Due to bitcoin’s spectacular performance on the financial markets at the end of 2017, blockchain has become a synonym for bitcoin and a symbol for soaring cryptocurrency and financial speculations.
Yet, other than being the infrastructure technology for cryptocurrencies, blockchain technology has also other possible, more stable, long-term applications
for various fields, such as forensics
, or banking
. These applications, even though slower-moving and less breaking news than those for cryptocurrencies, can significantly affect everyday lives and have revolutionizing effects on private individuals, as well as enterprises.
Is blockchain a new revolutionary infrastructure?
Over the past 20 years, the Internet has added layer over layer of infrastructure for the decentralized exchange of data and information. This new decentralized system of communications has had a significant impact on how the world works, if not a revolutionary one.
New technologies are creating new rules of engagement and blockchain announces a novel, emerging layer of infrastructure. These conditions combine to create an environment that can affect the everyday life of consumers and businesses, supported by the ubiquitous distribution of mobile devices, smartphones and the ability to operationalize any business in the cloud.
enables a live, secure transaction between multiple participants on an electronic “distributed ledger.” Using cryptographic validation, blockchain ensures that all transactions are legitimate and unalterable. Transactions are recorded in data batches called “blocks” that form a sequential “chain.” Any attempt at breaking the chain becomes immediately visible to all participants.
“While we clearly see the benefits distributed ledger technology offers to resolve the trust issue, with its somewhat slow processing speed, this may just be an intermediary step to other more advanced technologies that combine both aspects, trust and processing speed.”
Markus Veith, Partner, Financial Services
Blockchain technology uses for everyday consumers
Cryptocurrencies specifically represent a technical pattern that, in the next five to ten years, will enable not only a decentralized system of accessing information, but also a decentralized system of exchanging value. For example, cryptocurrency has made possible the commoditization of payments available to everyday consumers.
While commoditized payments are still in their inception phase, practical applications already exist. For example, Circle
is a startup that has embraced blockchain technology to commoditize payments and offers these at no cost to the consumer. Circle makes sending money as easy as sending a text message; it offers the ability to exchange value with people, individually or in groups, instantly and without any cost, whether it’s within the same currency or in a different one. Built on crypto-powered settlement engines and crypto-powered treasury engines, Circle’s peer-to-peer payment aims to offer a “social payment” experience to replace with software and a mobile app the use of cash, checks and even payment accounts.
Blockchain technology for the enterprise: Revolutionizing the financial audit as we know it
While consumers can collect immediate benefits from blockchain technology through such new fintech technologies that Circle and other startups offer, companies will also have the opportunity to use blockchain technology to accelerate efficiency by reinventing their financial reporting.
“Blockchain technology is already being used in the supply chain, allowing companies to better track product components through their journey from source to finished goods. It will undoubtedly increase in use as the technical and security concerns are worked out over time.”
Trent Gazzaway, National Managing Partner, Quality and Innovation for Audit Services
Because blockchain technology can record transactions in a chronological and immutable fashion, some have suggested that it will eliminate the need for financial statement audits. While it is certainly true that blockchain can, and likely will, significantly change the auditor/client relationship, two important facts make it unlikely that the need for the auditor’s skillset will go away completely:
- For competitive reasons, companies will never be comfortable hosting all their business and transaction information in a public distributed ledger. That means someone will still need to aggregate and report the information, likely from private distributed ledgers.
- Users of reported information will always need to be confident that it is reliable and accurate. External users gain that confidence either from an auditor’s report, or through an objective party preparing the information in accordance with a set of known standards.
In other words, if the users of reported information can’t prepare the information themselves from a public distributed ledger, then some other objective party will either have to prepare the information for them, or audit it. Regardless, the auditing profession is in for some exciting change in the coming years.
Whether for consumer finance, or financial reporting for enterprises, blockchain technology creates open global recordkeeping systems and computing environments for trusted contract execution that run in a decentralized manner and offer radically greater levels of security, immutability and audibility than ever before. This means that this technical innovation offers an infrastructure that has never been widely used before.
Does this represent a revolutionizing future for what Jeremy Allaire, CEO and cofounder of Circle, calls “the trust intermediary industry” – which includes all of finance, insurance, accounting and audit? The dice are not cast yet, but the wind of change is certainly blowing on a small scale for now, while blockchain technology still needs to mature and gain widespread adoption.
National Managing Partner, Quality and Innovation for Audit Services
+1 704 632 6834
Partner, Financial Services
+1 212 624 5370