Blockchain technology, responsible for supporting a $200 billion cryptocurrency market, still remains clouded in confusion among much of the general public. The discussion as to how and why is perhaps as important as the technology itself.
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Navigate the Internet for the term blockchain and you’ll be inundated with more than 130 million search results. Just don’t expect to emerge with a complete understanding of blockchain’s esoteric world or even be able to provide a general definition of society’s new “it” word.
The sobering truth is that blockchain doesn’t have a universally accepted definition. The technology that led MIT Technology Review to write, “In blockchain we trust,” drove a $24 million ice tea company to rebrand and repurpose itself as a blockchain company (and miraculously see its stock soar 200 percent), and led ComputerWorld to call it the “most disruptive tech in decades,” doesn’t have a consensus definition.
For a technology driven by a key consensus mechanism, it’s a humbling irony. The polarizing viewpoints of blockchain range from a revolutionary pathway to complete decentralization of financial institutions and departments of government, to a passing fad that enriched a few cryptocurrency developers to mind-numbing opulence, but had very little, if any, effect on the day-to-day lives of the general public.
In this environment, one would expect to find at least one area of agreement: that a limited segment of society really comprehends the technology. Yet, some of the most trusted minds in the space are selling a broad level of commercial understanding.
Big 4 Blockchain Leaders Weigh In
The masses are understanding it,” said Eric Braun, KPMG’s designated blockchain leader, at the 2018 American Accounting Association Blockchain Technology: An Emerging Issues Forum in San Francisco on Sept. 13 and 14.Natalia Maslova, the EY Ireland Blockchain Lead, added “more people now have a better understanding of the technology.
”The empirical evidence doesn’t seem to support Braun or Maslova’s claims.
A 2017 HSBC study across 11 international markets showed that 59 percent of its respondents had never even heard of blockchain. And worse still, of that number, 80 percent didn’t understand what it was after hearing about it. For comparison, a higher percentage of respondents were familiar with “robo-advisors using AI algorithms” than with blockchain.Is it possible over the last year that the rate at which people became familiar with the technology increased exponentially? Possibly.
But the aforementioned figures don’t address the larger issue: many people who believe they understand the technology simply don’t, and it’s stunting the growth of a more pervasive knowledge.
Different Areas of Discourse
Here are some of the more prevalent disagreements within the blockchain community:
For example, one of the common bifurcations of blockchain types is between private and public blockchains, such as explained here in a blog on the AICPA website. David Haimes, Senior Director of ERP Cloud Development at Oracle, believes this to be a “false dichotomy.”“There is what I call permissionless and permissioned. Permissionless is anyone can go there, submit transactions, see the whole ledger. But the key is they’re anonymous.
I like the definition permissionless because it is public and anyone can join, but there is some permission required,” said Haimes.
Companies are Misclassifying Blockchain
Companies that are using “blockchain” in the titles of their projects often aren’t accurate in their use of the technology.
The research firm Gartner estimates that through the end of the year, “85 percent of projects in their titles will deliver business value without actually using a blockchain.”Unfortunately, this doesn’t just reflect a lack of understanding by corporations, but an intentional overuse of the buzzword to raise capital for projects.
Consider the Cayman Islands blockchain start-up, Block.one, which in May of this year raised $4 billion without having a single product launched or investors knowing how a majority of the capital would be used.
What does it Mean to be Unhackable?
Then there is the disagreement on whether blockchains are truly “immutable.”Theoretically, one of the most beneficial aspects of blockchain technology is that when stacks of data are cryptographically stacked on top of each other and shared across a distributed network with no single user having the ability to control a single ledger, it can’t be hacked or changed.In practice, the reality is much more complicated.
If the private network isn’t built the right way, the code isn’t going to function the right way.According to Lex Sokolin, global director of fintech strategy at Autonomous Research LLP, “crypto hacking is a $200 million annual revenue industry.
” If hackers can infiltrate blockchain supported cryptocurrencies, they certainly will be able to penetrate blockchains that hold medical records, vehicle titles, food distribution rights, and many others. The continual use of the word “immutability,” restricts an imperative understanding of the technology’s flawed development, despite its perfect ideological intentions.
“Conceptually it works and is immutable,” said Mike Marzelli, a Senior Manager at Deloitte, but “MIT identified a bug in Bitcoin Cash that could crash the whole system.”
Is
Blockchain Ready to Crash the Financial Accounting Space?
