A blockchain, is a growing list of records, called blocks, which are linked using cryptography. Each block contains a cryptographic hash of the previous block, a timestamp, and transaction data. By design, a blockchain is resistant to modification of the data. It is “an open, distributed ledger that can record transactions between two parties efficiently and in a verifiable and permanent way”. For use as a distributed ledger, a blockchain is typically managed by a peer-to-peer network collectively adhering to a protocol for inter-node communication and validating new blocks. Once recorded, the data in any given block cannot be altered retroactively without the alteration of all subsequent blocks, which requires consensus of the network majority.
Blockchain enables to get all the related parties in the ecosystem onto the network thereby ensuring the following:
- Duplication of capturing data is avoided
- Transaction costs is reduced given intermediaries are eliminated
- The data in the distributed and all the parties in the Blockchain are accessing the single version of the truth
- Blockchain eliminates reconciliations since all the parties are accessing the same data
Blockchain can be a private blockchain( restricted) or a Public Blockchain accessible to all
The typical Business use cases of a Blockchain would be in cross Border inter-Bank payments LC transactions, Stock exchange trading where multiple parties are involved. Bitcoin uses blockchain technology and is not the same as blockchain, although at times interchangeably used.
Impact on Chartered Accountants
- Procedures adopted for conducting audits will have to be relooked at
- Timing of procedures i.e Real-time Analysis of data/Real-time reporting of data.
- The methodology adopted for testing the Audit Financial Assertions will change
- Accounting ledgers can also be on the Block, and the concept of “immutability”” will help in “True and Fair Assertions”
- Legal agreements will be based on “Smart contracts”, which uses blockchain technology
Opportunities for Chartered Accountants
- Providing Business Expertise to Blockchain implementations as a Business process expert and helping eliminate unnecessary processes through automation.
- Assurance services like risk assessment for new Blockchain implementations
- Conducting technology audits on Blockchain implementations/Block chain-enabled processes.