What Is Blockchain Technology And Why Accounting Majors & Professionals Need to Know It
Published on: October 30, 2023
Blockchain technology is quickly becoming a buzzword in the tech world, as well as the finance world. Yet few people really understand what this technology involves. For some, especially those interested in investment opportunities, it feels like a hypothetical world that is not realistic. For others, it feels like a trend that will soon die away. So just what is blockchain technology? Why should those interested in the world of finance understand it? Here is a closer look at this technology, its benefits and how it revolutionizes the global economy.
What Is Blockchain Technology?
A blockchain is a distributed ledger that allows all parties involved in particular transactions to share and add to the ledger. Blockchain technology is the technology that manages that ledger. It is made up of nodes, which are the participants of the ledger, and is shared on a computer network. The users have a digital currency that allows them to change the blockchain. Blockchain technology is sometimes called distributed ledger technology or DLT.
Blockchain technology has three main attributes. These are:
- Cryptographically secure – To access the database, the user has two cryptographic keys, the public key, such as the database’s address, and a private key, which authenticates the user to the network.
- Digital log – All of a blockchain’s transactions happen completely online.
- Shared across networks – Whether they are public or private, the blockchain’s database must be shared.
The most well-known blockchain network is Bitcoin. Anyone with a Bitcoin wallet can create a private key and become a node in the network. However, this technology has far-reaching implications beyond cryptocurrency.
Blockchain History and Start
Blockchain technology isn’t new. In 1991, a team of research scientists, Stuart Haber and W. Scott Stornetta, introduced a system that allowed the timestamping of documents without the ability to tamper with the dating. The time-stamped documents were stored in a “chain of blocks,” and blockchain technology started.
It didn’t take long for this system to take off. In 2000, Stefan Konst published a theory of cryptographic secured chains and provided ideas for implementing this idea. In 2004, Hal Finney, an early cryptographic activist, introduced a digital cash system he called “Reusable Proof of Work.” It introduced the idea of registering ownership of tokens on a trusted server, so double spending on the shared ledger stopped.
In 2008, a person using the name Satoshi Nakamoto wrote and published a white paper called “A Peer-to-Peer Electronic Cash System.” He built on the models already introduced and conceptualized the idea of the Distributed Blockchain. In the paper, he claimed that the blockchain would create a peer-to-peer transaction process that was so trusted it would no longer need third parties, like banks or the government. Nakamoto’s system was so effective that blockchain became the foundation of cryptography. Nakamoto also defined an electronic coin as a “chain of digital signatures,” allowing owners to transfer coins to each other.
One year later, Bitcoin became a reality. Nakamoto mined the first Bitcoin block on January 3, 2009. It had 50 bitcoins. On January 12, the first Bitcoin transaction occurred when Nakamoto sent Finney 10 Bitcoin. Before the end of the year, he’d introduced Bitcoin Market, a public platform where people could trade paper money for bitcoin and join in the trading process.
Today, blockchain miners spend time creating more Bitcoin by verifying the mathematical computations behind transactions with the currency using high-tech computers. They perform proof-of-work and receive a reward for doing so. The miner must solve a cryptographic question to verify the transaction. The first miner who reaches the correct solution is given Bitcoin.
Modern Applications of Blockchain Technology
While Bitcoin is what brought blockchain technology to the forefront of modern thinking, it’s just one way to use this tech. Today, blockchain technology has many implications. In fact, Forbes indicates that blockchain technology is changing the world. It’s been used to streamline various industries, including healthcare, finance and manufacturing. When the COVID-19 vaccine was in development, blockchain technology ensured it could quickly get distributed around the globe without a hiccup. This is just one of the most recent use cases of blockchain technology in the modern world.
Today, the food chain is growing increasingly dependent on blockchain technology. This tech is used to track food worldwide by 12 of the largest food companies, making it easier to track down recalled products or make predictions about potential food shortages.
The travel industry also benefits from blockchain tech. Through tracking blockchains, companies are reducing the risk of inaccurate bookings, providing a better customer experience for travelers.
So, while Bitcoin and other cryptocurrencies may be what’s making headlines, these are just a small portion of the possible applications of blockchain technology. As it continues to be embraced by industries, it stands to revolutionize the economies of the entire world.
How Does Blockchain Technology Work?
Understanding blockchain requires understanding how blockchain technology works. Here’s a closer look at what it is and how it works.
Purpose of the Blockchain
The primary purpose of the blockchain is to create a digital database that allows information to be recorded and distributed but not changed in any way. It creates immutable ledgers, which are records of transactions that no one can change. The goal is the transparent recording of data and transactions without relying on third parties to record and verify the data.
Trading Digital Currency
Today, blockchain technology is primarily used for trading digital currencies. In this process, a Bitcoin participant initiates a cryptocurrency transaction. It gets sent to a memory pool to enter a block. Once the block is full of transactions, it is closed and encrypted. Then, it’s available for mining. When the miner successfully solves the equations confirming the transaction’s validity, the miner gets paid, and the block becomes part of the blockchain. Eventually, the blockchain will have a long history of all the transactions performed. This history cannot be altered or changed.
