Blockchains that transact with one another could replace central authorities such as banks, clearing-houses and lawyers, according to a new ICAEW’s report. Smart contracts that use blockchains could lead to widespread disruption of financial systems, according to the accountancy and finance body. With the ability to directly interact, the technology could save firms the cost and effort of doing business with a ledger owner, and increase transparency and security against financial crime.
David Lyford-Smith, Technical Manager, IT, said: “Blockchains mean organisations can work together without an intermediary, but no longer need to have institutional trust in one another. This is potentially a seismic shift in how we do business. It will have knock-on effects on everything from record keeping to supply chain management and accounting and audit. It could potentially remove middleman institutions, gain transactional certainty, reduce cost and bias and open up access to more participants.”
Blockchain is a foundational change in how financial records are kept and updated, akin to “universal entry bookkeeping”. Instead of having one single owner, blockchain records propagate identical copies to all their users. Any participant in the ledger can trace all previous transactions, allowing increased transparency and making the blockchain ‘self-auditing’ and transactions permanent.
Lyford-Smith, continued “At the moment, the trustworthiness of a ledger comes from the central controller. By distributing records among users, the trust is instead in the recordkeeping system itself, which means a greater degree of reliability.” There are potential applications beyond commerce. This is especially appealing in cases where transparency and accountability are key. For example, if aid spending were provided in a blockchain-based asset, the end receiver of the funding is easily identified. This would help deliver much greater confidence in the process.”
“Ultimately, blockchain is likely to be a foundational technology. It will take years – perhaps even decades – for it to be developed, standardised, and bedded in to the architecture of the internet and the financial system. It will need to be sped up, made more efficient, and have its operating costs reduced. However, it is highly likely that it will eventually come to represent a step change in how commerce works. “