In the fast-pace world of technological advancements, industries are harnessing the innovations to improve quality of services to society. One of such innovations on the rise in recent years is the blockchain technology. A blockchain technology is a digital ledger (internet-based book of account) created to capture transactions conducted among various parties in a network. This technology enables peer-to-peer exchange where each user owns an identical copy of the ledger. Every entry into a blockchain is a transaction that represents an exchange of value between participants.
The participants who are either individuals or businesses and using the shared database are “nodes” connected to the blockchain. Thus, even if one node goes offline, the ledger is still readily available to all other participants in the network. When a participant sends value to another, all the other nodes in the network communicate with each other using a pre-determined mechanism to check that the new transaction is valid. Moreover, each block in the chain refers to the previous blocks, which prevents deletion or the reversing of transactions once they are appended to the blockchain. Nodes on a blockchain network can change but the network integrity and reliability will remain intact as long as it is being used. In this way, no single participant controls a blockchain and neither can a single party modify it.
Based on its capabilities, blockchain technology has given rise to what is called triple-entry accounting. This suggests that in addition to the traditional double-entry accounting’s two-sided debit and credit entries, blockchain utilizes a third entry that is, a time-stamped irreversible record in its transactions which is a feature that can help boost efficiency and minimize transaction fraud. Blockchain also removes the need for a central administrator when making transactions because it is a decentralized and distributed (shared) ledger technology. Apart from that, blockchain technology makes room for what is also described as smart contracts. Smart contracts use a computer code to lay down the terms and conditions of an agreement instead of the usual paper or electronic documents. Through this code, users have to meet certain pre-determined conditions in respect of payment settlements (confirming receipts and payments of goods) across borders. Smart contracts can also automate various accounting functions such as invoice processing and financial reconciliations. By eliminating the need for manual intervention, smart contracts reduce human error and enhance operational efficiency.
Current Blockchain Statistics
An analysis of the Blockchain marketplace by Markets and Markets revealed that the global blockchain market will be worth $1,431.54 billion by 2030, that is growing at a compound annual growth rate (CAGR) of about 85.9% between the period 2022 and 2030. In the same trend, blockchain could boost global Gross Domestic Product (GDP) by $1.76 trillion by the end of 2030. Markets and Markets also believes the major driving factors contributing to the rapid growth rate of blockchain include increasing venture capital funding into the technology and extensive use of the solution in banking and security.
What is more, according to analysts at Gartner (a global provider of research and advisory services), adding blockchain technology to the business environment could have a significant impact on enterprise value. Its report suggests business value generated by blockchain will grow to around $176 billion by 2025, then to $3.1 trillion by 2030. In another research by Statista, (a renowned provider of data on the global digital economy), it was clear that global spending on blockchain solutions accelerated from $ 4.5 billion to $ 6.6 billion in 2021. By 2024, blockchain spending is projected to increase to around $19 billion, based on the fact that more businesses are leveraging the technology across data validation, data access, and digital identity protection strategies and smart contract management.
Blockchain in Accounting
It has always been the case that the accounting profession is broadly concerned with the accumulation and reporting on financial information and the analysis of said information. Indeed, the purpose of accounting also includes an obligation over assets or planning how to best allocate financial resources. For accountants, using blockchain provides clarity over ownership of assets and the existence of obligations and could dramatically improve efficiency.
Fundamentally, blockchain technology has the potential to impact all record-keeping processes, including the way transactions are initiated, processed, authorized and recorded. It also has the capability to cause changes in business models and may impact back-office activities such as tax preparation and financial reporting. These processes will thereby provide transparency, efficiency and cost savings for businesses because of the technology’s ability to create a secure, real-time communication networks with partners globally.
Indeed, the move to a financial system with a significant blockchain element offers many opportunities for the accountancy profession. Currently, auditors have to spend a substantial amount of time obtaining financial information with manual supporting documents and schedules for the purposes of planning and performing audit. The adoption of blockchain will allow auditors to access tamper-proof record of transactions or audit evidence in real-time through read-only nodes on blockchains. A streamlined process by virtue of the blockchain technology can enhance compliance with regulatory requirements and improve the overall efficiency of auditing and the accounting profession in general. In effect, accountants can focus on higher-value tasks, such as financial analysis and strategic decision-making, while routine accounting processes are automated through blockchain technologies.
Apart from accounting processes, blockchain holds immense potential to improve other services as well. For instance, it can be applied in securities settlement involving multi-day clearing between multiple financial intermediaries. In healthcare organizations, the blockchain technology can be used for securing data integrity and protection of electronic medical records, medical billing, claims, and other records. However, we cannot deny the risks associated with it as an evolving technology.
Challenges/Hurdles
One of the significant challenges of the blockchain technology of much concern relates to the scalability of the networks. It is the case that users are currently struggling with high transaction volumes and processing speed. Additionally, integrating blockchain technology with existing accounting systems and regulations requires careful consideration to ensure compatibility and compliance which is not supported by regulatory frameworks in some economies. Despite the benefits of the blockchain technology, the initial cost of integration can be expensive. This can make it difficult many big organizations including small businesses with limited funds to keep up. As a result, it may still take a number of years before we see the widespread adoption of blockchain in finance and other industries.
Conclusion
Accountants are trained in record-keeping, application of complex rules, business logic and standards setting. Since blockchain technology is envisaged to improve accounting processes by enhancing transparency, streamlining processes, improving data storage and security. While reiterating that blockchain technology can improve efficiency, reduce fraud, and build trust between stakeholders, the challenges cannot be overlooked. As the technology continues to evolve and mature, accountants and financial professionals must adapt and embrace the transformative power of the technology. Accountants will not need to be engineers with detailed knowledge of how the blockchain technology really works. This means that they need to develop their professional competences and skills to advise on blockchain adoption and consider its impacts on their businesses and clients.
BERNARD BEMPONG
Bernard is a Chartered Accountant with over 14 years of professional and industry experience in Financial Services Sector and Management Consultancy. He is the Managing Partner of J.S Morlu (Ghana) an international consulting firm providing Accounting, Tax, Auditing, IT Solutions and Business Advisory Services to both private businesses and government.
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