Blockchain is a topic that is the most popular among the crowd at the moment. It's a topic that is disruptive, accelerating and that may be your elevator pitch. Let's have a bird-eye view on this.
Imagine yourself as a bird flying high in the sky, and down you observes that the world is divided into blocks, blocks of massive information. But how can this information work for good if there is no common link between them? Here is the point when the word "Chain" comes into the picture.
Blockchain is the most talked-about form of distributed ledger technology. It works on decentralized & distributed ledger technology that stores transactional records in blocks, and it is accessed by the participants globally over the network. Every time a transaction takes place, a block is formed, which further develops a chain. It creates an irrevocable record of transactions that could not be undone. Blockchain organizes a peer-to-peer network that provides participants with a platform to communicate among themselves over the web & increases confidence, security, transparency, and the traceability of data shared over a network and delivers cost savings with new efficiencies.
Blockchain will gain you an edge as it is an open-source ledger; every transaction made is public, which leaves no room for fraud. The integrity is monitored by minors who have their eyes on all the transactions; hence it is more secure. It is responsible for keeping a record of all the transactions that cannot be revoked or manipulated. The user public can view transactions data at any point. This makes online transactions even more secure. Blockchain solutions can offer a speed of 100 to 10,000 transactions per second, hence saving your time.
But to implement this technology, you need to take care of a few critical things, such as the application must be updated on both ends of the P2P network. If any end doesn't accept the amendments, technology will fail. If you plan to have business applications, then they must have some business logic behind them. This logic specifies how applications will perform within the sphere of business needs. By nature, blockchain uses more stringent logic that won't allow you to redesign without leading to the need for logical business changes to be acceptable to the blockchain solution. Now, blockchain is a complex set of protocols that require a big brain to solve Hyperledger, multichain, Corda, quorum theorems which one can't manage at the sole level; hence enrising the need to involve some third party help to add new features and expand the application without redeployment of the network.
Types of Blockchains: Deciding which one is better for your business.
The most basic function of this technology is to carry out transactions or exchange of information through a secure network. But the way people use blockchain varies from case to case. For instance, if we talk about Stock Market/Crypto, the reason blockchain got hyped into the scenario. Shares are digital holding certificates that get traded through blockchain technology. It is a type of blockchain in the nature of a public network giving the right to people from all over the world to become a node, verify other nodes and trade shares.
On the other hand, let us take an example of a bank using a private blockchain network. It is a restricted network where only concerned persons/employees of the bank can access confidential information. Thus, anyone out of this closed network can not gain access to the bank database. A private network is more bound to have only authorized nodes that a network admin must initially monitor. The information transmission through a private blockchain remains within the network. Any new node that wishes to become a part of a private network needs permission from the network admin. The bank decides the scale of their private blockchain for all their branches in a country.
Another famous type of blockchain that exists is Hybrid Blockchain. Some information can be circulated in a private blockchain network, and some parts can be mutually agreed to flow in a public blockchain network. The hybrid blockchain is so flexible that users can quickly join a private blockchain with multiple public blockchains. A transaction in a private part of a hybrid blockchain is usually authenticated within that network. But users can also shoot it in the public blockchain to get verified. The public blockchains increase the hashing and involve more nodes for verification, which enhances the security and transparency of the blockchain network.
Worry not with Blockchain Technology
Each block holds a unique hash number and a key link that connects it to the previous & next block in a blockchain. The blocks cannot be altered. If there is any replacement, the hash sum would be altered, and the block would longer be valid, which further will lead to invalidation of the whole chain as each block is interconnected with the previous & the next one.
Your all transactions are secured by cryptography. Each block contains a unique and private key that can be verified with a public key. If there is any change in transaction data, the block's unique key becomes invalid. As a result, the block is dismantled from the chain, again remembering each block of the chain is interconnected.
The security of blockchain also depends on its decentralized and distributed nature. Failure is never at any single point as every block is interlinked, making it much harder to corrupt, thus making it invulnerable. Hacking into any one part of the system cannot affect other parts. However, in the case of a private blockchain, this advantage is partially lost as they have a single point of control and a limited number of nodes. This restricts users from making changes to the ledger. Organizations operate these kinds of blockchains for their internal use, allowing the company to control its processes.
