Despite much discussion and hype, there is a gap of understanding about what blockchain and related cryptocurrencies are really all about and how the accounting profession will be impacted.
In order to help make sense of things for you, I see blockchain technology broken down into five key principles which I will discuss in this article.
The 5 Key Blockchain Principals
A primary fundamental of the blockchain is that its Decentralized, which makes it very different from traditional technologies. Typically, this decentralization happens in the public domain. The strengths of this are best understood by looking at the opposite—data held in one place.
Data stored on a desktop computer for example, has a serious chance of being compromised, corrupted, or altered. It can be stolen, the computer can break, or wrong data can be entered into a desktop ledger (given the fact that the other party involved with the transaction has virtually no involvement).
Even cloud-based accounting applications such as Xero and QuickBooks Online are still fundamentally centralized. One company controls the data, and it’s their responsibility to ensure its integrity and that it doesn’t get hacked, lost or stolen.
Potentially anyone can enter transactions that have little acknowledgment of the other party in that transaction, and the implications on that third party of changing that transaction is limited. By storing data across its network, the blockchain eliminates these risks that come with data being held centrally.
About Stuart McLeod
Stuart is co-founder and CEO of Karbon—practice management software for high-performing accounting firms. Stuart has had many successful ventures, including Paycycle, founded in 2009, which he sold to Xero in 2011.