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Shutterstock_1044058180I have a confession to make. Even though I get into just about anything techie, every time I see the word “blockchain,” my eyes and brain tend to glaze over. I suspect many others have the same reaction. 

Yet, we really can’t ignore it. According to Microsoft, blockchain will change the way people think about exchanging value and assets, enforcing contracts and sharing data. It’s expected to grow in importance and transform business operations – on the scale of email and websites. That means CPAs and their clients are going to feel its effects. Wanting to avoid being a “blockhead,” I dove in to see what blockchain is all about. Fortunately, Jim Barnes, a self-described blockchain evangelist, agreed to walk me through it.

Barnes is an enterprise architect for Primerica, a distributor of financial products. Just as an architect creates a blueprint for a building, an enterprise architect creates an IT approach that serves the needs of the whole company. Techopedia defines them as the people who “connect an organization’s business mission, methodology and processes to its IT strategy.”

Please join us for a quick dive.

Jennifer Gardner:  What is blockchain and what does it do exactly?

Jim Barnes:  It’s just a database everyone can have a copy of and that nobody can change. Unlike a

spreadsheet, however, blockchain lacks a central host. It’s essentially a ledger of transactions shared among a network of computers. Blockchain features smart contracts, which set into motion automatic enforcement of specified terms. 

[Note: Another good definition from Forbes describes smart contracts as ‘those that are embedded with if/then statements and can be executed without the involvement of an intermediary….smart contracts might be put to use in the regulation of intellectual property, controlling how many times a user can access, share, or copy something.”]

Blockchain started getting attention when bitcoin emerged; it is the technology used for verifying and recording transactions for virtual currency. Another way to think of it: You can have blockchain without bitcoin, but you can’t have bitcoin without blockchain.

  1. How will blockchain affect the supply chain?
  2. One of the big things we’ve seen in supply chain in the last several years is end-to-end vertical integration – this is going to be a technology that can support that integration. A good example is food safety – at some point, you may be able to look up on your phone to see if something is really organic; what [materials, chemicals? I think we need a word here] did the farmer use? It can also reduce food waste – right now, if something is contaminated, they may throw out the whole shipment. With blockchain, you could have more specific identification, so someone can scan the shipment and only those in that one lot or group get discarded.

JG:  What are the opportunities for accountants with blockchain and the supply chain?

JB:  There’s definitely going to be a big part around auditing, especially with smart contracts.  A lot of what accountants will be doing is making sure smart contracts do what they say they do. Are we logging touches on whatever is being represented by the contract?  Do we have everything we need, what’s the provenance where did it originate? Accountants can help go around the smart contracts and get a better handle on them.  It’s also easier to see where the money goes.

Another area where accountants can help is advising companies with financial decisions, whether or not it makes sense to use blockchain. A lot of people are saying, ‘we need to go to the blockchain,’ and you ask them why and they say, ‘because it’s the new hot thing.’ In that case, you’re just adding extra overhead, so you can say you’re on the blockchain. 

JG: How deeply do accountants need to understand what you do to be effective with blockchain?

JB: The biggest thing to understand is smart contracts and how they work. Basically, a smart contract is a piece of the blockchain, including whenever someone creates a new entry. So, whenever a new pallet of mangoes comes in, that pallet is of itself a smart contract. 

JG:  So, a smart contract is not necessarily a legal formal contract in the sense we’re used to. For example, I’m the supplier, I’m going to give you a pallet of bananas and that’s my contract to you.

JB:  Yes. When I did a project with Lenovo, it was a digital representation of their obligation to their suppliers that conveyed ‘this is what we’ve sold of your stuff and this is the revenue we owe you.’ 

From the accountant’s perspective, the big thing is knowing whether you want a public or private-permission block keychain because that will determine the security risks around the data you stored there and how people access it. Let’s say you have five mango producers and 200 stores you sell mangos to – even though other people can see the status of the shipment, they’ll just see their agreed upon data of what they’re paying to the distributor. You can lock visibility down to rows. 

JG: So, I imagine that would really protect against fraud. No one’s going to be able to steal from you if it’s on blockchain because we’re all going to know.

JB:  Yep. Blockchain has a lot of promise, but underneath the hype there’s a key issue still unresolved. If a company is buying stuff from China, who’s paying to install the infrastructure to be able to link to the distributor and buyer? That’s something no one has come up with yet. You’re not going to say to your small distributor or your shipper, “I need you to pay $1,000 extra a month to access our blockchain.”

JG: How do I get started? Where do I go find a blockchain?

JB: Ethereum is one of the easiest [platforms] if you want to play with one. People can get an Azure subscription for free for a month – you get $200 to play with and you can deploy a blockchain network in 15 minutes. You have to then write code on top of smart contracts. Microsoft has some basic contracts; it tells you how to install them if you want to play around. Also, to learn more about it, IBM has a free essentials course and you can find good webinars and YouTube videos as well.

JG: That is super cool. I’ll have to check it out. I like the idea of making a smart contract with my kids and they can never change it.

To learn more about blockchain visit www.aicpastore.com/disruption or www.cgmastore.com/products/disruption, and tune into the Go Beyond Disruption podcast to hear interviews with experts on blockchain and more.

Jennifer Gardner, Manager – Communications & Social Strategy ML&C, Association of International Certified Professional Accountants 

Originally published by AICPA.org