At first glance, accounting professionals may feel like latest technology buzzwords don’t apply to them. After all, while the last decade has seen major technological leaps - smartphones, cloud applications, etc. - none of them required understanding what happened under the hood. Instead, it simply required waiting for consumer releases to take those advances into the mainstream. For example, as a CPA, using the cloud version of tax-return software is a seamless transition from the local versions, except that it is backed-up and accessible via online means.
In 2017, the biggest technology buzzword is blockchain. Does that mean people in the finance industry -- anyone from CFOs to independent CPAs to auditors -- take note of it? Non-tech people may find the idea behind blockchain technology to be confusing, and that could bring up initial caution. In fact, the Wikipedia definition can be nearly inscrutable for those not in the IT realm: A blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography. But the blockchain matters because it can become the backbone for accounting in the 21st century - and with it comes an unprecedented level of transparency and permanence.
What is the blockchain?
Imagine a stone tablet with financial records etched in, each with a unique identifying number. The next record is another tablet linked to it sequentially, and the next one and the next one, creating a permanent chain of etched-in-stone records, all publicly visible for people to audit and verify. The blockchain is a digital version of that. Each transaction lives in a block, which is then linked to the blocks before and after it to maintain permanent records -- removing a block from the chain will show that data is missing or corrupt. This data lives on a publicly accessible network of auditing systems, which continuously verify the records, making any attempt to hack or change records caught near-instantaneously. On a deeper technology level, these records use one-way cryptography so that records can be verified for accuracy without revealing the details of the ledger.
This technology is already powering new types of currency such as Bitcoin. Government agencies around the world are looking at using the blockchain as a new secure way to maintain permanent records like voting, and the United States government is investing in blockchain startups as a means of securing the Internet of Things.
Impact on accounting
At its core, those in the financial industry -- everyone from accountants to finance executives -- are concerned about records: their accuracy, their accessibility, and the ability to get multiple parties to verify and confirm that they’re consistent. So much time in this industry is used (some would say wasted) during this consolidation process as records are checked and double-checked before the data can be put forward into further usage. Blockchains create a single source of information that multiple parties can reference and collaborate against that is also trusted, secure, and permanent. When the industry implements blockchain software, it could end costly audits by automating cross-referencing and double-checking.
It’s unlikely that a wholesale change will happen overnight for any company. The sensible and most likely action is that major corporations will roll out a blockchain implementation in small local ledgers such as accounts payable/receivable. That will then likely elevate to larger volumes, such as direct customer transactions until the whole company shifts into these records. We are now seeing blockchain enabled software tested in small niche areas that allow it to prove value. It will be some months before these test move to live data. Once major players in an industry shift to internal blockchain records, there is a path to creating a unified industry standard. At that point, an actual industry disruption can take place.
The insurance industry gives us a good case of how two or more competitive entities can collaborate, when appropriate, by sharing information that has already had its provenance established. For example, when two people under different insurance companies are in a car accident, the entire process becomes streamlined. Coverage types, payment dates, and incident records will have a pre established sourced and accessible to all parties that need the information, allowing for an easier path to resolution. And as more people understand how blockchain technology works to improve the integrity of processes, the level of public trust will elevate an industry’s overall reputation.
What’s on deck?
The most important thing for finance professionals to understand is that blockchain technology will not replace their jobs. Like the advent of the personal computer, It will make their jobs easier, and free their time spent on tracking down and verifying data, and instead, professionals will be able to focus on what to do with that data. With all of this on the horizon, the best way for individuals to future-proof their career trajectories is to prepare now. Understanding new technology may seem daunting, but the possibilities it opens makes it a worthy investment in time and energy.
Tiana Laurence, co-founder of Factom and author of Blockchain For Dummies