Val Steed, CEO of K2 Enterprises and a speaker at the Foundation for Accounting Education's Emerging Trends Conference, said that when a major new technology is introduced, people tend to hype it as something that will effectively "solve world hunger" and every other global problem. This, he said, is what's currently happening with blockchain. However, he said, while blockchain will likely not be quite as revolutionary as its boosters claim, this does not mean that there aren't real and interesting business applications that can provide actual value to the market.
"How many of you remember
XML? Remember that standard? Blockchain has to be thought of as another XML. ... When XML first came out, I remember a
lot of organizations around the country were [saying that] we need detailed training for accountants for XML. We run a training company, we looked at that in heavy light, and we came back with, 'No, what you
need is an understanding of what XML does, but that detailed database capability will be buried inside the accounting systems.' The same thing will happen with blockchain," he said.
So, for example, while blockchain may not solve world hunger, it can facilitate contracts. He pointed to the rise of blockchain-based "smart contracts." A conventional contract requires, at its base, trust that each party will honor its terms. There may be legal mechanisms enforcing it, but at the end of the day, it's a promise. A smart contract, on the other hand, requires simply that obligations be fulfilled according to predetermined specifications electronically coded into it. This means that there are "trigger points" that will automatically enact the terms once the program recognizes the completion of certain milestones.
Another major application, which he predicted will be the most significant one for businesses, will be supply chain validation, which will allow people to track goods in real time. For instance, he said, Walmart tested a blockchain application to track a shipment of sliced mangoes. Without blockchain, he said, tracing the fruit from its point of origin to its presence on the shelves took six days, 18 hours and 26 minutes. By comparison, once Walmart the set up the blockchain, all that effort took 2.2 seconds.
Similarly, Maersk, a container logistics company, has been using blockchain for tracking avocados. He said that it took 30 entities and 100 people to track one container of avocados to Rotterdam. Once the company set up a blockchain to monitor them, however, "they can do it in seconds." At this point, the company is setting up a new dashboard allowing it to monitor the location of every single ship and shipping container in real time.
However, while such applications hold great promise, he said that it will still take time for that promise to be realized, as the technology requires wider use to be effective.
"We can see some pretty cool things coming down the road with this," Steed said. "That kind of stuff, I see blockchain will be terrific. But it takes effort, and one of the challenges they're having is: Once they get down to that supplier level, often those suppliers growing romaine or mangoes often don't have decent technology. So the companies are trying to bring more technology to those communities of suppliers. Is that a good thing? Yes, that's a super good thing!"
Steed also pointed to another major application for blockchain: cryptocurrencies such as bitcoin. Despite controversies such as
high-profile thefts and frauds, he said that that cryptocurrencies were not going away any time soon. He said that their rise can actually present great benefits and opportunities to both the accounting community and the world at large. At the same time, however, he voiced some major concerns about how they are currently developing.
One is energy costs. Cryptocurrencies such as bitcoin require computing power to generate new tokens and authenticate current ones. The more of them there are, the more computing power this takes, which in turn requires more electricity. While before it was possible to profitably mine new bitcoins on a phone, today whether or not someone can profit depends on electricity costs in the area. There are many cases, he said, where the electric bill will cancel out any gains made from mining cryptocurrency.
"Bitcoin ... mining and electricity take up more power than the country of Slovenia. Soon it will eclipse Denmark. So we are all paying, the world is paying, for this stuff to happen," he said.
Which, in turn, brought him to the subject of fraud. He noted that blockchain, and by extension bitcoin, is often touted as being near impossible to tamper with, given its nature. Cryptocurrencies like bitcoin require a large network of nodes to agree with each other that a transaction is valid.
"In regular accounting right now, I could say you owe me 21 dollars, but you could record in your own accounting system that you owe me 15 dollar." he said. "In blockchain, because it is a shared ledger and we all have to agree, the transaction is not recorded unless you agree it's 21 and I agree it's 21. And more importantly, what
we say means nothing. It's the outside auditors, if you will—they're called 'miners'—they approve the transaction."
Miners are the ones who generate new bitcoins through their use of computing power to validate transactions on the blockchain. While this is seen as a security measure, he said that it can also be an avenue for fraud. Since a transaction requires only a majority of miners to agree that it is valid, if somehow someone could get 51 percent of them to agree to a false number, then it will still be processed as true and added to the blockchain. This, in the cryptocurrency world, is called a "51 percent attack."
"Let's say we've got five miners out here. And we're all connected. Right now, the reason why the ledger is immutable is because no
one can claim it's 21 dollars when it's really 15... But what happens when it's not one, it's two, and it's three that get together and collude and they say, 'no, it's really 15? You two guys out there are wrong.' They win," he said.
Keeping all this in mind, he pointed out that 80 percent of all bitcoin mining today is done by just four miners in China, and no one really knows anything about them. Maybe they're all separate entities taking advantage of subsidized electricity rates. Or they could be a single entity pulling off the greatest scam ever seen. There's no way to know, he said. With this in mind, Steed wanted his audience to remember that while blockchain is quite secure, nothing, not even that, is immune to fraud.
"I'd like to think we're smarter than some of the hype we're hearing," he said. "Look, folks, unfortunately some of the brightest minds in the world are not actually good people and they figure out ways to get around stuff. ... It could happen some way, somehow. It can and will happen."