Blockchain is an increasingly hot-button topic, and business owners are attempting to predict how this revolutionary technology will impact their companies. We know that blockchain is expected to transform the ways that businesses conduct their financial operations and accounting systems, but what should business leaders know now in order to set their companies up for future blockchain success?
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Give us a plain English definition of blockchain in one or two sentences
Blockchain technology is a shared, secured ledger of time-stamped transactions utilized to record the transfer of any value between two or more parties
I’ve heard it’s unhackable. In this day and age, how can that be? What about the breaches I’ve heard in the news?
Nothing in truly unhackable but modern cryptography makes blockchain pretty close. If there’s one thing that backs up this statement, just notice how all of the bad guys are using cryptocurrencies (based on blockchain) to transact. That should tell you a lot about how secure it is.
The breaches often reported in the news are not hacks of blockchain technology but rather stolen keys and ineffective controls. Typically the hacks have been hacks of third party exchanges and not the technology itself.
In the media, I often hear bitcoin and then I hear blockchain in the same sentence. Can you differentiate the two and how they relate to each other?
The two terms are (unfortunately) often used interchangeably but they are very different. Blockchain technology is the shared, secured ledger. Bitcoin is one way blockchain technology has been used – albeit it has been the most successful way so far. If we compared blockchain to the internet, bitcoin would the be equivalent of email. Email was the first and still remains a very useful tool that relies on internet technology but it certainly isn’t the only use case for the internet.
What are some current uses of blockchain at the enterprise arena? How about in accounting in general?
Large, Fortune 500 companies are devoting resources towards how blockchain will impact their business and their industry. For instance, Walmart has partnered up with IBM and they are working on shifting their supply chain onto blockchain technology to help with food safety. Banks and other financial institutions are investing heavily in researching impacts to them.
In accounting, you see a company called Consensys developing accounting software called Balanc3 which was built based on a concept called triple entry accounting. With triple entry accounting, parties continue to record dual entry on their own books but record a third entry into the shared ledger. This third entry is verified by the counterparty and thus the entries on the shared ledger also balance.
Are there other technologies similar to blockchain that can help with understanding it?
There is no technology that is similar to blockchain and that’s why there’s so much hype and potential surrounding it. It’s also why I believe it’s taking longer to mature and become mainstream. The closest thing would be to take a database, add modern day security to it and then share that database among various parties.
When will blockchain have a direct impact me and my business?
Like other new and emerging technology, large companies will devote significant resources towards understanding and implementing first. Once that happens, there will be a trickle down effect to smaller companies. During this time, the cost of entry for smaller organizations will also drop. There are currently lots of proof-of-concept projects going on but it’s difficult to predict when the true impact of blockchain will be felt.
Once blockchain is mainstream, how will doing business be different than how it’s done now?
The business ecosystem will become trustless and streamlined – meaning that a lot of third party intermediaries will have a smaller or no role. Supply chains will be augmented with additional transparency and won’t require additional parties to be that verification piece.
In the accounting and finance world, a lot of the reconciliation that’s done by finance teams will be reduced if not eliminated. That’s because a lot of the lag in time (which is why reconciliations are required in the first place) will be reduced.
What is Warren Averett doing around blockchain technology?
At Warren Averett, we are focusing heavily on education around the technology. We’re in a unique position where we’re the trusted advisor for our clients who are in a lot of different industries. We have to research and educate its impacts in general and then our folks have to apply that to their clients and the industries that their clients are in.
Why are cryptocurrencies such as bitcoin utilized by malicious hackers and bad actors?
Cryptocurrencies have an aspect to them referred to as pseudo-anonymity. This allows for two parties to transact with each other without knowing the identity of the third party. Bad actors are getting around the anti-money laundering and know your customer regulations that have been put in to the banking/financial services industries. Using cryptocurrencies is equivalent to bad actors walking into a bank today with a mask on and opening an account without revealing any information. For instance, they could then using the bank account number (equivalent to a cryptocurrency address) as a way to collect money in a ransomware scheme.
If you were to give one piece of advice to someone who wants to learn more, what would that be?
My one piece of advice to someone just starting would be to not get into the technological details when learning about the workings of blockchain. Similar to the internet, the average user does just fine without knowing what HTTP or TCP/IP mean. Instead, focus on various use cases and how they can be applied in your situation.
