What
is blockchain?
Here’s a primer on the potentially
transformative digital ledger technology.
By Lou Carlozo
Blockchain is one of the most popular—and controversial—topics of
conversation among technology leaders in finance today. So what do CPAs need to know about
blockchain? 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 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.
WHY SHOULD
YOU CARE?
Here are four reasons finance executives
and other CPAs should care about blockchain and its potential:
l Blockchain is much more
than bitcoin. While many people in finance
departments might mistake the mysterious and often volatile bitcoin for
blockchain, they are two very different things. While invented to help transact
in bitcoin, blockchain is the digital global ledger that not only records
cryptocurrency transactions, but also provides a home for documents of all sorts.
"Everything from property deeds, to birth records, to money such as
bitcoin and various alt-coins resides on a blockchain backbone," said John
Callahan, Ph.D., chief technology officer with Veridium, a company that
specializes in advanced security technology. In fact, he described blockchain
as "part of the iceberg beneath bitcoin."
l Blockchain could reshape
the business of recordkeeping,
and business itself. Learning all you can about
blockchain "is a worthwhile investment of time for finance
professionals," said Jon Raphael, CPA, chief innovation officer at
Deloitte. "As scalable applications are deployed—and if they live up to
their potential—blockchain will profoundly change how records are kept and transactions are processed." Those
applications could yield a wealth of structured data from new sources, meaning
"the impact of how the ledger will be compiled is potentially
immense."
l Many finance executives
are lagging behind their peers. A 2017 survey by
Deloitte found that about 60% of big company executives said they were
knowledgeable about blockchain. Raphael said that the time has come for finance
leaders to step up, as "blockchain awareness is increasing due to
publicity about the amount of investment, interest in financial technology
innovation, and predictions of the impact blockchain will have."
l Blockchain is becoming a
powerful way to do business. Because blockchain
allows for the transacting and securing of digital data, it is beginning to
realize its potential to aid in a wide range of areas, from compliance to data
management. "It will bring enormous efficiency in business transactions
besides making them military-grade secure," said Nitin Narkhede, vice
president and head of blockchain and innovation at Mphasis, a digital IT
services company. "Hence, there is massive interest in experimenting with
the technology and applying it in every business process."
Editor's note: A version of this article,
"Why Finance Executives Should Care About Blockchain," previously
appeared in CPA Insider, May 8, 2017.
Lou Carlozo is a freelance writer based in
Chicago. To comment on this article or to suggest an idea for another article,
contact Chris Baysden, senior manager of newsletters, at
Chris.Baysden@aicpa-cima.com or 919-402-4077.
