certain terms, regulations, and procedures that are coded into an algorithm and work as the backbone of the system. The security comes from the “distributed” aspect of the ledger: as business transactions are performed, different blocks are created and linked, ensuring the information is distributed throughout the network and not locked down in a single location. This concept makes the network extremely secure and as of now, impossible to hack.
The trail blockchain creates is also appealing to financial professionals. Each transaction performed, after being approved by both parties, is given a timestamp, which is retroactively unchangeable and permanently labels the deal. These blocks are then linked together to create an irreversible chronological chain which allows all activity related to a transaction to be traced to its origin. Because all of the information is held in a single ledger for both parties, this decreases the time professionals will need to spend reconciling each party’s books.
In the accounting industry, blockchain holds the potential to change the way auditing is performed. Through the chains it generates, all information surrounding a transaction will now be both available and traceable to anyone that may need it. The issue of conflicts of interest in transaction reporting will also be eliminated because the transaction will automatically be recorded by the ledger, rather than each side keeping their own books, and therefore simplifying the verification function. The idea of technology making our jobs easier may instill the fear that auditors will no longer be needed. However, auditing may just start to take a shift from a verification practice, to more of an analysis-based job. Technology has the ability to rid the profession of more simple tasks, such as verification, but people will always be required to interpret, analyze, and confirm results.
Blockchain is a growing software and still requires a lot of work in order to get the most out of it, but can change how all business transactions are conducted around the world. Microsoft is working to help make blockchain more business friendly with their “Blockchain as a Service (BaaS)” project from Azure. This service develops blockchain applications that are easy to use and incorporate into the daily routine of businesses. Several of the Big 4 accounting firms such as Deloitte and KPMG also created teams to integrate blockchain into their profession. For example, Deloitte’s Rubix team develops blockchain applications for their clients to use that cover functions such as insurance claims, fund transfers, and healthcare data management. Many countries are also funding R&D units to take a deeper look into the software. The United States just approved a $794k grant to a blockchain startup and recently hosted a blockchain forum for the government, while Dubai aims to be the first blockchain based government by 2020. Clearly becoming more and more popular, blockchain is projected to play a large role in the future of transactions and it will be increasingly important for businesses to understand and be able to implement the platform in order to be successful.