There is no principal body to authenticate and verify the transactions, yet every transaction in the blockchain is presumed to be completely secured and verified. It is because of the presence of the consensus protocol on which blockchain works.
A consensus algorithm is a process through which all the peers in the blockchain reach a mutually predecided agreement about the present state of the distributed ledger. In this way, consensus achieves reliability in the Blockchain network and establish trust between peers in a distributed network. Most importantly, the consensus protocol verifies whether the new block that is added to the blockchain is the sole version of the truth agreed upon by all the nodes in the blockchain.
To sum up, the blockchain is a peer-to-peer framework that offers the potential to transform current business processes by disintermediating central processes, thus improving efficiencies and creating an immutable trail of transactions. This provides the opportunity to reduce costs, interaction times and improve transparency for all the users. This transformational framework could change the way financial institutions conduct business as many transactions are peer to peer in nature.
While the benefits are in front, there are many risks that may be imposed by this nascent technology. Understanding of blockchain technology and its associated risks may evolve as this technology endures to mature. It’s therefore imperative for all organizations to continuously monitor for the scope of development in this technology and its application to various cases.
Blockchain technology contains the potential to reengineer business models from a human-oriented model to an algorithm oriented model, which might expose businesses to risks that they have not encountered before. In order to react to such risks, businesses should consider establishing a robust risk management strategy, governance, and controls framework.
Future Of Blockchain
Blockchain is already picking up the pace, here are examples of successful blockchain projects:
is a decentralized wireless infrastructure. The network allows everyone worldwide to connect to the infrastructure wirelessly without having any expensive data plan. By using their plug-and-play hotspots, anyone from anywhere can join the Helium network.
is a decentralized knowledge protocol that emancipates education by rewarding the users with the “earn well, learn well” model. It incentives students for completing a course and provide royalties to teachers when their students finish a project. The protocol aims to link job seekers with the vacancies such as Monster, Upwork, and Fiverr.
is a decentralized video streaming network that allows us to watch content, earn virtual currency and give total administration to the content maker. Many YouTubers are also publishing videos on Theta since they can get 100% of the profit generated.
Future of Blockchain in Accounting
In the long run, Blockchain proves to be a disruptive technology for accounting like digital photography disrupted the conventional film photography, pagers & land-line phones were utterly disrupted by mobile phones.
Blockchain is a multi-faced technology that also plays the role of accounting technology, which helps with the transfer of ownership of assets and maintaining a ledger with accurate financial figures. Implementation of blockchain assists in increasing the potential of the accounting profession by reducing the cost of maintaining and reconciling ledgers. This strength may be a threat to accountants as automation in reconciliations cut the work of accountants. But, Blockchain empowers the accountants that assets exist with proven authenticity.
We have always come across double-entry bookkeeping when talking about accounting, but Blockchain works on triple entry bookkeeping. Now it will be, with Blockchain, each transaction will be recorded by the third party/all blocks, and the third party/block verifies each transaction (Cryptographically), and a receipt will be issued. What will be the outcome of the same? Every transaction will be simultaneously recorded in the books of a third party to be verified by the Blockchain. As the transactions are entered in three places, and hence called as Triple entry system.
How will it change the attitude of Accountants towards the work? Well, Blockchain proves to be disruptive, but when coming to betterment, it has its gain over in the following manner:
Accountants are experts in recording, bookkeeping, application of taxation and related rules, with the Blockchain Technology; they get opportunities to become Blockchain advisors and can join the blockchain network.
Accountants can spend less time on identifying errors and mistakes and reconciliation work; instead, they can concentrate on areas like technical knowhow, advisory and
To conclude, while the landscape for Blockchain technology is still in its infancy, its potential is transformational. Blockchain protocol offers the greatest opportunities for change in various accounting mechanisms and creates a new platform to reshape the world of business and transform the accounting and auditing profession. Its potential disruption in the accounting industry cannot be overlooked. Various past developments, such as the emergence of computers, ERP systems, and cloud computing, have just changed the auditors’ work instead of making them irrelevant. Auditors will need to develop a more data-centric approach and use it with a forward rather than historical perspective. In this way, the auditors will be able to provide a very higher-valued service. Firms adopting new technologies pretty early that account for these potential disruptions will be better off in the long run.
Authored by Himanshu Sharma
& assisted by Simar DS
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