You may have heard the term “blockchain accounting” but wondered exactly what it entails, and how it differs from the standard, generally-accepted accounting principles used by bookkeepers and accountants in most businesses. According to Bloomberg Business’ Accounting Today, blockchain is less well-known than other technology trends that are disrupting the accounting profession and business administration, but it is not a trend that “accountants can afford to overlook any longer.” This form of accounting uses an open, distributed ledger that takes advantage of cloud computing and contemporary record-keeping technology. It verifies transactions independently of a trusted central authority.
The Origin of Blockchain Accounting
Blockchain accounting is a new approach that some accountants fear could make the profession of accountancy obsolete. It is a transparent technology that offers a global digital ledger of financial transactions. It was originally developed to enable the use of the “cryptocurrency” Bitcoin. Many people believe it is the same thing as Bitcoin, which is a digital, portable asset. The concept of blockchain arose before Bitcoin’s implementation and it was was developed primarily to enable the use of Bitcoin. According to IBM, blockchain’s implementation outside of the “Bitcoin environment” was somewhat delayed, because established businesses and accounting professionals did not initially see its benefit in other industries.
How Does Blockchain Work?
Blockchain technology enables secure transactions by means of a database and ledger that involves network participants on both sides of the transaction. The Bitcoin use of blockchain relies on “consensus” which is a result of “mining,” which are activities that users engage in resulting in “proof of work” that verifies all aspects of the transaction. Most of all, blockchain records cannot be tampered with or altered after they are complete. The blockchain can be used to verify assets of any type, not just “cryptocurrency” like Bitcoin. In its present use with Bitcoin, anyone can look at the Bitcoin ledger and see every transaction, but each transaction is anonymous, and transactions are merely a series of numbers.
How Could Blockchain Change Business and Economic Activities?
According to IBM, blockchain technologies and processes have the potential to change global business practices because the technology of distributed work and verified transactions offer trust in a way that prior accounting systems do not. Anything that is recorded in the blockchain will be verified and unalterable. Even if organizations or people involved in business transactions do not trust each other, they will be able to trust the information in the blockchain. It is anticipated that blockchain technology will have far-reaching impacts in reducing costs for settling disputes and verifying transactions. Blockchain will also eliminate some intermediary roles, reduce overhead costs, and help to reduce fraud and collusion.
Blockchain technology enables financial, property and value chain transactions worldwide. Initially developed to serve the establishment of Bitcoin, major corporations and the AICPA believe that blockchain’s independence, verifiability and distributed ledger methods have the potential to transform international business and economic growth. Blockchain is seen as a disruptive technology, in which accounting and bookkeeping jobs are anticipated to change greatly over the next few years. Currently in the development stages, more than 30 major companies are offering blockchain solutions for businesses in the United States and around the world.