Where can I learn more about blockchain?
There are videos, courses and articles all over the internet that will help. Some specific sites include Youtube for videos or Udemy for an affordable course. If you’re looking to become more certified, the AICPA has a blockchain certificate program for accounting and finance professionals. Lastly, visit sites such as Coindesk to keep up with the latest happenings when it comes to blockchain. The technology is moving so fast that not keeping up with what’s happening will leave you behind in a heartbeat
Welcome to The Wrap. A Warren Averett podcast for business leaders designed to help you access vital business information and trends when you need it so you can listen, learn and then get on with your day. Time is tight. That’s why our advisors have wrapped up today’s most timely topics into a podcast with actionable advice. Now let’s get down to business.
Kim Hartsock [00:00:22]
Paul Perry [00:00:23]
Hey Kim. How are you today?
Kim Hartsock [00:00:24]
Paul Perry [00:00:24]
Good to see you.
Kim Hartsock [00:00:25]
It’s good to see you.
Paul Perry [00:00:27]
We’re here for another podcast.
Kim Hartsock [00:00:28]
I know I’m excited.
Paul Perry [00:00:29]
It’s gonna be a good conversation.
Kim Hartsock [00:00:30]
This topic today I’m definitely not an expert in. So I’m interested in hearing.
Paul Perry [00:00:36]
The team that these two are on are the experts on this topic.
Kim Hartsock [00:00:39]
That’s right. I’m glad that they know it.
Paul Perry [00:00:41]
Yeah. It’s gonna change over the next three or four years and so long as we’re keeping up with it. That’s what’s important.
Kim Hartsock [00:00:46]
So today we have with us Kevin Wang and Dana Canterbury. So welcome Kevin and Dana.
Kevin Wang [00:00:51]
Thank you. Glad to be here.
Dana Canterbury [00:00:52]
Kim Hartsock [00:00:53]
We’re really excited to have you guys here.
Kevin Wang [00:00:55]
I’m very excited to be able to talk about blockchain with you guys.
Kim Hartsock [00:01:00]
Paul Perry [00:01:00]
So Kevin is our Director of Innovation here at Warren Averett and he’s leading a group of individuals throughout the firm. Kind of on our blockchain initiative.
Kevin Wang [00:01:09]
Paul Perry [00:01:10]
And kind of kind of what is it what’s coming up? What are we doing? How are we preparing for it and how do we need companies to prepare for it? Is that correct?
Kevin Wang [00:01:19]
That’s right. And it’s you know really really keeping up with what’s going on in the industry or with the technology today. It’s moving so fast the technology is just flying by and then really becoming mature at a quick rate. And so you know we thought it would be important to put together this task force just to really learn about it. And then being able to apply it to our clients and and you know keeping up with keeping up with new developments is almost a task on its own. So we’re very excited to lead this team. And Dana here is is a member on that team.
Dana Canterbury [00:01:58]
So yes Kevin and our team of blockchain experts have been through an AICPA training where we spent time learning how this can apply within our industry and then how we can help understand and understanding the application of blockchain technology within our clients and within their industries.
Paul Perry [00:02:22]
So before we get too far let’s just define blockchain lot of people confuse it with Bitcoin. We know it’s a little bit different but talk to us about what what blockchain is.
Kevin Wang [00:02:35]
Yeah. That’s one of the. I think that’s one of the reasons why a lot of there’s a lot of misconception out there with bitcoin and blockchain and it’s because it’s it’s such a new technology and there’s not really too much like it. As far as defining it in let’s say one or two sentences I would say it’s almost a shared like a secure a ledger that’s there has transactions timestamp. So everything that’s getting that it gets onto this ledger is time stamped and it’s utilized to record a transfer of value between two or more parties. So kind of by by definition you know one company that has a block chain without any other parties on it may not make sense because it’s kind of reliant on multiple parties being on on this network right. And so very similar to the Internet. If you think about it if you had just one company on the internet without any other company as well it really doesn’t doesn’t do any good. So having that network and having multiple parties really really goes a long way in blockchain.
Kim Hartsock [00:03:53]
So I’ve heard that it’s unhackable and I’m just a little surprised by that and perplexed in this day and age that anything can be unhackable. And I think there’s been a little bit of in the news that there were some breaches so maybe you can elaborate on that.
Kevin Wang [00:04:08]
Yeah sure absolutely. And you know a lot of people say it’s unhackable I would I would argue against that. I don’t think anything’s ever completely unhackable. But but the way blockchain the cryptography works the encryption works it is pretty close to unhackable. Now I will preface this by saying the larger the blockchain network that you’re talking about the more unhackable it is. I guess so that the hacks that you’re hearing about on the media it’s really hacks of third party exchanges of the crypto currencies. So that’s really outside of the technology. There are there have been a couple of true blockchain hacks that are called 51 percent attacks and that gets a little detailed but. As far as hacks goes it’s been uh there’s been very few of them.
Dana Canterbury [00:05:05]
In the hacks or typically when someone steals a key. Isn’t that right Kevin.
Kevin Wang [00:05:12]
Yep that’s right.
Dana Canterbury [00:05:13]
And so it’s actually outside of the block chain technology. It’s it’s they steal a key and then they’re able to access any assets that a particular person.
Paul Perry [00:05:23]
So we really need to separate bitcoin and blockchain blockchain is the technology that Bitcoin runs on.
Kevin Wang [00:05:28]
Paul Perry [00:05:29]
That’s a very accurate statement?
Kevin Wang [00:05:30]
Absolutely. And really unfortunately they get. They get talked about interchangeably and they really shouldn’t be. They would almost be talking about I make this comparison a lot when I talk about block chain is that the difference between like the internet and email. Right. And so I often say when you think about bitcoin it’s almost like the e-mail of the Internet. It’s the first use case. It’s a very good use case. You know we still use it today but it’s definitely not the only use case of block chain and so.
Paul Perry [00:06:04]
I’m sure there’s not a lot of those use cases out there. So I’m pretty sure it’s we’re still early in the stage but there’s got to be somebody that’s that’s experimenting that’s innovating with how can I use blockchain to better my organization to better my process to better a community of organizations with.
Kevin Wang [00:06:20]
Dana Canterbury [00:06:22]
I think one example that I’ve heard in kind of industry specific example would be in manufacturing and distribution and I’ve heard it called a proof of process and basically you know you can trace an item all the way through the process from manufacturing to distribution and you can verify each single step that is taking place and that those steps can be. Those steps are are on the blockchain and everybody who has access can see where the transaction has gone so I think another example that they used was tracing an organic food item you know to very so that people can verify that it’s truly organic.
Kim Hartsock [00:07:07]
That makes sense.
Paul Perry [00:07:09]
If there is a breakdown if there is a breakdown in any of that process I can trace it back to where where did the issue where did the issue happen, right? where was the concern from.
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Kim Hartsock [00:07:32]
So how about in accounting. In general how is blockchain being used?
Kevin Wang [00:07:37]
Really with blockchain and accounting you’re seeing a concept called triple entry accounting. So where we’ve had dual entry accounting for hundreds of years now when it’s you know it’s worked and it keeps books balanced. Now you’re really seeing a concept of a third entry being introduced and there’s a company called consensus who has created an accounting platform just based on triple entry accounting. And so with that you know two parties would continue to record a transaction like they would do on a double entry accounting. But then each of the parties would record a third entry into the blockchain ledger. And so that the entry that that gets on the blockchain ledger is then verified by both parties and thus the shared ledger is also in balance.
Kim Hartsock [00:08:41]
So how will blockchain impact. If I’m a business owner maybe I’m an entrepreneur that owns my own business. How will blockchain impact me and my business?
Dana Canterbury [00:08:55]
I mean I think there’s there’s potential in every industry for impact and I think that it’s a matter of going in and making sure that the the cost of implementing a blockchain within a marketplace is is going to be worth it. And so I would refer to a blockchain as a marketplace and it’s it’s. If if I use an industry as an example like you would not want to go in and create your own blockchain as a company you would want to get everybody who’s involved in your business your vendors your suppliers and then you would want to create the blockchain with with all of these different parties so that the efficiency is truly happening. Sure. Having the blockchain and by having the information shared you know and it’s a trusted blockchain. So rather than picking up your phone and calling a supplier or a vendor you know you have this trusted blockchain that you know you can rely on that versus you know developing this trusted relationship with this person that could take forever. You know you have this this technology that’s telling you that the information can be trusted.
Kim Hartsock [00:10:10]
Yeah that makes a whole lot of sense.
Kevin Wang [00:10:11]
And I will say just kind of go back to the question. You know you’re seeing a lot of larger fortune 500 companies implement or you know devote a good number of resources towards the technology and it’s similar to a lot of other emerging technologies where the large companies that have the resources to devote are really doing a lot of the R&D. And then from there it will trickle down. And so and Dana mentioned earlier Wal-Mart with their their program. You know it’s projected that they’re going to start basically making their suppliers get onto their blockchain in order to do business with them. And so from then that’s from there that’s how it kind of trickles down and gets to the kind of the all the way down to the mom and pop level.
Paul Perry [00:11:00]
So if I’m talking to a company and they say hey we’re we’re getting in on blockchain and the next question needs to be well who’s blockchain are you getting in on or are you spending your own money on your own blockchain. Because it sounds like you’re saying that’s not what you want because if I’ve created this system nobody else can connect to it I’ve just wasted my money.
Kevin Wang [00:11:15]
Right right. Right. And my first question would almost be you know is blockchain the right. Is it the solution that you’re needing for the problem. You really need to analyze what the problem is first worth the cost and is it worth the cost.
Paul Perry [00:11:28]
Right. Well like all technologies there’s trailblazers there’s bleeding edge. There’s kind of leading edge type folks and I would think this is one I want the bigger folks to figure it out. Then I’ll just jump on their train spend a little bit less money than than having to create my own.
Kim Hartsock [00:11:43]
And that leads to the next question of you know once this becomes mainstream it’ll be like a lot of technologies where we think what in the world did we do before we had you know the Internet or before we had paperless accounting systems and all those things which seem just crazy but the people that are entering the workforce today have no knowledge of a time where we weren’t completely reliant on those technologies. So when blockchain becomes mainstream how will things be different.
Kevin Wang [00:12:17]
So you know the main difference that I see is there’s gonna be a lot less a lot less intermediaries. I don’t think they’ll be completely eliminated but the number of intermediaries and their role in kind of the whole process will be reduced. So blockchain is often read referred to as trust less when when people talk about blockchain and that’s that’s due to various parties being able to transact almost without an intermediary. So if you think about party A Purchasing let’s say a widget from party B you know with blockchain and with bitcoin there isn’t a need for that that third party bank to to settle that transaction between the two parties.
Dana Canterbury [00:13:07]
Yeah. And with that you know with the elimination of intermediaries and the elimination of a reconciliation process you’re obviously going to see you know cost savings that come along with that potentially.
Kim Hartsock [00:13:19]
So then that impacts accounting. We are we are a CPA firm and we do. Have expertise in accounting so I could see that those types of reconciliations and that kind of thing then go away. Right.
Paul Perry [00:13:33]
Right. But aren’t you going to place more reliance on the controls at the beginning. Right. So the old adage garbage in garbage out if I put garbage into the blockchain it’s still garbage. Correct. So I’ve got to have better controls as a business on the front end to make sure that what’s going into the blockchain is accurate because I won’t have to do So I’m gonna have to where I may have had controls across the entire process. I’ve got to beef up the controls at the beginning and end to end at the right.
Kevin Wang [00:14:00]
Right. So that the data coming in and the data going out is there going to be the weak points and the areas that you know malicious hackers are going to are going to target those points they’re not going to target the blockchain itself but they’re going to target the ends and out.
Paul Perry [00:14:15]
That makes sense.
Kim Hartsock [00:14:17]
So what what is Warren Averett doing around this technology. How are we responding to this?
Kevin Wang [00:14:23]
Warren Averett is really focusing on education and education around the technology in general but also you know how it’s going to impact our various industries. And so you know we we’re in a position where we obviously have clients in numerous different industries and so being able to understand how technology such as blockchain will impact those various industries is really important to us.
Dana Canterbury [00:14:52]
Yeah. And just with education trying to stay on the forefront because of all of the information that’s out there because this technology is changing so quickly as Kevin mentioned earlier. So just making sure that you know we’re keeping up with it and and staying on the front the front end of it.
