Mar 5, 2020 Author: Accounts Junction
Blockchain is a fancy word for many of us. The majority still associate it with the crypto-currency Bitcoin. Blockchain is the underlying technology that makes Bitcoin work. Blockchain does not work because of Bitcoin.
What is Blockchain?
Blockchain is what we call a Distributed Ledger Technology(DLT). Information in DLT is stored in a distributed or a shared ledger, which is protected by public and private keys. The information in DLT can be made available to the concerned parties in a secured manner. It can be made accessible to clients, auditors, regulators, etc. The biggest advantage of Blockchain is that it is incorruptible. The data is encrypted and is time-stamped. So, if anyone makes changes to the data, it will be known to the owners of the data. Such data is stored in a series of blocks which form a chain, hence the name Blockchain.
What is its impact on Accounting?
Blockchain was basically made for supporting the architecture of Bitcoins. But it has applications in various other industries. Banks around the world are trying to make use of Blockchain to make their transactions more secure. Though the technology has not been adopted on a large scale in any industry, it is being tested at various junctures.
Accounting is done to record a series of transactions between two entities and record its impact on the balance sheet, profit and loss account. Accounting stores a user’s data and displays it in a systematic form. Blockchain can be used to do the same, albeit, with two advantages, one is that the transactions can be recorded in a secure environment which is difficult to manipulate. The second is that it is secure, access can be limited only to a few authorized persons, and it is transparent. Every recorded transaction will be easy to track. It will also make the process of auditing the books of accounts hassle free. Reconciliation of accounts will be easier with improved efficiency and less occurrence of frauds.
If Blockchain accounting is used on a large scale, there are fears that it will take the jobs of existing accountants. It is far from true. Only the nature of those jobs will change. New jobs will be created. There will be still persons required to record the same transactions and also the same experts will analyse the financial statements.
The implications of Blockchain the accounting industry can be huge. The fact is we are still uncertain if they are going to be as huge as predicted. No proven scalable system has been created till now. An exciting future in the industry looms for us. We can only embrace the disruption if it ever comes at all. Executives will have to learn new skills. But hey, we already know how to do that because the accounting faculty is dynamic and ever changing.
