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Defining Blockchain

12/19/2018

 
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​Blockchain is a term that has been bantered about quite a bit when referring to the future of accounting technology. While its impacts are primarily long term in nature, let’s take a brief look to see what everyone is talking about.
 
Blockchain is a technology that can store transactions. Some people have referred to it as a digital ledger. Unlike your current accounting books, transactions recorded using blockchain technology are public. This digital spreadsheet of transactions or records is copied across thousands of servers so that there is no single point of failure. It’s a decentralized, distributed, and public digital ledger.
 
The blockchain ledgers are updated constantly as new records are added. They are also reconciled constantly. Once added, the records cannot be altered retroactively.  This feature has many implications for auditing in that many records won’t need to be validated the old-fashioned way because blockchain is self-auditing.  Auditors will still need to validate the non-digital components of a transaction such as physical inventory counts.
 
Prior to 2016, blockchain was originally referred to as block chain, where the blocks are the list of records or transactions.  While the records are public, they are protected through cryptography.  Each block includes cryptographic code from the previous block that keeps the entire chain of data safe and verified.
 
Blockchain is then a way for two parties to safely record their transaction permanently and with verification.  While bitcoin is the most common current use of blockchain technology, many developers are working on new applications. Development started heavily in 2017, so it remains to be seen which applications will take off and which will die.
 
Blockchain’s uses in the future will be many:
 
  • Banking is the most obvious application, and right now the focus is on international transfers.
  • Stock trading.
  • Smart contracts. This concept is a huge part of what blockchain could be used for. Smart contracts are economic actions using blockchain that can be recorded without human interaction. They could initiate bill payments after goods have been received and after checking that there are funds available.
  • Elections.
  • Legal transactions, such as land titles.
  • Medical records, so that there is no more filling out of forms in each doctor’s office.
 
Blockchain in the future may eliminate the double-entry bookkeeping system that we have now.  Instead of each person keeping their own set of records, companies will write their transactions into a public blockchain ledger. This will reduce the cost of bookkeeping in the long term. But for this to happen, much development must be done to standardize and optimize the financial system. Many accounting professionals are working today toward that goal, which is many years away.  
 
For now, the biggest implication to realize for a blockchain future is that personal reputation will become incredibly important.  Blockchain systems eliminate the intermediary so that you are doing business with other people in a peer-to-peer environment. Identity protection as well as reputation will become essential.  Blockchain is also likely to take off first in countries where there is a lot of corruption and/or corporations are not trusted.
 
Blockchain may not impact your life today, but it’s something to watch on the horizon.
This is general information and should not be acted upon without first determining its application to your specific situation. Please contact your CPA or tax advisor for additional details.

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    Successfully meeting the challenges inherent to new and smaller businesses provides me with a special type of satisfaction. 

    Supporting businesses that have the potential to become amazing – from both the perspective of owners and team members as well as their clients – is what I enjoy. 

    I hope to use this blog to provide information specific to businesses that are growing from small beginnings into exceptional companies.

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  • Home
  • Why Us?
    • Reviews
    • Open Positions
  • Client Services
  • Resources
    • Save on QBO Subscriptions!
    • Tax Refund Status
    • Gusto Year End Checklist
    • Videos >
      • Business Taxes >
        • 2019 Business Tax Highlights
        • 7 Ways Small Business Can Save On Tax
        • Taxes for S-Corp Owners
        • The IRS Loves Businesses
      • Personal Taxes >
        • 2019 Tax Highlights
        • Five Yearly Tax Essentials
        • 4 Common Tax Surprises
        • Retirement Can Be Taxing
        • Advance Child Tax Credit Reconciliation - 2022
        • Make the Most of Your Donations
        • Five Great Tax Secrets
        • Renting Your Property Tax Free
        • Ideas to Audit-Proof Your Tax Return
      • The Tax Cuts & Jobs Act >
        • The Tax Cuts & Jobs Act: What You Need to Do Now
        • The Tax Cuts & Jobs Act: Are Itemized Deductions A Thing of the Past?
        • The Tax Cuts & Jobs Act: The New Child Care Tax Credit
      • Tax Topics >
        • Tax Season is Coming!
        • The New World of Deductions: What Everyone Needs to Know
        • Proving Your Deductions
        • How to Fix a Mistake on Your Tax Return
        • How Long Should I Save It?
        • Tax Credit vs Tax Deduction
        • Understanding Effective Tax Rate
        • Understanding Marginal Tax Rate
      • Life Events >
        • Life Events: A New Birth
        • Life Events: Marriage
        • Life Events: Divorce
    • Articles >
      • Accounting & Bookkeeping >
        • How to Get the Most Out of Your Accounting Fees
        • The 10 Biggest Money Leaks in Your Accounting System
      • Business Factors >
        • IRS Rules for Classifying Workers
        • Checklist for a Healthy Cash Flow
        • 12 Ways to Improve Your Business Profits
        • 10 Step Annual Business Check-Up
      • Tax Topics >
        • Tax Guide for Self-Employeds
        • 15 Things Every Tax Payer Should Know
        • Disaster Casualty Losses
        • Travel & Entertainment Deductions
        • Tax Guide - A Deduction Checklist
        • What You Should Know About Tax Audits
    • Newsletters >
      • Newsletters - Monthly Editions >
        • Newsletter - Monthly Edition
      • Newsletters - Quarterly Editions >
        • Newsletter - 2019 Fall/Winter
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    • How To's >
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      • How To - BILL
  • Blog
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