Why finance executives should care about blockchain
Businesses must prepare as the digital ledger for cryptocurrency and wide swaths of documentation gains mass acceptance
|Monday, May 8, 2017|
By Lou Carlozo, for Journal of Accountacy.com
Blockchain, to invoke a Churchillian turn of phrase, often seems to accountants like a riddle wrapped in a mystery inside an enigma. The technological aspects of it are tough enough to understand without a computer science degree. But where it really gets perplexing is its potential: Some argue that it could completely transform finance and auditing, while others are decidedly more circumspect regarding its impact.
So maybe it's not surprising that blockchain awareness and understanding vary significantly: A 2017 blockchain survey by Deloitte found that nearly 40% of surveyed senior executives have little or no knowledge about blockchain, while other executives place it among their company's highest priorities for 2017. It's unusual for something that so many consider so important to be such a mystery to so many others in the same field.
While it's understandable that financial executives would cast a cautious, even skeptical, eye at blockchain, finance departments in all fields—not just those related to investment and banking, for example—need to get up to speed on the technology. "Most people assume that to the extent big companies are active in blockchain, they are financial services firms," said Deloitte LLP Managing Director David Schatsky. "But the survey confirms that there is significant activity in health care, technology, media, and telecommunications, and in consumer products and manufacturing."
What is blockchain?
So what do CPAs need to know? 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 blocks cannot be corrupted because 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. (To learn more about blockchain, check out these articles by Harvard Business Review and PCMag.)
Why should you care?
Here are five reasons finance executives should care about blockchain and its potential: