What is blockchain technology?
Blockchain technology, also known as distributed ledger technology, is a digital system that records asset transactions and their details in multiple locations simultaneously.
The technology provides the building blocks for interactions and transfers. These blocks include assets of any kind, including money, securities, land titles, information on identity, and other personal data.
How blockchain technology is important in cryptocurrency accounting
Blockchain technology has a significant role in accounting for cryptocurrency. It is well known that traditional accounting maintains and stores records in a centralized location, typically in the database of an accounting software application. The model behind this is the double-entry accounting system that has been operating around the world for many years.
Transformation of the traditional accounting model
In the traditional accounting model, an accountant would enter all records into the system and perform all necessary changes. Consequently, when any such stored information was required by a client or regulator, it was only the accountant who would retrieve the data. This means that only the accountant or auditor had direct access to the centralized ledger. Blockchaun technology has transformed this.
Blockchain technology is accessible to all relevant parties by employing a triple-entry bookkeeping model. This means that all stakeholders in a transaction, including the accountant, auditor, regulators, and clients, have a copy of the ledger that is identical to the others at all times. Thanks to blockchain technology, the ledger is simultaneously shared across a peer-to-peer network of nodes or computers spread across multiple sites.
Enhanced accounting for crypto
Accounting for crypto has been made quite secure with blockchain technology because to alter any information on the ledgers shared out to peer networks, one requires the permission of everyone involved. This means that information on the blockchain can be accurately relied upon. The security is bulletproof because blockchain technology utilizes cryptography to secure information as well as private and public keys to authenticate users.
Blockchain technology enhances the realization of effective cryptocurrency accounting for smart contracts. Smart contracts are computer protocols that run on top of a blockchain. The technology sets rules for contracts and enforces agreements once the rules are met.
A smart contract secures funds and automatically releases them once the contract conditions are fully met. This is therefore one of the roles blockchain technology has firmed up in accounting crypto, as smart contracts are promising to completely change how accounting works by replacing normal financial transactions and doing away with third-party intermediaries such as lawyers.
End of the bookkeeper era
Blockchain accounting, including the introduction of blockchain accounting software, has brought triple-entry accounting into the cryptocurrency space. This is doing away with double entry, where every entry to an account requires a corresponding and opposite entry to a different account.
Triple entry adds a third layer or entry, with all transactions and involved parties being written on the blockchain and the information shared with everyone involved. The bookkeeping role could therefore be done away with, given the blockchain technology in place.
Blockchain is undisputedly disrupting the way accounting, including accounting for NFTs, is executed. Indeed, it is a threat to some accounting roles but an opportunity that makes the accountants’ job more fun. Future accountants, including those involved in accounting for cryptocurrency, must have a flare for IT and not just numbers if they have to survive the onslaught.
Need more help with the role of blockchain in accounting?
If you need more information on, and assistance with, how blockchain technology will impact your operations and how you should prepare yourself even if you work in the cryptocurrency accounting or accounting for NFTs space, reach out to Entendre Finance today.