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BUSINESS MATTERS

JIM DENTON
L EDGER LINES

Blockchain: A Foundational Change for Business


T
here has been discussion in the business that blockchain transactions can be tied to explore technology that can enable them.
world in the last few years about disruptive computational logic and in essence programmed. Consider how law firms will have to change
and foundational technologies. One in So users can set up algorithms and rules that to make smart contracts viable. They’ll need to
particular is called blockchain. Imagine a big ledger automatically trigger transactions between nodes. develop new expertise in software and blockchain
where that which is written cannot be modified or programming. They’ll probably also have to
erased. Seems scary at first but after I think about Simplified, a blockchain is a digital platform rethink their hourly payment model and entertain
this, I believe the technology folks may be on to that stores records of value transactions through a the idea of charging transaction or hosting fees for
something. distributed, peer-to-peer network. The records on a contracts. Whatever they do, executives must be
blockchain are immutable, which means the ledger sure they understand and have tested the business
How Blockchain Works is verifiable and auditable. The bitcoin currency is model implications before making any switch.
According to Marco Iansiti and Karim R. the most cited example of a blockchain in action, In addition to providing a good template for
Lakhani of Harvard Business Review there are five but the future could bring smart, programmable blockchain’s adoption, the internet has most likely
basic principles underlying the technology. contracts, revolutionize how music is shared, and smoothed the way for it. Blockchain applications
1. Distributed Database eliminate the need for third parties in peer-to-peer are being built on top of the current digital data,
Each party on a blockchain has access to the transfers of value. communication and computation infrastructure,
entire database and its complete history. No single Harvard Business Review talks of blockchain which lowers the cost of experimentation and
party controls the data or the information. Every being a foundational technology: Such technology will allow new applications to emerge even more
party can verify the records of its transaction has the potential to create new foundations for our rapidly.
partners directly, without an intermediary. economic and social systems. Business executives will be challenged to figure
2. Peer-to-Peer Transmission Those “in the know” have cited examples out where to start building their organizational
Communication occurs directly between peers of how banks, regulators and governments are capabilities for blockchain. They need to ensure
instead of through a central node. Each node now experimenting with tools, based upon that their teams learn about blockchain, to develop
stores and forwards information to all other nodes. blockchains, to fundamentally change banking company-specific applications and to invest in
3. Transparency with Pseudonymity and the corporate tax landscape. Early adopters blockchain infrastructure.
Every transaction and its associated value are looking at entities recording transactions to But given the time horizons, barriers to
are visible to anyone with access to the system. their financial statements immediately through adoption and sheer complexity involved in getting
Each node, or user, on a blockchain has a transparent blockchains. Regulators and tax to acceptable technology, executives should think
unique 30-plus-character alphanumeric address collection agencies will then have open access to carefully about the risks involved in experimenting
that identifies it. Users can choose to remain a company’s financial transactions, and be able to with blockchain. Clearly, starting small is a good
anonymous or provide proof of their identity to deduct tax automatically in real time. The prospect way to develop the know-how to start to think
others. Transactions occur between blockchain of regulators and shareholders gaining direct bigger. But the level of investment should depend
addresses. access into an organization’s financial blockchain on the context of the company and the industry.
4. Irreversibility of Records ledgers also has obvious implications for corporate No matter what the context, there’s a strong
Once a transaction is entered in the database reporting. possibility that blockchain will affect your business.
and the accounts are updated, the records Why are regulators looking so closely at The very big question is when.
cannot be altered, because they’re linked to blockchain? Given the fact when cryptocurrencies
every transaction record that came before them can be used to trade contraband or illegal goods, JIM DENTON is the managing partner of Arledge
(hence the term “chain”). Various computational when fraud, money laundering and tax evasion & Associates, PC where he is responsible for providing
algorithms and approaches are deployed to ensure could be occurring, regulators have their well- leadership to the CPA and Wealth Management firm,
that the recording on the database is permanent, founded suspicions. Summit Capital Advisors, LLC. Mr. Denton empowers
chronologically ordered, and available to all others Nevertheless, blockchain could slash the cost his clients, so they may live their best life. He may be
on the network. of transactions and transform the way we do reached via email at jim@jmacpas.com.
5. Computational Logic business. As for any transformative applications, it
The digital nature of the ledger means makes sense to evaluate their possibilities now and

26 July 2019 | The Business Times