Blockchain is seemingly everywhere these days. The technology and the cryptocurrency it was invented to power are in the news every day. More often than not, that news includes dire predictions of its impact on the accounting and finance industries. If you’re still not sure what all of the buzz is about, it’s time to get sure. This isn’t a theory – it’s happening now.
Here’s a look at what blockchain is, how the finance industry is using it today and what we can expect in the future.
What is blockchain?
Essentially, blockchain is a secure public electronic ledger that is shared among different users, creating an unchangeable record of transactions. Each transaction in the thread is called a block. To add a block to the chain, the transaction must be reviewed and approved by all network members. A block can never be erased. Information cannot be added, deleted or altered without the knowledge and consent of network participants. Therefore, transactions recorded on the blockchain are virtually impossible to falsify or destroy.
How blockchain is being used now
Blockchain technology is still in its infancy, but it is being put to a wide variety of uses.
Genpact, a global professional services firm, is creating a service for finance and accounting that leverages blockchain to eliminate billing errors and accelerate payment time. Per the company’s press release, “70 percent of invoice disputes occur due to inaccurate information and missing or late invoices.” Blockchain facilitates the sharing of data, including contracts and invoices, among multiple parties, eliminating the potential for data mismatches. The company says their approach, “has the potential to dramatically reduce the amount of past due invoices to less than three percent in most companies, which enhances cash flow performance, reduces revenue leakage from disputes, and lowers costs.
The Australian Securities Exchange is replacing its existing clearinghouse system with blockchain technology. They’ve developed a blockchain platform that will cut the cost of transactions and make them faster and more secure.
The multinational Spanish banking group BBVA recently conducted a pilot transaction using blockchain to automate a letter of credit transaction. A transaction that typically requires a large volume of physical documentation and takes seven to 10 days to process was completed in just 2.5 hours. Thanks to blockchain, the banks, the importer and the exporter had constant transparency over the transaction from beginning to end.
These are just a few of the ways blockchain is currently being used in the finance industry, and its application is growing daily.
What blockchain means for the finance industry
Blockchain can be used to virtually move any asset securely from peer to peer. It eliminates the need for “middle men,” like banks and government bodies. So it’s a given that facilitating and recording these transactions will fundamentally change. In fact, the Wall Street Blockchain Alliance, a trade association that counts KPMG and the AICPA in its membership, predicts blockchain will be a part of most financial transactions within five years.
As you can see, many players in the financial industry are investing in blockchain rather than resisting change. There’s no doubt that blockchain has the potential to upend everything from payments and remittances to savings, lending and borrowing, insurance and risk management, audit and tax functions. But forward-thinking professionals understand that blockchain technology will not replace their jobs. It will make financial transactions less costly and resistant to fraud. It will make their jobs easier and free up time that used to be spent tracking down and verifying data.
Finance professionals will be forced to rethink how they provide value beyond transactional and compliance work. Understanding and looking for ways to harness the new technology seems daunting. However, the possibilities make it a worthy investment of your time and energy.
To find out how you can increase your value in this new world of finance and blockchain technology, work with Accounting Principals.