The term ‘blockchain’ seems to be bouncing around everywhere these days and the claims that come with it are even more thought-provoking. Many believe it’s ‘the next internet’ and within 15-20 years everyone will be utilising the new technology in all workings of everyday life. Others feel blockchain is the final puzzle piece to unite cloud technology, IOT, and AI into becoming the ultimate system.
Accountants are in a precarious situation since they can see the shift occurring around them but it still hasn’t hit home yet. As blockchain becomes more prominent accountants will have to get on board and adapt their practice accordingly. The blockchain is accompanied by cryptocurrency which is a digital currency designed to work as a medium of exchange. Cryptocurrency will be explained later on in this article. So what exactly is blockchain and how it will impact accountants?
What is blockchain?
According to Don & Alex Tapscott, authors of Blockchain Revolution (2016), “The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
To put it simply blockchain is a transparent system where records can be stored, details can be verified by anyone and security is guaranteed. With this type of structure, it becomes extremely difficult for anyone to fraud the system by manipulating records. The records are publically available which makes it even harder to alter anything.
Blockchains store information across a network of personal computers. This not only makes them distributed but also decentralized; which means no central person or company owns the system yet everyone can use it and help sustain it.
The advantage of this type of setup is that it makes it difficult for any one person to take down the network or corrupt it. Individuals that run the system use their computer to hold packets of records provided by others known as ‘blocks’ in a chronological chain. The blockchain uses a type of mathematics called cryptography to safeguard that records can’t be forged or changed by anyone else.
Why should accountants be aware of blockchain?
- They will need to upskill according to what their clients are using. Transactions are already being conducted via blockchain and it’s only going to increase. To provide assuredness about the transactions taking place, to adequately perform audits and to comply with government regulations, knowledge and understanding of blockchain will be essential.
- Cryptocurrency taxation will become of greater importance with the increased popularity of blockchain. Cryptocurrencies such as Bitcoin have now become a legitimate store of value which means the way they’re taxed will soon change.
- The implementation of blockchain will increase transparency and homogenise reporting and accounting which means more effective data extraction and analysis.
- The applications are endless and it will become an integral aspect of conducting transactions. The sooner it’s integrated the sooner it can be understood and utilised.
What is cryptocurrency and why should accountants know about it?
A cryptocurrency is a form of currency existing only digitally which depends entirely on encryption for the security of transactions. The digital currency is submitted as an entry on the blockchain which no one can change unless very specific conditions are met.
Ever heard of Bitcoin, Litecoin or Ethereum? These are just some of the main types of cryptocurrency which are now in use. For instance: Big Four accountancy firm E&Y accepts Bitcoin as a form of payment for its consultancy services.
With the big accounting firms already accepting cryptocurrency, it can’t be that far off from becoming a mainstream mode of exchange for goods and services. All these crypto transactions will need to be maintained and audited accordingly. And accountants shouldn’t be left behind with the implementation of this new technology.
Not a fad
Accountants should not be confused about the impact of blockchain on the accounting and finance industry. The evolution of technology, security, practicality and efficiency have converged to birth blockchain and its components. This is not just a fad that will be reminisced about in a few years. Accountants should start brushing up on the practical applications and begin implementation of the new tech.