What the hell is blockchain?
Updated: Feb 16, 2021
We’ve all heard about bitcoin, the cryptocurrency that’s recently seen a 9000% increase in value, turning the Winklevoss twins (the massive-chinned brothers who sued Mark Zuckerberg) into the first internet-moolah billionaires.
OK. But what’s cryptocurrency?
Well, it’s digital money. It’s not physical and there are no coins or notes that you can lose down the gaps in the sofa.
In the age of tech, it’s turning out to be a pretty big deal.
Even John McAfee has cropped back up, the antivirus building, alleged neighbour murdering, presidential candidate. He says bitcoin will surpass the $500k mark, and he knows his stuff. He had a yoga retreat too, don’t you know?
As you can imagine, the problem with an all-digital currency is, it’s potentially a nightmare to manage. Hence, from the creator of bitcoin, a mysterious figure going by the pseudonym, Satoshi Nakamoto, came blockchain, thought of in many circles as the next evolution of financial tech.
Yay. A new bit of technology to get your head around, just as you were getting to grips with cloud accounting. “What the blinkin’ ‘eck is blockchain?!” you yell, whilst tearing the black band from your arm that you wore whilst mourning the death of the excel spreadsheet.
In basic terms, the blockchain is a public ledger where all cryptocurrency transactions are recorded and confirmed anonymously. Records are permanent, and cannot be altered. Think of it like that tattoo of your ex, without the laser removal. Given that bitcoin is pure data, you transfer value to someone else by creating a record in what’s known as a block, that is timestamped, and inextricably linked to the preceding block, thus creating a chain. See. Block. Chain. Not the most creative name.
You’re probably bamboozled at this point. Take a sip of your coffee and jump up and down ten times to get the oxygen flowing. Things are about to get a whole lot more complicated.
The reason the blockchain is so secure is because, rather than existing on a single storage source, it is spread across nodes in a distributed system; ever changing computers or servers that host a copy of the entire record. There is no central point. Distributing access and copies of the blockchain means that downtime can’t happen. Woah, nelly. What on earth is a distributed system?
Well, rather than hosting a program on a single computer, copies are hosted on a number of computers that synchronise with each other, and only host the file for an amount of time. Having the program spread in this way means that there is no central point of attack for anything malicious.
The fact that it’s transparent, continually updated by countless users, and decentralised, means that it’s considered by many as almost impossible to corrupt. Hacking the blockchain would mean overpowering every computer currently contributing to the network. It’d be like trying to take on the entire internet.
But how the hell does that relate to me, the lowly accountant? you wonder.
Well, blockchain has huge implications in the accountancy and tax space. If you thought cloud accounting had the potential to bop the compliance world on the conk, blockchain would be the equivalent of hitting it with a nuke. That’s why the advisory route is the future, and the reason every Dom, Rick and Barry keeps barking on about becoming a ‘trusted advisor’. Refusing to adapt and carrying on with your typical compliance setup is like trying to stop a tsunami with your bare hands. Tech-enabled advisory work is like getting out your surfboard and riding that mother of a wave like a baus.
Besides, you shouldn’t be intimidated by blockchain. It’s a network of digital transactions. Imagine it as an internet built especially for financial stuff. You’re an accountant, right? You’ll love it.
Envisage what it’ll be like when it begins to be used for client-customer payments. There will be no doubt whatsoever that the buyer sent the monies. Audits are simplified, cheaper and much, much faster. Trails are black and white. The integrity of financial records is transformed. If you think about it, a transaction can be fully trusted without the need to trust the other party, because even the owners of the accounting system itself can’t alter the records within it. Once it’s in, it’s in.
What’s more, blockchain takes the double entry system and volleys it into the sea. We’re talking about triple entry here, double entry’s bigger, smarter sibling. The potential for human error is massively reduced, more so than any other technology before it.
Pretty cool, right?
There’s a chance that blockchain tech could do more for the sector than AI, robotics, nanotech, and the internet of things put together. We’re living in a crazy time. The future of finance looks extraordinary.
As an advisor, your ability to interpret the data and understand blockchain transactions now will give you a value add to your clients second to none.
Yeah, I know, society is still in the very early stages of this transformation. Chances are, we’re a while off blockchain being commonplace in accountancy.
But, it is happening, and if I were you, I’d get reading up on it now. You can’t expect to integrate something like blockchain into a firm that still spends 99% of the week messing about with spreadsheets.
We’re talking about a technology that could eradicate the need for audits entirely, which is why it’s bonkers that a recent CIMA survey found that only 4% of the profession believed blockchain would be the biggest disruptor to the industry.
They say change is coming.
I’d say it’s already here.
If you enjoyed this read, check out my article, ‘WTF is a tax technologist and do I really need one?‘.