Question

Is block-chain in accounting: trick or treat? Advantages and opportunities, disadvantages and threats?

Answer 1

Blockchain is an accounting technology. It is concerned with the transfer of ownership of assets, and maintaining a ledger of accurate financial information. ... For accountants, using blockchain provides clarity over ownership of assets and existence of obligations, and could dramatically improve efficiency.Blockchain has the potential to enhance the accounting profession by reducing the costs of maintaining and reconciling ledgers, and providing absolute certainty over the ownership and history of assets. Blockchain could help accountants gain clarity over the available resources and obligations of their organisations, and also free up resources to concentrate on planning and valuation, rather than recordkeeping. In other words Blockchain is a distributed ledger technology which improves on the centralized-based solutions in different ways. It consists of peers connected in a distributed network where each peer has a copy of the ledger. To validate the transactions between those peers, the network utilizes a consensus algorithm.

ADVANTAGES OR OPPURTUNITIES

• Reducing Errors : One of the biggest advantage of blockchain in accounting is its ability to make almost negligible errors. Once data is in the chain, smart contracts will make many accounting functions automatic, reducing human error.
• Increasing Efficiency : Blockchain is fast and powerful database. Using blockchain, getting data into and out of the system can be done more efficiently than interacting with legacy accounting software applications.
• Reduces Cost : Blockchain will lead to increased efficiency and reduction in errors which will eventually lead towards cost reduction. Following initial adoption cost, accounting firms can expect to see rapid cost savings over conventional accounting systems.
• Reduces Fraud : The immutable nature of blockchain makes it extremely difficult to perpetrate and difficult to manipulate. In order to modify a record, the same change would have to be made on all copies of the distributed ledger at the same time, which is highly infeasible.
• Reduces Time : One key feature of blockchain that accountants should be excited about is its ability to reduce audit time. With the use of smart contracts, many auditing functions can be automated which will reduce the time, an auditor needs to look after the records. The inherent traceability built into blockchain makes auditing fast and easy.

Disadvantages of Block chain

1. Scalability Is An Issue - Blockchains are not scalable as their counterpart centralized system. If you have used the Bitcoin network, then you would know that the transactions are completed depending on the network congestion. This problem is related to scalability issues with blockchain networks. In simple words, the more people or nodes join the network, the chances of slowing down is more!

2. Some Blockchain Solutions Consume Too Much Energy--Blockchain technology got introduced with Bitcoin. It uses the Proof-of-Work consensus algorithm that relied on the miners to do the hard work. The miners are incentivized to solve complex mathematical problems. The high energy consumption is what makes these complex mathematical problems not so ideal for the real-world.

3. Blockchains are Sometimes Inefficient.-Right now, there are multiple blockchain technologies out there. If you pick up the most popular ones including the blockchain technology used by Bitcoin, you will find a lot of inefficiencies within the system. This is one of the big disadvantages of blockchain.

4. Cost And Implementation Struggle-The underlying cost of implementing blockchain technology is huge. Even though most of the blockchain solutions including Hyperledger are open source, they require a lot of investment from the organization that is willing to pursue it.There are costs associated with hiring developers, managing a team that excels at different aspects of blockchain technology, licensing costs if you opt for a paid blockchain solution, and so on.

5. Expertise Knowledge-Implementing and managing a blockchain project is hard. It requires thorough knowledge from the business to go through the whole process.They need to hire multiple experts in the blockchain field that leads to the problem and hence it is counted as one of the disadvantages of blockchain.