Valuation of cryptocurrencies has fluctuated in recent months, drawing interest from every type of investor. While the markets remain volatile and uncertain, we here at REM believe that blockchain technology will play a significant role in the future of accounting. The concepts we first introduced in Blockchain 101 are here again in an infographic provided by the Bachelors of Science in Accounting Program at Maryville University Online, which demonstrates how blockchain can and will change some of the fundamentals of the accounting profession. We have taken part in many information sessions regarding the details of these key areas to blockchain technology and how it can impact our clients and the way we do business in the near future.
The key concepts we particularly focus on as auditors (and you should, too, with respect to blockchain) are security, trust, and verifiability. We ask:
- How is the blockchain built?
- How is the underlying data encrypted and how can we verify the integrity of the encryption?
- Who are the users and who has the ability to post transactions to the blockchain network?
- What is being transacted?
- Who validates transactions and maintains records of the ledger?
- What access points do we have to the ledger?
- Do we have access to multiple points of verification?
- Is a trusted third party involved in the validation of transactions and ledger maintenance, or is it a trustless application with distributed functionality?
In other words, a fundamental concern is whether the blockchain is centralized and vulnerable to record alteration, or whether the validation/maintenance functions are decentralized and distributed across a wide network of participants. This essentially provides an unalterable/immutable/censorship-resistant ledger with network consensus.
At REM, our Think Lab is working diligently to develop our knowledge base and identify best practices in embracing and utilizing this powerful tool. Feel free to contact us with your questions and your concerns about how blockchain might improve your business.
Click here for a quick primer on blockchain terminology.