If blockchain is disrupting enterprise digital strategies globally, in the future it will also disrupt enterprise departments and the way they go about their business. In fact, according to a recent survey, 50 percent of financial leaders say blockchain will be part of their business transactions in the next five years. Respondents to the survey also noted blockchain and cryptocurrency will drive the need for financial professionals to expand their skill sets, as well as a greater focus on specialized accounting.
Blockchain As Disruptor
The survey data was compiled by Robert Half Finance & Accounting and conducted by an independent research firm. The conclusions are based on responses from more than 2,000 finance leaders from companies in more than 20 of the largest US metropolitan areas.
There is no great surprise in the conclusion and the disruption that blockchain can and is causing has been well documented before. However, this research looks at blockchain at a micro level and shows just how disruptive it is going to be in accounting and finance departments. Specifically, it showed that:
- 36 percent staff will need to expand skill sets to adapt for new accounting and finance technologies
- 34 percent say it will increase the need for specialized accounting
- 30 percent say there will be more cross-departmental collaboration with IT
- 29 percent say it will not affect accounting and finance until it becomes government-regulated
- 9 percent of respondents said it would have no impact at all.
Related Article: 7 Trends Driving Blockchain Forward
Blockchain Impacts On Finance, Accounting
Crystal Stranger is CEO and founder of El Paso, Texas-based PeaCounts, which has built a payroll system powered by blockchain. She believes that there are a number of ways blockchain technology and cryptocurrency is affecting finance and accounting departments:
Single Entry Bookkeeping - Blockchain is an accounting technology, so it could be used to create single entry bookkeeping systems rather than dual entry. Although, she said, she has yet seen this done well in practice, most of the attempts have created a triple entry bookkeeping instead.
Immutable Audit Trails - Blockchain hashing can be used to create an immutable audit trails, and essentially eliminate the need for most external audits. (A hash is a function that converts an input of letters and numbers into an encrypted output of a fixed length. A hash is created using an algorithm, and is essential to blockchain management in cryptocurrency).
Smart Contracts - Smart Contracts can be used to automate payments and create trustless systems of employment or accounts receivable.
Related Article: 10 Obstacles To Enterprise Blockchain Adoption
Blockchain In The Enterprise
All of this stems from the way blockchains are built and which, by nature, fit comfortably with accounting and finance. However, it is not limited to these areas alone. Co-founder and chief strategy officer of Austin-based Unchained Capital, a blockchain financial services company, Dhruv Bansal explained how blockchains work in the enterprise. Many cryptocurrency wallets, he said, use a key addressing scheme known as BIP32, or hierarchical deterministic (HD) wallets. In laymen's terms, this means the wallet has a single root key from which it is able to construct a huge number of child keys or sub-keys, arranged into a tree
Conventions have arisen by which different parts of this tree are used to support different applications from the same wallet. So far this built-in accounting feature has been used to separate cryptocurrencies themselves, allowing a user to store Bitcoin and Ethereum in the same wallet at different branches of the tree. As business adoption of digital assets increases, conventions will similarly arise by which different branches of the tree will denote different business functions: HR, R&D, Sales, Customer Support and other departments. Within each of these departments, further branches will separate recruiting from retention, East coast from West coast, product from product.
The benefits to this approach are not just modularity and transparency. HD wallets also have the property that parent keys can generate child keys and decrypt or sign on their behalf, while children cannot do the same for parents. This means that access control is built into accounting. A team lead can only see or sign the transactions for their team, a VP for their department, and the CEO or BOD for the whole company. So how will it be used in practice?
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Blockchain in Practice
Michael Yuan, an Austin-based technologist who is the co-founder and chief scientist of CyberMiles offers this practical example. Imagine a real estate or other deal that automatically concludes once your bank electronically uploads proper documentation of your loan. (Example: Applications on the Ethereum network can enable this process via “smart contracts” (automated contracts that transfer funds in cryptocurrency once certain conditions are met.) Blockchain-based applications that immutably, transparently perform routine tasks (like closing on a house) not only may render title companies obsolete, but also could represent a significant cost- and time-savings for account payable, accounts receivable, and collections deptartments.
Blockchain technology can also be applied in the finance industry in other potentially transformative ways, including:
- Managing customer identity and data privately and safely, while enabling smoother transactions and settlements in-network
- Storing important financial records in a decentralized network, bringing added privacy and security to accounting
- Supporting a large library of smart contracts that power decentralization of processes, such as dispute resolutions
“As a digital ledger in which transactions made in cryptocurrency are recorded chronologically and publicly, blockchain is upending slow, laborious processing while improving the efficiency and error rate of administrating moving forward,” Yuan said.
Accountants Jobs Being Replaced?
However, while blockchain is disrupting finance and accounting, Mike Whitmire, CEO of Sherman Oaks, Calif.-based FloQast says it will not make either functions any easier. There's been a lot of talk, he said, about how blockchain will disrupt accounting, and especially auditing. Some are saying that the use of cryptocurrency will dramatically reduce the amount of audit work for accountants because transactions will be recorded on an immutable public ledger, so there is less need to confirm that transactions actually occurred. “However, for us to trust that transactions are recorded accurately, he added, someone will have to audit the technology that produces the blockchain,” he said. “Accountants will shift from auditing individual transactions to auditing systems that produce those transactions.” This is just a continuation of a trend that started with the development of VisiCalc, the first mainstream spreadsheet application. Accountants don't have to recalculate the totals from every computer program because we can audit the program itself and trust the output as a result. It's the same story with blockchain.
The result is that accountants that want to stay employed will need to develop the IT skills necessary to understand how blockchain and other technologies work. “They don't necessarily need to learn to code (though that would be a good idea), but they do need to be tech savvy enough to keep up with the rapid pace of change and understand what IT people are talking about,” Whitmire said.
Blockchain and Cryptocurrency Experience Rising in Demand
There are, needless to say, implications for those working in finance and accounting already or for those looking to take their first steps in the world of blockchain-driven finance. Ben Hodzic is a director at SelbyJennings, a UK-based financial recruiting firm and part of the Phaidon International group. He offers two pieces of advice for workers in this area. The first is that when applying for a Market Making (A market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a financial instrument or commodity held in inventory) or algorithmic trading position at a trading firm, candidates with successful trading experience in cryptocurrencies or bitcoin trading are 25 percent more likely get a first round interview request as clients consider these strategies good diversification tools.
And second, when applying for an execution-related position focused on e-trading execution research around derivative and futures products, trading cost analysis, or market impact analysis, candidates with cryptocurrency experience are 10 percent more likely to get a first round interview request because of the uptick in demand and volume of crypto being traded every day.
Blockchain and crypto currencies will both have immense impact on the accounting and associated professions. Regarding cryptocurrencies, such as blockchain, accountants will need to factor payment collection into their workflows, just like other methods of payment need to be considered now, said Chris Hervochon, the owner of Ga., Savannah-based accountancy services provider SOAR.
The fluctuations in the crypto markets create a currency risk for the business, and it stands to reason finance departments will begin to look at somehow hedging that risk if they haven't already. “As far as blockchain technology, I think that coupled with machine learning will lead us to the point where auditors are able to look at every single transaction of a business or government with little to no incremental lift,” said Hervochon. “This should lead to an increased level of public trust in the financial statements put forth to the public, especially for the financial statements of government entities.”