Finally, there is wave of hyperbolic language regarding the relationship between blockchain and financial accounting. For a platform considered to be a “distributed ledger technology” the barriers to entry into the financial accounting realm are far greater than many suspect. If there was one area of near unanimity at the American Accounting Association Blockchain Technology:
An Emerging Issues Forum, it was that blockchain will at no point serve as an organization’s general ledger.“Blockchain won’t replace a general ledger because a lot of the stuff I do in my general ledger is for my internal purposes and isn’t transactional,” said David Haimes.
Essentially, blockchain can theoretically ensure that an accounts receivable booked by your organization ends up as an accounts payable on your customer’s end, but it can’t accurately record the appropriate estimate for expected credit losses on the account.
Yet, the Institute of Chartered Accountants in England and Wales writes “blockchain is a replacement for bookkeeping and reconciliation work.” Deloitte writes, “at the end of the road, fully automated audits may be reality.
”Even in a vacuum in which blockchain technology in practice mirrors the theoretical world, such conclusions are a stretch. For one, even permissioned blockchains are paralyzingly inefficient in transaction speed and block storage when compared to legacy financial accounting systems.
Additionally, blockchain in its current form was designed to support the cryptocurrency ecosystem. While projects exist to help support its financial accounting function, it isn’t widespread and remains very much on the fringe of the blockchain industry.
There are dozens, perhaps hundreds, of other areas of dissension regarding the technology. All of them are not going to be resolved today, tomorrow, next month, or even next year. It is imperative, however, that we have a universal discussion around informing the general public of what the technology actually is and what it does and perhaps more importantly, what it does not do.
Some experts firmly believe that we are already engaged in that dialogue, but if we are, then why are so many still left in the dark? Only transparency and trust will permit widespread adoption of blockchain.
That starts by admitting what we should already know: blockchain isn’t the Holy Grail.It’s simply a leap toward profound possibilities, and a technology that’s still, comically misunderstood.
Todd Cheney
Todd Cheney, a Certified Public Accountant, has been an Accounting Editor with Bloomberg BNA since 2016. His prior work experience was in the public accounting tax sector for three years and as a revenue officer with the Internal Revenue Service for two years.
Todd graduated with a B.S. in Finance with Honors from the University of Wyoming and a B.A. Summa Cum Laude from Ashford University.
He currently resides in Washington D.C.
VIEW FULL BIOGRAPHY
Navigate the Internet for the term blockchain and you’ll be inundated with more than 130 million search results. Just don’t expect to emerge with a complete understanding of blockchain’s esoteric world or even be able to provide a general definition of society’s new “it” word.
The sobering truth is that blockchain doesn’t have a universally accepted definition. The technology that led MIT Technology Review to write, “In blockchain we trust,” drove a $24 million ice tea company to rebrand and repurpose itself as a blockchain company (and miraculously see its stock soar 200 percent), and led ComputerWorld to call it the “most disruptive tech in decades,” doesn’t have a consensus definition.
For a technology driven by a key consensus mechanism, it’s a humbling irony. The polarizing viewpoints of blockchain range from a revolutionary pathway to complete decentralization of financial institutions and departments of government, to a passing fad that enriched a few cryptocurrency developers to mind-numbing opulence, but had very little, if any, effect on the day-to-day lives of the general public.
In this environment, one would expect to find at least one area of agreement: that a limited segment of society really comprehends the technology. Yet, some of the most trusted minds in the space are selling a broad level of commercial understanding.
Big 4 Blockchain Leaders Weigh In
The masses are understanding it,” said Eric Braun, KPMG’s designated blockchain leader, at the 2018 American Accounting Association Blockchain Technology: An Emerging Issues Forum in San Francisco on Sept. 13 and 14.Natalia Maslova, the EY Ireland Blockchain Lead, added “more people now have a better understanding of the technology.
”The empirical evidence doesn’t seem to support Braun or Maslova’s claims.
A 2017 HSBC study across 11 international markets showed that 59 percent of its respondents had never even heard of blockchain. And worse still, of that number, 80 percent didn’t understand what it was after hearing about it. For comparison, a higher percentage of respondents were familiar with “robo-advisors using AI algorithms” than with blockchain.Is it possible over the last year that the rate at which people became familiar with the technology increased exponentially? Possibly.
But the aforementioned figures don’t address the larger issue: many people who believe they understand the technology simply don’t, and it’s stunting the growth of a more pervasive knowledge.
