(Editor’s note: I recently penned a column for The CPA Practice Advisor titled,
“Blockchain is a Database. Get Over It.” This article is a followup to that article which addresses some additional issues which I was unable to address in the original article. This article has been adapted from an e-mail I sent in response to a reader’s comment about my lack of enthusiasm for current deployments of blockchain in accounting – because it’s an emerging technology.)
Here are direct quotes from two major media articles from Q1 2018 which I reference in my CPA Practice Advisor article titled, “Blockchain is a Database. Get Over It.”:
“It reflects that (blockchain is) a big bubble,” said Huy Nguyen Trieu, an associate fellow in fintech at the Oxford Said Business School, on the spate of company rebrands.
From Reuters’ Alasdair Pal, “Blockchain Name-Grabbing has Echoes of Dotcom Bubble”, February 8, 2018
And here’s another quote from The Atlantic:
Bitcoin might be where Pets.com was in 2000—a technological curiosity in search of an enduring business need. But blockchain is not where the internet was in 2000. Even blockchain’s biggest defenders can’t say what the technology’s most obvious consumer use-cases are going to be, because they plainly don’t exist yet. It is possible they never will.
The point I’m trying to make is that blockchain is an application platform, and the applications – not the platform itself – are what’s going to change how we work, and they largely don’t exist outside of a few pilot projects as of yet. I feel like much of the current fascination/obsession/cult of blockchain is not much more than misplaced enthusiasm for the get rich quick schemes surrounding the cryptocurrency asset bubble – say 80% of it is this – there are some important parts (20%), but you should be careful. While those apps will be useful eventually, I think you should focus on what will make you money instead of what is shiny.
Let’s take another approach to explaining this- imagine if you and I were transported back in time to our 1970’s selves (sans cigarettes and leisure suits) and someone was talking about how SQL-based databases were going to change the world. I would say sure, SQL is an important technology for software developers, it’s a great technology, and the applications did change the world – but for the end user accountant, auditor, or bookkeeper, SQL in 1975 was a tool which needed to be dealt with once there were applications which used this platform. From an accounting and auditing perspective, IT auditors, internal auditors, and IT specialists who worked with CPA firms were the only people who did much with SQL until the late 90’s.
For the average, non-Big Four firm, there are so many other technologies which need to be higher than blockchain on the priority list – CRM, social media, automation of bank feeds and transaction recording, OCR and AI technologies like those utilized by Receipt Bank and others, data analytics and testing tools like TeamMate Analytics – the list goes on and on. (On that list, blockchain should be just below a Myspace page and just above alpha-testing a self-driving car on the current technology priority list for most users and firms.) While the tools utilizing this platform are evolving, the apps just aren’t there on a widespread production basis at this point. In my opinion, there is much more profit to be earned by dealing with practical, actionable technology which you’re not currently using rather than trying to leapfrog to blockchain unless you have specialized needs and are going to have custom code written, and then, it’s still a crapshoot.
I do think that blockchain will be a bigger deal in the governments of most other industrialized countries before it is in the US due to the comparatively poor state of US government-side technology and the fragmented nature of regulation in the US compared to the rest of the world. In Canada, everyone can file all federal and provincial tax filings with the Canadian Revenue Agency online using the same set of rules and they take all returns. Canada also has a standardized system for classification of accounts which allows financial reports to be filed electronically with the government (GIFI), which is built into Caseware Working Papers (90% market share in Canada). In the US, we have to file with so many different jurisdictions and regulators, with different taxability rules, and many of the states can’t really handle e-filing, so there’s not the incentive for a centralized blockchain like some of the ones proposed for recording VAT in Europe (See https://blog.kpmg.lu/how-blockchain-could-help-fight-or-even-end-vat-fraud/ for more information here). As a result, there’s not the same need
The Indian financial system has had a number of radical reforms after its implementation of a national value added tax (GST) in 2017. The government is trying to eliminate the non-taxed cash economy by (1) eliminating large denomination bills, (2) making their version of ACH payments very inexpensive (but not free), and (3) reducing the supply of paper banknotes in circulation. While some think that blockchain may eliminate banks in India by 2030 (https://yourstory.com/2018/02/blockchain-state-bank-of-india/), my gut says that the political power of banks/financial intermediaries and the state’s compelling interest in controlling money laundering and the cash economy will present massive barriers to its implementation and widespread adoption of cryptocurrencies. Anything that takes political power away from those who have it (and the related money and control of institutions) will be resisted vigorously – and remember that the money laundering penalties in many countries are beyond draconian in most cases – so the penalties for being an early adopter are more like “life in prison” and less like the fines for driving a cab without a medallion.
I hope I’m wrong and blockchain changes our lives sooner rather than later, because it’s a very cool technology and addresses the data integrity issues associated with electronic data very elegantly in a tamper-resistant ledger.
The reality of the 25 years I have been in the profession is that some really smart people said that computers were going to displace all accountants by 2000, then other experts said that outsourcing was going to kill the jobs in profession by 2010, and now we have people saying that blockchain/AI/machine learning is going to kill all accounting by 2020. My response to them is that it’s 2018, and we’re all still here – I don’t think anything will kill accounting totally. While it may change the way we work eventually, consider how much accounting has changed in my 26 years in the profession:
- Have you seen a 4, 5, 7, or 14-column pad lately? (I saw the first one I’ve seen in about three years being used by a CPA at an industry meeting in New York a couple of weeks ago)
- When was the last time your hand touched a colored pencil, other than when doing art or helping your kids with their homework?
- Do you have a 10-key adding machine on your desk? When was the last time you used it? Can you still buy ribbons/ink for the one you have?
- When was the last time you wrote and mailed a paper letter to anyone other than a government employee or an attorney?
- When was the last time you sent a fax to anyone other than a government employee who doesn’t have the technology they need at the office? Do you still even have a physical fax machine?
- Do your new staff know how to use cursive handwriting? (Surprisingly, many do not.)
(By the way, I did all of those things on a daily basis when I started in the profession, and now I do almost none of them in a given day.)
Technology isn’t going to eliminate us unless we let it by trying to stay in the past and ignore how it changes our work. I would argue that the tools we’re going to use in the future and how we work in the future are going to change in the next 25 years at least as much as they changed for me in the last quarter century. We’ll have to have new tools which don’t yet exist to audit blockchains effectively – but those tools will become available in the next couple of years. So learn a little bit about blockchain – I’ll be doing some webinars to explain some of the concepts in the future – but don’t let the fear of missing out (FOMO) drive you to try to force-adopt it before the tools are ready for what you do.
Right now, for most people, blockchain is a bleeding edge technology, and almost all of you should wait until it’s a little farther along before you try to embrace it – but you should learn about it and be ready when the apps arrive. I hope you’ll join me at the remaining 2018 K2 Technology Conferences to learn about this topic and many more strategic technologies which will affect you in the future.
Some CPE webinars which may help you learn more include:
- My webinar: “Blockchain and CryptoCurrency Fundamentals”
- Gary Boomer’s Webinar – Blockchain: What Accountants Need to Know