While many people may have heard about blockchain, there is still a lot to be learned.
There are a lot of information, articles and news about blockchain technology; and how it impacts our lives; and the different industries that use it. However, it does not provide an easy explanation that a simple consumer can easily grasp. Though it is very complex, we see that it has great uses.
Did you know that the blockchain technology has a great potential to the accounting world?
A basic impact of blockchain to the accounting and audit industry is that it reduces the errors when merging much information from multiple sources.
What Every Accountant Needs to Know about Blockchain?
There has been a lot of talk about blockchain technology and the impact that it will have on business, but there has been very little explanation of how it will affect us in plain English.
Blockchain is of huge significance to the accountancy world, especially in the short term, as clients will be assessing the benefits of this new technology.
Blockchain is often described as one of the most significant recent developments in computing technology, with applications that have the potential to change the way we do business, consume goods and store our data. While the term is widely used, it is not always totally understood.
A blockchain is a digital ledger in which transactions made in bitcoin or another cryptocurrency are recorded chronologically and publicly.
When digital currencies were first imagined, they could never work because of the ‘double spend’ problem. Programmers couldn’t figure out how to reliably prevent digital currencies being spent more than once without relying on a centralised service to validate transactions.
A blockchain is an innovation, which helps solve the ‘double spend’ issue of digital currencies by gaining the ‘consensus’ of multiple computers which solve a cryptographic puzzle to validate transactions. Cryptography ensures tamper-proof security, authentication, and integrity of transactions.
Transactions are recorded on a single ledger (blockchain), which can’t be edited, is secure, and provides a clear audit trail based on transaction addresses. Blockchain technology is based on a concept called triple-entry accounting, which removes the need for transactions to be processed by a financial institution.
Euros Evans, CEO of Etch, a new blockchain-based payroll system that allows employers to pay workers second by second, believes that blockchain has the power to change the way payments are made forever. He says: “The whole world requires trust to function. People and businesses simply don’t trade with others they cannot trust. In centralised models, we rely on third parties to create trust around transactions. We trust financial institutions to make sure our transactions happen safely and securely without anything going wrong.
“This, however, has a cost. Using middlemen to ensure trust incurs fees and transactions are slowed down to the speed at which they are able to operate. The middlemen who we trust are still prone to errors and sometimes things still go wrong.
“Using a blockchain means you don’t need a trusted middleman to prove that a transaction has taken place and currency has changed hands. A blockchain enables a cryptographically signed receipt which verifies the transaction has taken place and stores it on the immutable, secure blockchain.
“Blockchains are creating the possibility to have faster transactions at a lower cost, without needing to trust a third party. Blockchain technology is making micropayments possible and even enabling smart contracts to be created which can transact other assets types, in addition to currency.”
Via Business World