Some industries have built-in limitations. For example, there are built-in limitations with construction because of the laws of physics. Accounting has some built-in limitations as well. On its surface, accounting is very simple; income and expenditure, and maintaining a balanced ledger. However, because of the increase in internet technology, the world of accounting has become more and more delayed and easily tampered with. Transactions are initiated in seconds, but take extended time to process and clear, meaning that the actual balance in any account is rarely, if ever, accurate. Thus the built-in limitation for accounting is processing time. However, a new technological solution is on the horizon that may overcome this limitation.
Blockchain technology is a system of database or ledger accounting that allows for immediate transfer of information throughout the distributed ledger, meaning that there is no central data transfer point that requires all transactions to pass through it. Rather, since the ledger is universally distributed, all accounting can be completed and processed instantaneously. This means that a blockchain system with multiple nodes or access points can produce an accounting chain that would eliminate processing times for transactions.
Accounting is limited by the nature of financial transactions. Until the money is actually debited from any given account, the account remains with a balance that is not accurate. Because businesses use money in rapid ways and require quick responses for financial settling, blockchain technology presents a system that can rapidly and accurately manage the ledgers of businesses with nearly zero risk of failure.
Additionally, the danger of all transactional systems is the need, not only for rapidity, but also for confidence. Ultimately, unless a database is trustworthy, it is essentially meaningless. A company or accounting agency could easily review the books and make unauthorized amendments with little or no traceability. However, a distributed ledger system would eliminate any risk of falsified accounting. The power of such a system should be immediately clear. Non-enterprise level companies would be able to provide instantaneous and trustworthy accounting to potential investors without hiring high cost auditing firms. Such accounting practices could open up whole new levels of potential investment.
The additional features of blockchain technology include the so-called ‘triple entry’ validation. The system allows for all transactions to be recorded in the maker’s and receiver’s books, as well as a third entry within the chain itself. This provides an autonomous third party record of all transactions that cannot be disputed by either party. What’s more, all documents and validations can be tracked and logged and timestamped, creating a fluid and inalterable chain of documentation for any transaction, ensuring full transparency.
Taken together, the abilities of blockchain technology are already revolutionizing the accounting world. Some of the built-in limitations of accounting can be completely dealt with simply by instituting a blockchain methodology for transactions. Transparency, accuracy, and rapid processing are all necessary for accounting to respond to the needs that technology has placed on it, and blockchain technology answers all of them and more.