In their new report, the FRC Financial Reporting Lab tackle the subject of blockchain
in all its myriad wonders and confusion. In my own work for the ICAEW, I have been researching and speaking about distributed ledger technologies such as blockchain, and cryptocurrencies such as bitcoin, for a couple of years now – and if there's one thing I've learned, it's that the topic has almost infinite depth of complexity. Many people I speak to feel that it's too difficult to get a grip on, and perhaps too arcane to ever be of real concern to businesses.
But I think that both of those presumptions are faulty. Certainly, the mechanical details of blockchain are complicated – but, fascinating so they are, I think of them more like clockwork – something interesting and intricate, but you don't need to understand it to use a watch. Blockchain is a way of keeping lots of people on the same page about some shared information, without needing to appoint a central recordkeeper. Any business application that could make use of that – whether it be a supply chain, identity management, or corporate voting – could be affected.
Last November we collaborated with the FRC to host a roundtable to mark the launch of our own paper, Blockchain and the Future of Accountancy
. Around the table were regulators standards-setters, professional services firms, and blockchain innovators. The discussion focused on where blockchain can make a difference to accountants' work – and where it can't. Blockchain is no panacea and there are plenty of times where a good old-fashioned database will do a fine job. But it has real power to add where current arrangements are burdensome. Many accounting departments have an information problem – they have too much of it and too little faith in its quality. Blockchain can improve the reliability of information and provide a solid foundation for decision-making.
It's that topic of reliability that I think strikes a chord with me in the FRC's report. Users of financial reporting need to know that what they're seeing is accurate, up to date, and useful. While as accountants we might act as auditors of financial information after the fact, blockchain has a capacity to "self-audit", providing strong controls over new transactions that help to build confidence. So a hypothetical blockchain-driven world would see greater certainty over the facts, and more confidence to make the right decisions.
Consequently, I see the most important action for ICAEW (from the selection given for "standard setters and professional bodies") as support education and learning on blockchain across participants. While I believe that the technical nitty-gritty isn't relevant to most people, the key features of blockchain and when to use it are relevant. In our report, we summarised those as the propagation
of information to all participants, the permanence
of past transactions, and programmability
of future ones. The FRC's report describes a key feature as the quick distribution of valid data
. I think knowing those key features is critical to making the most of the technology in the future.