Blockchain, also known as distributed ledger technology, is a type of peer-to-peer accounting software built upon systems that are distributed among many users. The decentralization of the system provides consensus on transactions and help to protect it from attack or collapse. There is no one owner of the software, and it’s meant to be completely transparent. Every transaction is processed, approved and verified by many users across the network–a process that can take milliseconds–and cannot be edited. For obvious reasons, this is an auditor’s dream since every transaction is clear and public to all users involved and cannot be fudged in any way.
The application of this technology is relatively new, having been used on a large scale in the well-known but floundering virtual currency project, Bitcoin. The original idea came perhaps out of the economic crisis of 2008, a time in which the stability of the world’s economic foundation was questioned. However, the problems it is trying to solve go back to the beginnings of human civilization: Trust, Corruption, Fraud.
Eliminating these problems are lofty goals and its biggest proponents know as much. Some have declared that the technology will change the world of accounting and cooperations as we know it. If they are right, then what does this mean for business?
In the short term
It could save a lot of money and manpower. Blockchain can provide reliable data on all transactions and eliminates the need for large-scale in-house accounting processes. The accounting department of any given corporation could dedicate itself to making its business more efficient through reporting and analysis since it wouldn’t be periodically tasked with reconciling and verifying thousands of individual transactions. Additionally, it could make tax reporting as we know it, a thing of the past. If governments and highly regulated businesses had access to the same information in real time, then audits could be passive and continual.
In the medium term
It could create an atmosphere of trust and cooperation between businesses that choose to work with one another. Some proposed uses of blockchain is for the management of contracts, rights, and supply chain management. It could be used to automatically pay copyright fees, authenticate points of origin, or enforce the rules of a deal without having to worry about whether either side is fulfilling its obligations.
In the long term
Widespread use of the technology among many industries could make certain types of banking, including ACH for payment transactions, obsolete. Additionally, the middleman could be cut out areas so varied as the music industry, online shopping, publishing, among others. The gatekeepers of so many of the things we enjoy may no longer have any gates left to keep.
This technology has implications for creating massive changes in government as well. According to a UK report by the Government Chief Scientific Adviser, the technology’s “eventual impact […] on British society may be as significant as foundational events such as the creation of the Magna Carta.” In countries with highly corrupt government systems, blockchain could liberate economies and unleash business potential everywhere.
Lofty goals indeed, but the technology is already here. It’s just a matter of time before we begin to see the impact on the economy and even on world governance.
