Between 2007 and 2010 an individual working under the alias, ‘Satoshi Nakamoto’ designed Bitcoin and devised the first Blockchain database. This individual now owns roughly 1 million Bitcoins, worth US$4.2bn as of August 2017. Here’s my take on how their invention is changing the Accounting Game...
What is Blockchain?
You’ve probably heard of it, but do you know what it is?
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to records not just financial transactions virtually everything of value.” Don & Alex Tapscott, Blockchain Revolution (2016)
A ‘block’ is a group of verified transactions; whilst a ‘chain’ is created when additional transactions are verified and added to previous ‘blocks’. These transactions take place using a cryptocurrency, a digital or virtual currency, the most famous of which is Bitcoin. This technology has the potential to be one of the most disruptive to affect the entire business world, let’s look at some of the repercussions to the accounting industry in particular.
How will it affect the Accounting Industry?
1) The development of triple entry accounting? Rather than ledgers being kept by two business, those which make transactions using a crytocurrency will share their information with a third party, Blockchain, which will also record the transactions. This will shake the very foundations of modern financial accounting, which is based on a double-entry bookkeeping system.
2) Does this mean the end of the auditor? No.. Not necessarily. The Blockchain records all transactions, however it doesn’t describe them. As such the human opinion of classifying the transaction will still be critical. In addition it should make audit more reliable as transactions can’t be falsified or manipulated as transactions are visible to all parties. It could simply lead to a more streamlined and fast process.
3) Increase in security. Blockchain technology provides extremely strong security due to the encryption and the fact that you can’t hack in to the Blockchain to make unauthorised changes. Due to the transparency of transactions it should make fraudulent transactions easier to identify and therefore help to stop criminal activity. However this lack of privacy could cause it’s own issues.
All parties have the opportunity to voice their opinion on the future direction of this technology and how it is implemented.
What opportunities are available to Australia in the future?
The World Economic Forum says 80% of banks are predicted to start Blockchain projects this year. In the US, US$1.4bn has been invested in technology related to this industry in the last three years.
Blockchain has the ability to automate so much of the time-intensive accounting and auditing tasks and is likely to change how accounting businesses work. As such firm’s need to offer new value-added services approaching the disruption head-on.
Data61, Australia’s largest data innovation group is pushing for the country to continue to develop their strength in this sector. Australia is currently the 8th largest exchange in the world and if business leaders make the right decisions now, the country could position itself as a global market leader for years to come.