Can blockchain transform accounting?
Blockchain is a disruptive technology that erupted during the height of the bitcoin craze. But while this technology is typically thought of for cryptocurrencies, blockchain capabilities extend far beyond bitcoin transactions.
Across industries many companies have allocated resources to discovering how this technology can extend its application to innovate their businesses, including the accounting industry. The question they are trying to answer: how can blockchain technology be applied to accounting, and can this disruptive technology transform the industry?
We’ve rounded up a quick overview of blockchain and its applications, or potential applications, for accounting.
What is blockchain technology?
Blockchain is essentially a distributed ledger that is open to everyone. In blockchain a list of records or “blocks” are linked by cryptography.
Blockchain technology makes it possible to have a decentralized database that tracks any transaction that has value. When a transaction is made, a block (record) of information is created. Each block contains data specific to the block, a “hash” which is like the block’s fingerprint, and the hash of the previous block which makes a secure chain. This block of information is sent to everyone on the network. The network examines the block and validates its validity, creating a secure transaction. Once consensus is made, the block is added into the chain.
The structure of blockchain, and use of the open network and community verified transactions makes it nearly impossible to alter or falsify records. It also makes transactions possible without the need of a trusted third party to facilitate the online relationship.
How can blockchain be applied to accounting?
Accounting is one industry where blockchain’s capabilities have a natural use: the possibility of an accounting ledger that can be continuously updated and verified without being corrupted.
Instead of using a third party for transactions and often relying on print receipts, companies could utilize digital transactions and write these transactions into a joint register creating a chain of accounting records.
Using blockchain technology, all entries would use cryptography and become verified transactions. Because information cannot be altered (or its at least highly unlikely) when added into the blockchain, these transaction records could not be falsified or destroyed.
This could have immense benefits for accountants and auditors, and their clients, by having a large portion of the crucial data behind financial statements verified automatically. The days of sifting through boxes of paper records and manually double checking transactions could become a thing of the past. This would in turn save time for auditors to create verified financial statements, and would reduce costs for clients. It could also enhance records storage, and increase security.
The future of blockchain and accounting
While the idea of an accounting ledger using blockchain technology is an exciting possibility, the truth is we really are only at the beginning stages of understanding how we can leverage this disruptive technology to innovate the accounting industry. It will be both interesting and exciting to see how we can begin to integrate this technology into accounting processes.
At Harshwal & Company we will continue to watch this technology revolution and stay up to date on innovations and best practices that evolve in the world of blockchain to apply to our practice to continue to give best in class service to our clients.