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.
Navigate the Internet for the term blockchain and youâll be inundated with more than 130 million search results. Just donât expect to emerge with a complete understanding of blockchainâs esoteric world or even be able to provide a general definition of societyâs new âitâ word.
The sobering truth is that blockchain doesnât have a universally accepted definition. The technology that led MIT Technology Review to write, âIn blockchain we trust,â 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 âmost disruptive tech in decades,â doesnât have a consensus definition.
For a technology driven by a key consensus mechanism, itâs 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,â said Eric Braun, KPMGâs 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 âmore people now have a better understanding of the technology.
âThe empirical evidence doesnât seem to support Braun or Maslovaâs 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 didnât understand what it was after hearing about it. For comparison, a higher percentage of respondents were familiar with ârobo-advisors using AI algorithmsâ 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 donât address the larger issue: many people who believe they understand the technology simply donât, and itâs 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 âfalse dichotomy.ââThere is what I call permissionless and permissioned. Permissionless is anyone can go there, submit transactions, see the whole ledger. But the key is theyâre anonymous.
I like the definition permissionless because it is public and anyone can join, but there is some permission required,â said Haimes.
Companies are Misclassifying Blockchain
Companies that are using âblockchainâ in the titles of their projects often arenât accurate in their use of the technology.
The research firm Gartner estimates that through the end of the year, â85 percent of projects in their titles will deliver business value without actually using a blockchain.âUnfortunately, this doesnât just reflect a lack of understanding by corporations, but an intentional overuse of the buzzword to raise capital for projects. Â
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 âimmutable.âTheoretically, 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 canât be hacked or changed.In practice, the reality is much more complicated.
If the private network isnât built the right way, the code isnât going to function the right way.According to Lex Sokolin, global director of fintech strategy at Autonomous Research LLP, âcrypto hacking is a $200 million annual revenue industry.
â 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 âimmutability,â restricts an imperative understanding of the technologyâs flawed development, despite its perfect ideological intentions.
âConceptually it works and is immutable,â said Mike Marzelli, a Senior Manager at Deloitte, but âMIT identified a bug in Bitcoin Cash that could crash the whole system.â
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 âdistributed ledger technologyâ 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 organizationâs general ledger.âBlockchain wonât replace a general ledger because a lot of the stuff I do in my general ledger is for my internal purposes and isnât transactional,â said David Haimes.
Essentially, blockchain can theoretically ensure that an accounts receivable booked by your organization ends up as an accounts payable on your customerâs end, but it canât accurately record the appropriate estimate for expected credit losses on the account.
Yet, the Institute of Chartered Accountants in England and Wales writes âblockchain is a replacement for bookkeeping and reconciliation work.â Deloitte writes, âat the end of the road, fully automated audits may be reality.
âEven 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 isnât widespread and remains very much on the fringe of the blockchain industry. Â
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.Â
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 isnât the Holy Grail.Itâs simply a leap toward profound possibilities, and a technology thatâs still, comically misunderstood.  Â
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.Â
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 youâll be inundated with more than 130 million search results. Just donât expect to emerge with a complete understanding of blockchainâs esoteric world or even be able to provide a general definition of societyâs new âitâ word.
The sobering truth is that blockchain doesnât have a universally accepted definition. The technology that led MIT Technology Review to write, âIn blockchain we trust,â 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 âmost disruptive tech in decades,â doesnât have a consensus definition.
For a technology driven by a key consensus mechanism, itâs 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,â said Eric Braun, KPMGâs 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 âmore people now have a better understanding of the technology.
âThe empirical evidence doesnât seem to support Braun or Maslovaâs 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 didnât understand what it was after hearing about it. For comparison, a higher percentage of respondents were familiar with ârobo-advisors using AI algorithmsâ 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 donât address the larger issue: many people who believe they understand the technology simply donât, and itâs 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
- Itâs 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 âfalse dichotomy.ââThere is what I call permissionless and permissioned. Permissionless is anyone can go there, submit transactions, see the whole ledger. But the key is theyâre anonymous.
I like the definition permissionless because it is public and anyone can join, but there is some permission required,â said Haimes.
Companies are Misclassifying Blockchain
Companies that are using âblockchainâ in the titles of their projects often arenât accurate in their use of the technology.
The research firm Gartner estimates that through the end of the year, â85 percent of projects in their titles will deliver business value without actually using a blockchain.âUnfortunately, this doesnât just reflect a lack of understanding by corporations, but an intentional overuse of the buzzword to raise capital for projects. Â
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 âimmutable.âTheoretically, 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 canât be hacked or changed.In practice, the reality is much more complicated.
If the private network isnât built the right way, the code isnât going to function the right way.According to Lex Sokolin, global director of fintech strategy at Autonomous Research LLP, âcrypto hacking is a $200 million annual revenue industry.
â 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 âimmutability,â restricts an imperative understanding of the technologyâs flawed development, despite its perfect ideological intentions.
âConceptually it works and is immutable,â said Mike Marzelli, a Senior Manager at Deloitte, but âMIT identified a bug in Bitcoin Cash that could crash the whole system.â
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 âdistributed ledger technologyâ 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 organizationâs general ledger.âBlockchain wonât replace a general ledger because a lot of the stuff I do in my general ledger is for my internal purposes and isnât transactional,â said David Haimes.
Essentially, blockchain can theoretically ensure that an accounts receivable booked by your organization ends up as an accounts payable on your customerâs end, but it canât accurately record the appropriate estimate for expected credit losses on the account.
Yet, the Institute of Chartered Accountants in England and Wales writes âblockchain is a replacement for bookkeeping and reconciliation work.â Deloitte writes, âat the end of the road, fully automated audits may be reality.
âEven 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 isnât widespread and remains very much on the fringe of the blockchain industry. Â
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.Â
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 isnât the Holy Grail.Itâs simply a leap toward profound possibilities, and a technology thatâs still, comically misunderstood.  Â
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.Â
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