The future is block chain

OPINION

Earlier this week Bitcoin Foundation founding director Jon Matonis visited Auckland to speak at the AMP Amplify Festival on the future of currency. Naturally, his focus was on digital currency (Bitcoin in particular) as he spoke about the future opportunities it can offer to businesses, banks and government around the world.

Now I’m no Dr Emmet Brown (think inventor, Back to the Future) but I too have seen the future.  

Digital currency, or ‘crypto-currency’ and the technology that underpins it has the potential to change not just the way the world trades but also how it stores and shares information. 

Perhaps the most prominent digital currency is Bitcoin, invented in 2008 and now used around the world for both virtual and real-life trading and purchasing. A public transaction register, called the ‘block chain,’ records and validates every exchange of Bitcoin, anywhere in the world, in near real-time.

The block chain and its applications could be world-changing. It’s not often that a chartered accountant can say that. So I’ll say it again. It will change everything.  

The block chain is an open-source transactional database that operates on a distributed network. This means there is no single repository of data. Instead a record of every digital currency transaction ever conducted is held on a transparent ledger and is stored and replicated across thousands of computers across the world. This means anyone can access the ledger and view any transaction. 

The block chain has the potential to be used on a massive digital scale, going way beyond crypto-currency. The database is decentralised – devoid of a ‘bookkeeper’, so to speak – but it still manages to provide accountability. 

Decentralisation and accountability are often two contradictory attributes but the block chain is able to offer both and, while it still has some work to do to convince stakeholders of its credentials around security, it is clear it offers benefits that could be used in a range of applications. Banks, regulators and corporations around the world are now looking seriously at its potential. 

Nasdaq is already using it; IBM is testing it for the ‘internet of things’; other companies are looking at how it might help keep passwords and secure documents safe from hackers and some are going as far as saying that it could be a financial solution for the world’s unbanked population of two billion.

It can be applied not only to digital currency but also to the internet, public records (such as passports and driving licenses), records of land titles and even GPS tracking. As we embrace the digital age, we need a scalable, trustworthy system like this. 

For accountants the impact could be huge. How do you audit it? 

For governments the potential is dynamic. How can it be applied to keep records, save costs, facilitate growth and future prosperity? 

But for me, it’s regulators who will be scratching their heads the most.

Regulators are obliged to take their direction from government. They are generally large and in many instances slow. They are focused on compliance and on enforcing the law. Dr Emmet might say that they are focused on the past. 

Jon Matonis talked about the implications of new controls imposed on bitcoin transactions by the New York State Department of Financial Services. And he’s right to be concerned. How do you regulate a decentralised system without weakening the very thing that makes it strong? Everyone will be able to access and use the block chain, which potentially eliminates many of the key functions of financial regulation.  

So, back to the future. While governments and regulators grapple with the next steps, the block chain is fast becoming a reality on our digital horizon. With its unrivalled attributes of decentralisation, transparency and accountability, it has the potential to challenge everything we thought we knew about business competitiveness. 

Get on the hover board now.

Lee White is the chief executive of Chartered Accountants Australia and New Zealand