Have you heard of blockchain before? Blockchain technology is on the rise, and it will have major implications on the future of accounting.
So what exactly is a blockchain?
A blockchain is a decentralized, chronological ledger protected by cryptography. The ledger is made up of a chain of blocks, which each contain information about transactions. For example, if you wanted to use a blockchain to track the ownership of a house, each block would contain information like the buyer, the seller, and the sale amount.
Blockchains are like the general ledgers that accountants use every day. They’re non-destructive, so when a block needs to be changed, the original is left intact, and a new entry is made at the bottom of the ledger. That way, everyone can see when and why the change was made.
Most people hear “blockchain” and think “Bitcoin,” but blockchain isn’t limited to just cryptocurrency. You can trade, record, and track almost anything with blockchain, including deeds, medical records, and financial transactions.
Blockchains are peer-to-peer and decentralized, which means there’s no centralized bank or other trusted institution controlling transactions. Instead, individuals agree to verify and control transactions using their own computers and the software code that powers blockchain. Every personal computer is a single node in a vast, interconnected network, and every node has its own copy of the blockchain ledger that automatically updates when a new block is added.
This decentralization means that blockchain is very secure. In a centralized system (such as a bank), hackers only have to attack one institution to gain access to the data they want. To attack a blockchain, hackers would have to attack every single node in the network.
The security of blockchains makes them an ideal tool to use in accounting. Because they’re so secure and resistant to modification, blockchains can be used to securely process payments, record transactions, and execute documents. As a result, blockchain technology may replace certain aspects of an accountant’s job, such as bookkeeping, verifying transactions, maintaining and reconciling ledgers, and auditing.
Blockchain will probably have the biggest impact on auditing. Blockchains are real-time, update faster than any human, and do it all with fewer errors. In some cases, auditors may not be needed to verify ledgers. With the power of blockchain, the day-to-day tasks of an auditor must be completely reimagined.
However, this automation of routine tasks won’t make auditors a thing of the past. Instead, auditors will have more time and resources for higher-level thinking, research, and strategy. Instead of working on mundane tasks like recordkeeping or verifying ledgers, auditors will dive deep into data and provide valuable takeaways to their clients.
Accountants will need to be interpreters between complex blockchain processes and clients. While every accountant won’t need to know the nitty-gritty of how blockchain technology works, they’ll need to be able to draw meaningful conclusions, give sound advice, and demystify blockchain for clients.
Change is ahead, bringing fear and uncertainty for many. But blockchain technology doesn’t mean the end for accountants—instead, it’s an opportunity for accountants to reshape their roles, evolve their skills, and embrace a new technology that will help them supercharge their results.
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