Blockchain on the books

31 Aug 17

If trust and transactions are a major part of an organisation’s work, it could benefit from secure shared records created using blockchain technology

If trust and transactions are a major part of an organisation’s work, it could benefit from secure shared records created using blockchain technology

 

 

Sometime soon you will be asked whether “distributed ledger” and “blockchain” technology might benefit your organisation. I know these terms sound techie and will probably induce an involuntary yawn, but the word “ledger” suggests that accountants should have an interest and some insight into its uses and implementation.

Sir Mark Walport, chief scientific adviser to the government, says this technology could help governments to collect taxes, deliver benefits, issue passports, update land registries, assure supply chains and generally ensure the integrity of records and services. In the NHS, he suggests, it could improve and authenticate service delivery by sharing records securely. Some say this technology will disrupt every industry where trust and transactions are central, including for example managing online identities and recording ownership.

A vast amount has been written about distributed ledgers and blockchain – the terms tend to be used interchangeably – but a lot of confusion remains over what they do, how they do it and how to exploit their potential. 

For many, blockchain is synonymous with cryptocurrencies such as bitcoin. The blockchain is the technology that allows people who don’t know each other to trust a shared record of events when dealing in virtual currencies. It is easiest to visualise this as shared identical ledgers on multiple computers that are updated as transactions are added while maintaining a record of all previous transactions. This removes the need for a third party (such as a bank) to act as an intermediary to validate identities and balances. There is no central or master ledger. Are you still with me? 

Blockchain began life in 2008 and its potential was quickly recognised. It was attractive to technology firms as it is based on open source (free) software. It was regarded by some as a solution looking for a problem. Its associations with bitcoin initially created an image problem as bitcoin achieved notoriety for its role in crimes, including in ransomware attacks and buying from the dark web. These concerns have now been largely dispelled, as Walport’s comments show. The term distributed ledger also helps to distance this technology from its bitcoin origins.

Does it offer opportunities? Blockchain’s real power is its ability to verify transactions (including financial ones) with minimal third-party involvement. It appears to offer the greatest opportunities in areas such as registration, licensing, taxation, supply chain management and counter fraud. For example, using it to track the provenance and transactions relating to food supply could prevent a recurrence of the horsemeat scandal. It could also provide the basis for secure electronic voting.

Distributed ledgers are already being used in the diamond markets and for international aid payments. The Estonian government, as with many things digital, is experimenting with a range of uses. 
To conclude, distributed ledger technology could have enormous potential for the public sector but there is still a long way to go. For example, significant questions remain about the its legal framework and governance. 

Is this enough for an initial response? 

John.Thornton@e-ssentialresources.co.uk

  • John Thornton
    John Thornton

    John Thornton is the director of e-ssential Resources and an independent adviser on business transformation, financial management and innovation.

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