Blockchain’s Accounting Perspective
Blockchain is fundamentally an accounting technology. Quick Recap of the key features of blockchain:
Propagation: new transactions originate with one user but propagate to a network of identical ledgers, without a central controller
Permanent: all transactions and records are permanent, unable to be tampered with or removed. Charge back costs can be eliminated*
Programmable: allows automation of new transactions and efficient control via smart contracts
Blockchain is concerned with the transfer of ownership of assets, and maintaining a ledger of accurate financial information. The accounting profession & systems are broadly concerned with the measurement and communication of financial information, and the analysis of said information. Much of the profession is concerned with ascertaining or measuring rights and obligations over property, or planning how to best allocate financial resources. Blockchain has the potential to enhance the profession by reducing the costs of maintaining and reconciling ledgers, and providing absolute certainty over the ownership and history of assets.
Blockchain could help accountants gain clarity over the available resources and obligations of their organisations, and also free up resources to concentrate on planning and valuation, rather than recordkeeping. Alongside other automation trends such as machine learning, blockchain will lead to more and more transactional-level accounting being done. Successful accounting will be the work on assessing the real economic interpretation of blockchain records, marrying the record to economic reality and valuation. For example, blockchain might make the existence of a debtor certain, but its recoverable value and economic worth are still debateable.
By eliminating reconciliations and providing certainty over transaction history, blockchain could also allow for increases in the scope of accounting, bringing more areas into consideration that are presently deemed too difficult or unreliable to measure, such as the value of the data that a company holds. Blockchain is a replacement for bookkeeping and reconciliation work.
This could evolve the work of accountants & systems in those areas, while adding strength to those focused on providing value elsewhere. For example, in due diligence in mergers and acquisitions, distributed consensus over key figures allows more time to be spent on judgemental areas and advice, and an overall faster process.
Summary of advantages
- Efficiency: Clarity over ownership of assets and existence of obligations, and could dramatically improve efficiency
- Reduced Costs: Reduced costs of maintaining and reconciling ledgers, and providing absolute certainty over the ownership and history of assets. Consequently prices maybe set significantly lower than the total existing today, because it saves on the entire infrastructure — hardware, data centers, personnel.
- Value of Data: By eliminating reconciliations and providing certainty over transaction history, blockchain could also allow for increases in the scope of accounting, transaction level accounting, bringing more areas into consideration that are presently deemed too difficult or unreliable to measure, such as the value of the data that a company holds.
- First mover: Cutting edge technology adoption & leading the way forward supporting the infrastructure for Central bank currencies, future merchant & consumer needs