Blockchains have been considered by the World Economic Forum (WEF) as a Technology Pioneer; financial experts have termed it “the next best thing after the Internet”. Industry leaders say the impact of this new accounting technology could be as significant as introduction of double entry 500 years ago. Besides being faster and agile than the existing systems, blockchains ensure transparency in accounting processes as each transaction gets captured in real time. Governments look at it as a platform for eGovernance. This is the technology behind cryptocurrency such as bitcoin and ethereum.
It is essentially a decentralized and distributed ledger that is maintained by a distributed network that doesn’t require a central authority or third-party intermediaries. In the technology, each block references a previous block, not by “block number” but by its fingerprint (hash) that is decided by a block’s content. This makes content incontrovertible that doesn’t have tampering or revision. Thus, the significance of bitcoin and ethereum.
What are the various types of blockchain technology?
Whereas blockchains can be public or private, blocks are encrypted and only be read using correct decryption key. With its decentralized nature and resistance to tampering, blockchains are perfect for recording and retrieving financial data and becoming single source of truth for organizations. Using blockchain, an company can remove the need to maintain multiple local centralized databases; at the same time, it could ensure real time and sequential flow of information seamlessly across an institution.
There are many kinds of blockchain: public blockchains can solve security, efficiency and fraud issues within traditional financial institutions, private blockchains can help enterprises internally. Public blockchain can replace most functions of institutions through software and can transform the way financial system works.
“Organizations stand to benefit in many ways. Data processing is faster as there are no multiple layers. There is no chance of data corruption or something like breach of integrity. Even Deskera is moving to a decentralized system to enable software and remove bottlenecks created by legacy installations. This allows unlocking of capabilities for cumulative predictive intelligence and dynamic supply management with multiparty memberships among other things, leading to a multidimensional online B2B as well as B2C ecosystems,” said Shashank Dixit, CEO, Deskera.
Benefits for auditors due to simplified and transparent processes
By capturing transactions in real time, auditors avail real time access to financial information to be retrieved anytime in seconds. This is hugely different from the present situation where an auditor gets access to client data only at end of financial year. This leads to delays in closing of accounts.