Digital Ledger and Recording Transactions
While digital currency is the primary focus of the blockchain, the ability to create a digital ledger and record transactions, which is at the heart of the blockchain, makes it effective in many industries. The shared, verified ledger builds trust with users. The technology creates blocks of data that are moved into chains, connecting all of the data and transactions together in a secure way. The immutability of this digital ledger is its strength, giving a clear, unchanged history that users can trace.
Why Learn Blockchain Technology?
Is blockchain technology worth learning, or is it just a fad that will eventually pass? Today, one bitcoin is worth about $30,000, which indicates a high-value industry. In addition, blockchain technology has applications outside of Bitcoin. Some believe it is the future of both finance and accounting, and it will make many traditional bank applications obsolete.
Investing in the Blockchain
Investing in the blockchain is one reason to understand this technology. Investing in cryptocurrencies is one way you can use knowledge of blockchain technology. These digital assets, like Bitcoin, can grow as the blockchain’s value grows. In addition, investors can invest in cryptocurrency trusts, which hold assets on behalf of investors as the blockchain grows. Publicly traded blockchain companies provide another investment option, and many companies are not implementing digital ledger systems to make themselves more profitable. Finding these companies to invest in will grow your own investments.
Future of Finance and Accounting
Blockchain technology is revolutionizing the finance industry. It’s improving the industry’s transparency and eliminating some forms of human error. Some specific changes in the world of finance include:
- Blockchain-based payment systems – These are secure and transparent but don’t need third parties, making them more affordable and faster.
- Asset security and management – Ideas like smart contracts and monitoring the ownership transfer of assets using blockchain technology are improving the accuracy of asset security.
- Accessible banking services – Blockchain tech could improve access to banking services in areas of the world where banking infrastructure is weak.
Protection against cyberattacks – As cyberattacks have gained notoriety in recent years, the ability to protect against them is one of the key benefits of blockchain technology, and this could cause it to become an even more important player in the financial world.
- Smart contracts – A smart contract stored in the ledger cannot be modified, and this can eliminate the need for an intermediary or third party when signing such documents. The technology even allows the parties to place conditions on the contracts to make them more effective when performing complex financial transactions that require a high level of trust between parties.
In each of these areas, blockchain technology lowers business costs. It allows companies in the finance and accounting industries to provide their customers with secure, trusted transactions with a traceable history, all without third-party verification.
As blockchain adoption and technology continues to grow, it is opening new career opportunities providing a pathway for those with the necessary skills to thrive in a digital economy. As a result of these opportunities, demand for blockchain and cybersecurity education, degrees and training are skyrocketing and expected to continue to grow as the technology does.
Applications for Blockchain Technology
Today, blockchain technology is primarily a part of the world of cryptocurrency, but the applications for this tech extend far beyond the crypto world. It can potentially lower the overall cost of doing business by eliminating third-party verification of many contracts and processes. Increased security and transparency benefit everyone, and the efficiency and accessibility of digital transactions utilizing blockchain technology are also perks.
How to Utilize Blockchain Technology
There are many practical applications of blockchain technology in the current economic world. Beyond cryptocurrencies, which remain a popular choice, companies can use blockchain technology in managing supply chains, keeping secure documents and improving the ease of financial transactions. Some practical ways to utilize blockchain technology include:
- International payments with fewer delays and security issues
- Faster clearing and settlement in capital markets
- Increasing the speed of trade finance processes
- Improved regulatory compliance and audits
- Protection against money laundering
- Improved management of insurance claims through smart contracts
- Ease of peer-to-peer transactions
- Protection of intellectual property rights for creatives
- Create algorithms to monitor the supply chain for food and other retail products
Advantages of Blockchain Technology
There are several advantages to blockchain technology. First, it never sleeps. Transactions can be verified 24/7 rather than just during normal business hours. When banks integrate blockchain tech into their operations, customers can see transactions processed in real-time, even on weekends and holidays. Similar benefits exist in stock trading and investing.
Blockchain technology creates a decentralized network. This means there is no central point of control. In currency, the Federal Reserve controls the dollar’s value, and in traditional computer networks, a central server controls everything. In the blockchain world, information is distributed and accessible across multiple machines, with no central focal point. This creates a more resilient network that keeps data more secure.
Blockchain technology is also highly secure. In industries like healthcare, where security is vital, it can help significantly, allowing only people with private keys to access the records of each patient. This high level of security increases trust. When parties trust the data they receive, transactions can go forward with fewer delays.
Blockchain technology also offers interoperability. The blockchains can communicate with each other, allowing cross-chain messaging. In other words, the blockchains can read data from the other blockchains, which adds to the traceability of these systems.
Finally, blockchain creates a traceable network of data. This helps many industries, especially food and retail supply chains, to have a system they can track to keep products flowing.
Challenge of Scalability
One of the primary challenges of the modern blockchain is scalability. In some industries, such as cryptocurrency, users face limited scalability. The system’s network of verifications means it cannot handle increasing numbers of transactions and becomes sluggish. Most agree that the increased security and overall decentralization outweigh this lack of scalability.
Expand Your Accounting Knowledge With Park
If you are interested in embracing the power of blockchain technology while growing your own level of accounting knowledge, consider Park University. Park offers several accounting programs and finance degrees that can teach you all you need to know about the financial services industry, including cryptocurrency and blockchain tech.
Request information about Park today, and see how our degree programs can improve your knowledge of blockchain technology in accounting and finance fields.