We have all heard about Bitcoins in the past few years and how they have changed the world of cryptocurrency. With Bitcoins came Blockchains to authenticate them. Although the concepts are connected, many mistakenly use them interchangeably. Bitcoins are the infamous virtual currency while Blockchains are what revolutionized digital currency transactions.
What is Blockchain?
Blockchain is a revolutionary technology that has decentralized transferring digital money and intellectual property. It is revolutionary because it records all previous transactions and it is resistant to modification. It is a fast, secure and transparent peer-to-peer transfer method of cryptocurrency.
How does it work?
Blockchain is an open ledger that records all transactions between parties, allowing users to confirm their agreement on the content. All the information is saved on blocks and every time new information is added, a new block is built, resulting in a chain of blocks. A “block” is the newest part of the chain that records the current information. Once completed, the block is then added to the Blockchain permanently. All the blocks are connected chronologically to each other and cannot be altered or copied. However, they get disturbed as a public ledger and are hosted by millions of computers simultaneously, resulting in a shared database that is open to anyone on the internet. Because the information is hosted on millions of computers, the possibilities of anyone taking down the system or corrupting it are slim.
Why is it important?
We rely daily on banks to transfer our money from point A to point B. These transactions cost us money as well as time. Blockchain technology saves us both time and money by omitting the use of a third party – aka the bank- when transferring currency. It is a peer-to-peer digital transaction technology that is fast and secure. It was invented by Satoshi Nakamoto -the inventor of Bitcoin himself- in 2008 to solve the problem of double-spending without relying on a central server. Blockchains use distributed ledger technology (DLT), which is a shared digital database that is constantly and consensually synchronized across different sites, institutions or countries. All of that makes it really difficult to cyberattack, alter or delete the information.
With this evolving revolutionary technology, the world of accounting is also evolving. The need for forward-thinking accounting companies that understand Blockchain technology and apply it, is growing fast. Across the world, cryptocurrencies are an important income for many companies and individuals, however, their tax regulations are different between countries and it is difficult to keep up with them. There are companies which offer important services to help you set up a tax strategy or provide you with tax consultation among other Blockchain accounting services you might need.
What are the advantages and disadvantages?
Like any other great technology, Blockchain has its advantages and disadvantages. First, starting with the advantages, the decentralized nature of the database ensures that no single party can control it, nor can anyone hack it or alter it. Secondly, by getting rid of the middle party, the transactions can be done much faster. Thirdly, maintaining electronic ledger is cheaper and more accurate than the traditional accounting system.
Security, on the other hand, is a big concern for many who are waiting for more research or feedback from long-term use of Blockchain technology before adopting it. Another disadvantage for others is the open-source nature that can risk identity protection.
The Future of Blockchain technology
The Blockchain technology is rapidly advancing and developing. The potential of Blockchain applications is limitless because the technology could be used in virtually any field. The technology is already attracting banks, financial institutions as well as stock exchange companies because it simplifies transactions. However, it does not stop here – many started using Blockchain-based Smart Contracts that could be executed with no human interaction. Music companies have also started adopting blockchain technology in music distribution. We have only started scratching the surface of the endless possibilities that this technology can offer. Advocates have suggested using this electronic ledger technology in voting, distributing medical records, buying intellectual property safely or even executing contracts.
Blockchain is becoming mainstream rapidly and the faster you adapt to it and understand it, the more you are going to benefit from it in the future. A report by World Economic Forum report from September 2015 predicted that by 2025 ten percent of global GDP would be stored on Blockchain technology. This open-source decentralized system still has much to offer and its revolutionary technology has the potential to change our lives and they way we conduct business forever.