Blockchain technology is heralded as the game changer in so many fields: banking, currency, logistics just being a few of them, but there is one service area that nobody has talked about so much and that is accounting.
Most people would agree that accountancy isn’t quite as ‘sexy’ as banking, hence the lack of excitement about how the blockchain may completely revolutionise a service industry that is centuries old. As much as we like to make jokes about accountants, their services are invaluable to businesses and to entrepreneurs.
History shows us that double-entry bookkeeping, the foundation of all accounting, can be traced back to medieval Jewish merchants in the Middle East, and later picked up by Genoese merchants in the 14th century. From there it became the standard method and it is relatively simple — for every intake of money in one account (credit), there must be an equivalent outflow in some other account (debit).
Overall, accountants focus on managing risk. It allowed businesses to keep track of a number of transactions at the same time, and in a range of currencies. Accountants have a specialist skill set, but as John Katsos argues, the blockchain could potentially make many in the profession unemployed.
In traditional accounting there is room for errors and fraud, as many famous cases have shown. When a mistake happens, more accountants have to be brought in to correct it, and that leaves rooms for more errors. Katsos claims that the blockchain is not double-entry bookkeeping; it is “potentially infinite bookkeeping.”
As he says, “blockchain technology can give every user in a system an automatically updated list (a “chain”) of all transactions (“blocks”) that have occurred within that system.” Plus it has validators: designated members of the system who come to “consensus” over a transaction. The only limitation is the number of users and the amount of computing power available.
There is also the potential to use permissioned blockchain to avoid fraud. In this system, people using the blockchain have been verified in advance and limits imposed on what they can do on the system, such as ‘read only’. Add in AI to detect fraud and we may have an even more robust accounting system. Is it the end of the accountancy profession? The answer is probably not, but there could be some big changes.