|Navigating blockchain |
By Lesley John, ACCA Caribbean Thursday, May 18 2017
Technology has a profound impact on how we live and an even greater impact on the way we all connect within society. Today we are able to share information in real-time to anyone from anywhere in the world through the internet.
Technology is making strides in how we transact too. Ability to track and transfer value (such as money or assets) in a secure real-time way, similar to how information is transferred today, could fundamentally alter the way we live and transact with one another.
The underlying technology to enable this – referred to as distributed ledgers or blockchain – is at the heart of these developments.
A distributed or shared ledger is a digital database of records. These records contain information relevant to a group of participants within a network. For example, the value of assets they hold, details of ownership, information about transactions between participants or anything else that can be represented within a digital register.
In a distributed ledger, all participants are looking at a common view of the records.
This is in contrast to a typical situation currently where participants (for example, in different organisations) are looking at different databases that are independently managed and updated.
When a change or update to any participant’s record is confirmed, the technology ensures that the view seen by each participant in the network synchronises to reflect the latest update. This is a peerto- peer network where the participants are themselves responsible for the validation of records – without the use of a central authority for this purpose. So if the majority of participants agree that an update has been correctly validated, that becomes the basis for the updated entry to be added to the ledger.
The network itself may be public or private.
A public network offers an open permissionless invitation for anyone to join. This provides a mechanism by which complete strangers can trust the shared information they see in the ledger. On the other hand, a private or closed permissioned network enforces a membership process for participants.
Bitcoin blockchain is a public network ledger where transactions are grouped into blocks and validated through mathematical techniques (such as encryption and hashing).
The underlying governance is handled by a consensus algorithm that verifies and confirms that a block contains valid transaction information and can be added to the existing chain of blocks. A linear chain of blocks containing transactions creates a single view of the truth, capturing the details and sequence of transactions as they occur.
Whether this evolution in revenue mix occurs or not depends on the ability of distributed ledgers to achieve large scale and mainstream adoption. Views on this vary but, one way or another, it is anticipated that over the course of the next five years, the answer will become clear.
And if it looks likely that the revenue mix will evolve, then accountancy firms may want to evaluate their structure and organise themselves differently to prepare for the future.
A newly published report prepared by the Economic Commission for Latin America and the Caribbean (ECLAC) sub regional headquarters for the Caribbean has found that recent developments in the field of financial technology, namely blockchain technology, may offer potential solutions to some of the problems surrounding de-risking and the navigation of correspondent banking relationships.
Many of the smaller and less economically developed countries in the Caribbean are sadly being abandoned by big banks countries, a move referred to as “de-risking”. Blockchain technology could address the problem of derisking in two ways.
Firstly, an appropriately designed blockchain-based settlement network could improve surveillance of transactions, which would enable illegal financial transfers to be spotted and in turn decrease risk and associated compliance costs. Secondly, a blockchain-based network would offer Caribbean banks the opportunity to bypass correspondent banks altogether, thereby reducing transaction costs and increasing efficiency. Additionally, this also benefits the global environment.
The professional accountant of the future will need a forward-looking outlook and skills and abilities that are well rounded, resilient and adaptable to changes in the business environment.
For example, there may well be new areas of knowledge that need to be better understood, such as how to measure and account for value as assets transfer via a distributed ledger from one owner to another. Blockchain presents new areas for analysis and consideration, and the sooner professional accountants increase their awareness, the better prepared they will be to engage with it.