There has been quite a bit of analysis about core characteristics of blockchain technology, but it is important to make sure everyone involved in the conversation is working off of the same page. Specifically of importance for accounting and other financial professionals seeing to develop new and additional services connected to this technology, understanding how these tools can drive change in the accounting
and auditing space is imperative. Different components of the technology itself will mean different things for different aspects of the financial services landscape, so ensuring that accurate definitions are used is critically important. Drilling down specifically, let’s take a look at the four most commonly discussed traits and characteristics of blockchain.
- Immutable – especially exciting for individuals employed within the financial services area is the fact that once data has been uploaded and verified by other members of the network (more on that in a minute), the individual blocks of information cannot be altered. While it is possible for subsequent blocks to generate, through a net effect, a change to the information uploaded in total, the individual blocks of data are unable to be edited.
- Consensus based verification – another important characteristic of blockchain technology is that, in order for information to be uploaded and stores on a blockchain, other members of the network have to approve and verify that information. Without diving too much into the technical specifications, and acknowledging the reality that every blockchain can be configured differently, this consensus based methodology strengthens the security since every member
of the network is involved in this approval process.
- Decentralized – the decentralized nature of blockchain technology and blockchain platform forms, is perhaps the most revolutionary and potentially disruptive nature of this technology and platform.
Decentralizing the storage and validation of information, of course, comes with certain risk factors that are consistent with risk factors associated with storing potentially sensitive in a cloud based environment. That said, the decentralized nature of information and technology is not necessarily a new or innovative approach. Cloud based computing, which the blockchain concept requires to operate, is not a new idea nor one that is new to anyone in the marketplace.
- Drilling down, diversifying and distributing the ownership and record keeping of information also helps to reduce the single point of failure risk that is, by default, a component of many current centralized networks and systems.
- Also, by decentralizing the approval process, and again taking into the fact that individual networks can be constructed with various approval and verification processes, the risk of any one individual actors assuming control to engage with unethical behavior is reduced.
- Real time communication – in a fast changing business environment, and responding to client and customer demands that increasingly are centered around real time information, blockchain does present a possible solution to current bottlenecks. Even with applications and advances in current technology, there are still significant gaps in how data is communicated and transmitted between supply chain partners. Applications and examples linked to how blockchain is
already impacting the supply chain angle of the market (which accounting and financial professionals are part of) include some of the following:
- Supply chain and food safety implications – food safety is an issue and matter of concern for virtually every individual and, important for our purposes, organization. IBM, a leader in the blockchain space but by no means the only player in this area, has launched numerous pilot projects and initiatives to assist organizations with tracking, verifying, and pinpointing pain points in supply chains linked to food transportation.
- Healthcare accounts for, depending on estimates, and depending on the specific report referenced, between 20–25% of the U.S. economy, or between $4–5 trillion in economic activity. Regardless of views on either the efficiency or effectiveness of current healthcare policies and methodologies, there does
appear to be room for reducing errors and omissions while also increasing the efficiency of operations.
- Financial services – drilling down to the core concepts embedded within this book and discussion, the implications for financial services appear to be simultaneously understated and perhaps over hyped. Blockchain itself is a potentially transformative technology, but many financial services individual and organizations were introduced to this technology via the cryptocurrency Bitcoin, or other altcoins. Bitcoin and other cryptocurrencies may have received headlines and market coverage, but blockchain itself is already the focus of billions of investment throughout the financial services landscape.