Nick Chowdrey is a business and technology writer and proud digital native. Currently based in Brighton, UK, he is a technical writer at Crunch Accounting and co-founder of Brighton-based bitcoin community, Bitcoin Brighton. Here, he explores whether or not bitcoin could render accountants obsolete.
Towards the end of last year, CoinDesk published a piece suggesting four career fields bitcoin could replace. One of these careers was accounting. I wanted to investigate further into whether this could actually happen.
It's no secret that online accounting firms are already disrupting the industry, offering a cheaper and often more convenient service than their 'bricks and mortar' ancestors.
Moving accounting online makes the process quicker and more convenient. Users can update their accounts using smartphone apps and 'optical character recognition' helps to automate data entry. It doesn't take too much of a leap to see how the Bitcoin protocol could further enhance these processes.
How bitcoin can help
On a basic level, the payment network could be used by firms to more easily accept international customers. You'd expect this to increase competition and it could eventually lead to offline firms across the world being priced out of the market.
But even if this does happen, surely these online firms will still need to employ some human accountants? Actually, it seems that not only could Bitcoin be used to automate a lot of accounting functions, it could, in some cases, actually do a better job.
For example, one of the most important accounting tasks is balancing the books – checking that incoming and outgoing transactions match an individual or company's actual bank balance. Modern financial accounting uses a 'double entry' system which requires two separate accounts to be updated depending on the transaction.
For example, if you receive a payment of £100 you increase a credits account by 100 and decrease a debits account by 100, and vice versa if you pay someone £100. If the books are balanced, the debit account plus the credit account should equal zero.
Every entry is dated, with additional information added if necessary, making it possible for accountants to go back through the records and find the problem if the books aren't balanced. This is a straightforward way for people to trust their own accounts.
Increasingly, however, outside parties like tax collectors and investors also need to trust that a set of accounts is accurate and fully disclosed, requiring expensive audit services. This is where bitcoin comes in.
What would be required is for every transaction between a debtor/creditor to be processed through the Bitcoin network, as well as a record being kept in both the debtor and creditor's private, offline accounts.
This creates a system of 'triple entry' bookkeeping where accounting entries are distributed across the Bitcoin network and cryptographically sealed, making the falsification or destruction of the records practically impossible and ultimately reducing fraud.
This would be an excellent way to save time and money for an open and transparent business that wants to, for example, publicly share its accounts with a potential investor; or for a freelancer who needs to submit a tax return.
Also, thanks to projects like Mastercoin and Ethereum, which will enable other properties to be transferred over the Bitcoin network, the cryptographic transactions wouldn't even have to involve the transfer of any actual bitcoins, or anything of real monetary value.
It would be more like an exchange of contracts that each party cryptographically signs, saying: "I promise that I paid X party X amount of X currency." Having said this, it would ultimately make more sense for these contracts to execute the actual payments too, which is also perfectly possible.
At this point, it's worth saying that bookkeeping is by no means the only thing that accountants do. Certainly, at online accounting firms today, accountants take on a more advisory role, spending less time on tiresome data entry and more time speaking to actual clients and investigating their problems.
This could lead to better service, perhaps explaining the increasing popularity of online accountants.
So, will Bitcoin totally replace accountants? I'm not sure it's possible. Will it streamline and optimise the industry, just as we expect it to do in other areas of finance? I think almost definitely.