With blockchain technology, two people who are involved in a transaction can both verify the details are correct without the need for anyone else to be involved. One person can issue an invoice to another on the blockchain, who then verifies and accepts the particulars. The two are then intrinsically connected by the transaction, and neither are able to change the details without the other’s permission. Consider the significant potential this can have on accounting and payments in the not-too-distant future.

In the near future, all transactions will look something like this.

Transparency with pseudonymity

Participants in a blockchain transaction can remain anonymous, or their details can be opened to ‘actors’ who might need to participate in the transaction. The transparency is provided through a disguised identity—or pseudonymity.

An obvious use for this is payroll. Commonly, two key parties are involved in a payroll transaction—the employer and the employee. Their details are nobody’s business unless someone has a right to know the transaction details—such as taxation regulators.

In the UK for example, employers are expected to report every payroll to HMRC. If payroll transactions took place on the blockchain, the details could be reported to HMRC automatically without the need for any middleware software. While they are yet to take advantage of this opportunity, the potential benefit to Governments is enormous.

Transparency with disguised or selective identity has the potential to provide many more benefits and uses, including the transition of documents between known parties, proof of origin of items, in supply chain and logistics, and many other places.

Irreversibility of records

Blockchain transactions are linked to every transaction record that came before them, which means that any blockchain record cannot be changed once it is entered. This is where the term ‘chain’ comes from. Computational algorithms and approaches ensure that the blockchain recording is permanent, chronologically ordered, and available to all others on the network.

This irreversibility is extremely relevant to accounting, and has the has the potential for many use cases.

With audit, for example, all relevant transactions would be irrefutable if they were on a blockchain—multi-party involvement would guarantee that they would not have been changed in any way. That will not leave much left for accountants to audit.

Fraud can still be committed in this situation, but it requires multiple parties to consent at the very least, which could result in more malicious fraudulent transactions. What we do know, is that blockchain will enable more connected and more reliable transactions, requiring less manual intervention.

Computational logic

Each transaction in the blockchain can contain computational logic—a smart contract that acts as instructions for the transaction. Some industry examples for this could include:

• Ensure funds are spent only when a required percentage of people agree, by functioning as ‘multi-signature’ accounts

• Manage agreements between users (e.g. one buys insurance from the other)

• Provide utility to other contracts (similar to how a software library works)

• Store information about an application (e.g. domain registration information or membership records)

Technically, a client engagement letter could be a smart contract implemented on the blockchain—your client agrees to pay for a certain set of services your firm provides to them. The smart contract could trigger payment when each milestone is reached, whether that is a date or completion of certain tasks or work items.

Eventually, the whole management of your firm’s workflow—invoicing, payment and reconciliation—might be completed entirely on the blockchain. Beyond the actual work, there would be no, or little administrative tasks for your staff to do. Further in the future, this work might entail just the very high-level value-add aspects, rather than the repetitive tasks.

What is undeniable, is that accounting will be impacted as much as any industry by the blockchain. Those who take the time now to familiarize themselves with the technology and new wave of protocols will reap the rewards.