Different Areas of Discourse
Here are some of the more prevalent disagreements within the blockchain community:
- Whether there are true private and public blockchains or whether they should be reclassified as permissioned and permissionless
- What technological features are required in order to accurately define a system as true blockchain technology
- If blockchain is actually immutable
- It’s use within the financial accounting industry
For example, one of the common bifurcations of blockchain types is between private and public blockchains, such as explained here in a blog on the AICPA website. David Haimes, Senior Director of ERP Cloud Development at Oracle, believes this to be a “false dichotomy.”“There is what I call permissionless and permissioned. Permissionless is anyone can go there, submit transactions, see the whole ledger. But the key is they’re anonymous.
I like the definition permissionless because it is public and anyone can join, but there is some permission required,” said Haimes.
Companies are Misclassifying Blockchain
Companies that are using “blockchain” in the titles of their projects often aren’t accurate in their use of the technology.
The research firm Gartner estimates that through the end of the year, “85 percent of projects in their titles will deliver business value without actually using a blockchain.”Unfortunately, this doesn’t just reflect a lack of understanding by corporations, but an intentional overuse of the buzzword to raise capital for projects.
Consider the Cayman Islands blockchain start-up, Block.one, which in May of this year raised $4 billion without having a single product launched or investors knowing how a majority of the capital would be used.
What does it Mean to be Unhackable?
Then there is the disagreement on whether blockchains are truly “immutable.”Theoretically, one of the most beneficial aspects of blockchain technology is that when stacks of data are cryptographically stacked on top of each other and shared across a distributed network with no single user having the ability to control a single ledger, it can’t be hacked or changed.In practice, the reality is much more complicated.
If the private network isn’t built the right way, the code isn’t going to function the right way.According to Lex Sokolin, global director of fintech strategy at Autonomous Research LLP, “crypto hacking is a $200 million annual revenue industry.
” If hackers can infiltrate blockchain supported cryptocurrencies, they certainly will be able to penetrate blockchains that hold medical records, vehicle titles, food distribution rights, and many others. The continual use of the word “immutability,” restricts an imperative understanding of the technology’s flawed development, despite its perfect ideological intentions.
“Conceptually it works and is immutable,” said Mike Marzelli, a Senior Manager at Deloitte, but “MIT identified a bug in Bitcoin Cash that could crash the whole system.”
Is Blockchain Ready to Crash the Financial Accounting Space?
Finally, there is wave of hyperbolic language regarding the relationship between blockchain and financial accounting. For a platform considered to be a “distributed ledger technology” the barriers to entry into the financial accounting realm are far greater than many suspect. If there was one area of near unanimity at the American Accounting Association Blockchain Technology:
An Emerging Issues Forum, it was that blockchain will at no point serve as an organization’s general ledger.“Blockchain won’t replace a general ledger because a lot of the stuff I do in my general ledger is for my internal purposes and isn’t transactional,” said David Haimes.
Essentially, blockchain can theoretically ensure that an accounts receivable booked by your organization ends up as an accounts payable on your customer’s end, but it can’t accurately record the appropriate estimate for expected credit losses on the account.
Yet, the Institute of Chartered Accountants in England and Wales writes “blockchain is a replacement for bookkeeping and reconciliation work.” Deloitte writes, “at the end of the road, fully automated audits may be reality.
”Even in a vacuum in which blockchain technology in practice mirrors the theoretical world, such conclusions are a stretch. For one, even permissioned blockchains are paralyzingly inefficient in transaction speed and block storage when compared to legacy financial accounting systems.
Additionally, blockchain in its current form was designed to support the cryptocurrency ecosystem. While projects exist to help support its financial accounting function, it isn’t widespread and remains very much on the fringe of the blockchain industry.
There are dozens, perhaps hundreds, of other areas of dissension regarding the technology. All of them are not going to be resolved today, tomorrow, next month, or even next year. It is imperative, however, that we have a universal discussion around informing the general public of what the technology actually is and what it does and perhaps more importantly, what it does not do.
Some experts firmly believe that we are already engaged in that dialogue, but if we are, then why are so many still left in the dark? Only transparency and trust will permit widespread adoption of blockchain.
That starts by admitting what we should already know: blockchain isn’t the Holy Grail.It’s simply a leap toward profound possibilities, and a technology that’s still, comically misunderstood.
Todd Cheney
Todd Cheney, a Certified Public Accountant, has been an Accounting Editor with Bloomberg BNA since 2016. His prior work experience was in the public accounting tax sector for three years and as a revenue officer with the Internal Revenue Service for two years.
Todd graduated with a B.S. in Finance with Honors from the University of Wyoming and a B.A. Summa Cum Laude from Ashford University.
He currently resides in Washington D.C.
VIEW FULL BIOGRAPHY