The term ‘Blockchain’ has created hype in recent years on numerous social media platforms and corporate conversations. But the majority of people are not aware of the core functionality of the term. The ambiguity about blockchain provides a platform to develop an understanding of the technology and acknowledging the ways to integrate it with our existing spheres to unlock new potentials.
What is Blockchain?
Blockchain is a digital ledger of transactions. This digital ledger is different from the traditional ledger that we have been using for a long time in the accounting domain to record sales and purchase transactions. But the function of the digital ledger is pretty much identical to the functions a traditional ledger performs, that is to record debit and credit that takes place across P2P (Peer to Peer) network. The core difference is who holds the ledger and who verifies these transactions. Blockchain operates on one key difference: it is entirely decentralized. With the invention of blockchain technology, the role of a middle man has been eliminated, to be more specific, the role of banks and authorized approval authority is not required to perform any transactions.
With the emergence of digital assets, the need to use a more secure platform to operate the transactions smoothly, along with lowering down the risk of theft or manipulation has become a necessity of the cyber age. And thus, the advancement of technology has made ‘blockchain’ a need for the virtual currency age. With delivering high level of transparency in the undertaken transactions it ensures the exchange is efficient and secure. DLT (digital ledger technology) provides a highly secure platform to its users by possessing an immutability feature, which means the transactions, once performed, cannot be altered or deleted.
Blockchain has spread beyond its roots- cryptocurrency and is touching the myriad of industries that includes health care, insurance, supply chain management, banking, real estate, and health care. For blockchain technology, the accounting and auditing profession is not an exception. Although technology is a young one, it has shown significant impacts in the profession with its potential demonstrative applications.
The technology has provided the accounting professional with a strong potential to shine in this new arena. The technology has simplified the work of accountants by providing the distributed ledger solutions. In the last few years, many accounting firms have taken the initiative to espouse the blockchain technology to develop its deep understanding and implications, which will likely gain greater momentum in the coming years. The fact is blockchain is an accounting technology that seamlessly gets aligned with the profession. The grounds that provide commonality between the blockchain technology and accounting profession is - both are built on verification and confirmation. The technology has profoundly impacted the accounting and finance professions, and the application of DLT has provided multiple opportunities in the sphere.
By providing immutable and transparent records of all accountancy-based data, the technology provides an opportunity for professionals to streamline the process of financial reporting and open the doors for continuous audit processes.
The potential ways blockchain technology can pave the way by integrating with accounting sphere are enormous like - it can help in improving the efficiency; it provides the great opportunity to reduce human errors by automating the smart contract feature; helps to mitigate transactional cost; reduce the risk of frauds by following immutability approach; and using the power of smart contract the accounting professionals can reduce the need for auditing.