Blockchain is one of the most popular—and controversial—topics of conversation among technology leaders in finance today. So what do CPAs need to know about blockchain? Let's begin with the basics.
First, blockchain is a digital ledger of economic transactions that is fully public, continually updated by countless users, and considered by many impossible to corrupt. It is a list of continuous records in blocks.
A blockchain database contains two types of records: transactions and blocks. Blocks hold batches of transactions. The blocks are time-stamped and link to a previous block. The transactions cannot be altered retroactively.
It is also possible to program the blockchain to record transactions automatically. The monetary value of those transactions is usually measured not in U.S. dollars, or any other standard centralized currency, but in cryptocurrencies—that is, digital currencies that are not controlled by a central bank. Think of blockchain as the rails that bitcoin and other cryptocurrencies ride on.
WHY SHOULD YOU CARE?
Here are four reasons finance executives and other CPAs should care about blockchain and its potential:
- Blockchain is much more than bitcoin. While many people in finance departments might mistake the mysterious and often volatile bitcoin for blockchain, they are two very different things. While invented to help transact in bitcoin, blockchain is the digital global ledger that not only records cryptocurrency transactions, but also provides a home for documents of all sorts. "Everything from property deeds, to birth records, to money such as bitcoin and various alt-coins resides on a blockchain backbone," said John Callahan, Ph.D., chief technology officer with Veridium, a company that specializes in advanced security technology. In fact, he described blockchain as "part of the iceberg beneath bitcoin."
- Blockchain could reshape the business of recordkeeping, and business itself. Learning all you can about blockchain "is a worthwhile investment of time for finance professionals," said Jon Raphael, CPA, chief innovation officer at Deloitte. "As scalable applications are deployed—and if they live up to their potential—blockchain will profoundly change how records are kept and transactions are processed." Those applications could yield a wealth of structured data from new sources, meaning "the impact of how the ledger will be compiled is potentially immense."
- Many finance executives are lagging behind their peers. A 2017 survey by Deloitte found that about 60% of big company executives said they were knowledgeable about blockchain. Raphael said that the time has come for finance leaders to step up, as "blockchain awareness is increasing due to publicity about the amount of investment, interest in financial technology innovation, and predictions of the impact blockchain will have."
- Blockchain is becoming a powerful way to do business. Because blockchain allows for the transacting and securing of digital data, it is beginning to realize its potential to aid in a wide range of areas, from compliance to data management. "It will bring enormous efficiency in business transactions besides making them military-grade secure," said Nitin Narkhede, vice president and head of blockchain and innovation at Mphasis, a digital IT services company. "Hence, there is massive interest in experimenting with the technology and applying it in every business process."
Editor's note: A version of this article, "Why Finance Executives Should Care About Blockchain," previously appeared in CPA Insider, May 8, 2017.
Lou Carlozo is a freelance writer based in Chicago. To comment on this article or to suggest an idea for another article, contact Chris Baysden, senior manager of newsletters, at Chris.Baysden@aicpa-cima.com or 919-402-4077.