If you haven’t already heard of Bitcoin, you either haven’t been paying attention or you’re a time traveller who just touched down in 2018. Because by now, most of us will have heard of Bitcoin and some of us have even jumped on the bandwagon, investing in cryptocurrencies.
But despite its popularity, many people still don’t understand the technology that underlines it: blockchain. In very simple terms, blockchain technology is an open access shared ledger that keeps a record of all the transactions between parties and allows all users to agree on its contents. New information is added in blocks linked to the previous blocks, resulting in a chain of blocks being built.
This ledger is verified by “miners” to make sure it’s true — and so creating an audit trail. Past records can be viewed but not altered without the consent of the majority. And it is this technology that is behind cryptocurrencies such as Bitcoin — the value of which rose almost 1400% in the past year, but has at times, also fallen massively too.
Crypto is here to stay
It can certainly be anticipated that this evolutionary technology is set to spark a huge revolution in the business world. It’s already being trialled at governmental level, from the Sweden Land Registry, to the Big Four accountancy firm such as E&Y — who accept Bitcoin as payment for its consultancy services.
The Australian Securities Exchange is also considering the use of blockchain technology to replace the current clearing and settlement system of share trading. And even the Bank of England is planning its own Bitcoin-style virtual currency.
Major governments around the world have acknowledged and further legitimised the use of Bitcoins as payment vehicles. In fact, more and more major companies are accepting Bitcoins — Microsoft, Virgin Galactic and Subway to name a few. It seems certain then that blockchain technology has a wide appeal. And although it may be a rocky road ahead, with countries such as India and China banning or restricting the use of cryptocurrencies, crypto is here to stay.
A recent report from the Institute of Chartered Accountants in England and Wales on blockchain, claims it is fundamentally an accounting technology. In its simplest of definitions, accounting is a process of keeping records, and this is precisely what blockchain offers in a more “modern” and “foolproof” way. As once the records are agreed upon and validated, the records are bundled into blocks that are virtually impossible to change, making the technology tamper-proof.
Essentially, as the business world adopts the use of accounting systems that use blockchain technology, accountants will spend less time doing the mundane tasks of bookkeeping and reconciliations, and will instead focus their energy and time on the interpretation of information and decision making.
Blockchain technology will also make it easier for accountants to measure the accuracy of data. Meaning that the technology should effectively cut down on fraud and make accounting errors disappear.
The new accountants
A report by the World Economic Forum suggests that 10% of global GDP will be stored on blockchain-related technology by 2025. This implies that the way transactions are recorded and communicated will completely transform between now and then.
It it easy to see then, why accountants of the future will need to educate themselves about Bitcoin and other cryptocurrencies if they are to account for transactions denominated in it. The profession will evolve and adapt massively over the coming years. And in fact, auditors have already started auditing transactions in the blockchain.
Universities around the world have already begun offering blockchain-related courses. Even the professional accountancy bodies now feature blockchain technology in their qualification syllabus.
But of course while all this might sound a bit futuristic to some readers, the evolution of money is something that has been going on for centuries. From a barter system to gold bars, metal coins to paper money, to plastic cards. All we are looking at now, is simply the next cycle in evolution — from electronic money to cryptocurrencies.
Anwar Halari, Lecturer in Accounting and Finance, The Open University