December 2, 2017
Part 2 Blockchain & Cryptocurrencies: 4 Ways It Will Change How We Do Business
Posted by Andries Verschelden
Cryptocurrencies and blockchain have emerged as an exciting alternative to regular money. (We covered the basics here if you need a refresher.) But, this technology could be much more than an alternative currency. It also has the potential to revolutionize the way we do business. Here are four areas where we may see big changes in the near future.
- Transfer of information
Blockchain uses a shared, decentralized ledger stored on a number of nodes (computers). This shared ledger makes it much easier to transfer not just funds, but also private information between users. Take your medical records, for example. If medical records were stored on a decentralized database, all different medical professionals, regardless of their organization, could update your medical file. Since the information is encrypted, it would remain private even as it’s updated by different medical providers. Compare that to now, where hospitals have different databases and even store information on paper files.
- Supply chain tracking
Blockchain could also improve supply chain management. All parts of a transaction, from start to finish, could be recorded and easily reviewed if there’s a problem. For example, imagine that Walmart sells some contaminated pork. Their supply chain has multiple layers, with potentially dozens of companies in each part of the process, and may reach to another country. A pig might be raised outside Shanghai, processed at a plant in Hong Kong, shipped to California, then trucked to a U.S. store.
Under the current system, Walmart must work backwards, through the records of each company in the supply chain, to find the source of the outbreak. If one part of the chain has faulty records, Walmart may never identify the source of the problem. On the other hand, if everything was recorded on a decentralized blockchain, Walmart could immediately review the history and know that it is uncompromised. Each time the pork went through part of the supply chain, it would be recorded on the public ledger. Walmart could quickly review the blockchain to see exactly where the contaminated pork originated and remove the faulty supplier.
Maintaining accounting records on a decentralized blockchain could speed up the financial reporting process and reduce errors. Under the current system, every time companies record a transaction, such as an inventory purchase, all subledgers of the parties involved need to update their individual accounts on their accounting system. Internally we can reconcile subledgers to ensure the transaction is properly recorded, and externally we can also verify the information is accurate and reliable (the auditor).
If we could have the different parties involved work off the same decentralized database, we would be able to ensure a transaction is recorded correctly throughout the ecosystem without needing reconciliation or external validation. Transactions would automatically balance out through the code in the blockchain, and there would be virtually no chance of error in recording the transaction.
- Smart contracts
In our current electronic payments system, if you fill an order, you need the help of a trusted third party to ensure you will receive your funds. Even if the purchaser pays by credit card or direct deposit, there still needs to be a third party to process the transaction, which slows things down and adds an extra cost. With cryptocurrency and blockchain, you can set up a smart contract, where payment goes out immediately once the customer receives your goods (assuming this can be validated electronically).
Watch for more uses
When the internet was introduced, it took years before it became a common part of doing business. It’s quite possible that we’re at the same point with cryptocurrencies and blockchain today. Watch out for these potential applications―and more―as the world gets better at using this exciting new technology.
Find more helpful insights from Armanino’s Outsourced Finance & Accounting team.
Andries leads the Blockchain practice and brings a passion for growth to his clients. He works with a variety of crypto and blockchain projects and exchanges, helping them navigate accounting, audit, tax and risk best practices as they grow. He also helps non-crypto industry clients transform their business through blockchain technology enablement.
Prior to joining Armanino, Andries was CEO at The Brenner Group, a boutique Silicon Valley financial services firm. Before that, he was a partner at Moore Stephens Belgium. He started his career at PricewaterhouseCoopers. He grew up in Belgium, and lived and worked in New York and Shanghai before moving to California.