Kim Hartsock [00:15:09]
It’s kind of like people who when the internet first came out and businesses who said well I don’t need a Website that we can’t even imagine there being a business that it doesn’t have a Website. So I imagine that there will come a point where I’m a small business owner and I say Well what do I need to know about blockchain and bitcoin but there will probably come a time where that will seem insane.
Dana Canterbury [00:15:31]
Kim Hartsock [00:15:31]
To a business owner that they wouldn’t have. That’s right. Right.
Paul Perry [00:15:35]
Couldn’t imagine a go to work for a company I always look at their Web site first and if they don’t have a website I’m like are they a real company?
Kim Hartsock [00:15:41]
Right. But back in the 80s there were a lot of companies who didn’t know what a Web site was.
Paul Perry [00:15:49]
That is an accurate statement.
Kim Hartsock [00:15:50]
Right. Same thing with cell phones.
Kevin Wang [00:15:52]
That’s when you used the yellow pages right. Right. If they’re a real company or not.
Kim Hartsock [00:15:56]
Well and that leads to the discussion of you know we had this conversation other and other podcasts but you know where there are jobs and industries that become obsolete due to A.I. and this is just another you know kind of angle on that of you know the yellow page. You mentioned the yellow page industry and. That’s pretty much obsolete now.
Kevin Wang [00:16:18]
Talk about disruption.
Kim Hartsock [00:16:19]
That’s right. So this that’s another reason why businesses should be. Aware of this and learning about it is that at some you may not need it now. But there will come some time that you do and our goal is to be the experts at Warren Averett so that when that time comes we’ve already got the awareness and knowledge and we can educate you as a client.
Kevin Wang [00:16:39]
Dana Canterbury [00:16:40]
Yes. And I think the hope is that you know it’ll take away some of the mundane tasks and some of the back office operations and that you know professionals would be able to focus on you know some of the higher value add engagements versus some of the ticking and tying as we would refer to it in accounting.
Kim Hartsock [00:17:01]
Paul Perry [00:17:03]
So here on the wrap at the very end we’d like to wrap it up in about 60 seconds. What do our listeners need to know about blockchain specifically as they kind of go forward without their throughout their business.
Kevin Wang [00:17:14]
Sure. So if I if I were to give one piece of advice what I would say is don’t get too bogged down in the details and again comparing this to the Internet. You know the average user of the Internet doesn’t know what HTTP stands for or TCPIP.
Kim Hartsock [00:17:36]
Really good point.
Kevin Wang [00:17:37]
And so really you know there’s a lot of terminology and a lot of high level technology that goes in the blockchain and you know the average user will not need to know how to will not need to know about those. But to that level of detail. You know I often get asked also you know where can I learn more about blockchain. I’m interested. And so typically you know there are videos and courses and articles all over the Internet that will be able to help help in that endeavor. You know specific sites include you know YouTube for videos. udemy which is a an educational. They have educational courses on their Web site. They have they have a blockchain kind of certification course. That’s very affordable. And then you know Dana mentioned earlier the AICPA has has put out a blockchain certification for accountants and finance professionals that if you’re looking for more of a certificate type type program. And then lastly if you’re just looking to keep up with the everyday on goings of blockchain I mentioned earlier how fast of a technology it is. And so Coyne desk is actually a really good Web site that that produces articles daily on various proof of concepts that companies are doing with blockchain and any sort of development that comes out of blockchain technology coindesk will have you covered.
Kim Hartsock [00:19:15]
Paul Perry [00:19:16]
Kim it sounds like this is gonna be a topic that’s gonna be season after season. We’re just gonna have to have it. Let’s have a blockchain update. A It’s gonna change quicker than we can keep up with and so we’re definitely gonna have to have you all back to talk a little bit more as it changes as society changes as it relates to blockchain
Kim Hartsock [00:19:34]
And I’m glad that we have Kevin and Dana leading a team that’s learning about all this and we can hear from them because it’s definitely something we need to be experts at. And I’m glad to know that you guys are leading the way in that. So thank you so much for being here.
Paul Perry [00:19:48]
Thanks guys. We appreciate it.
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