Blockchain is a hot topic in the accounting profession. CPAs are tantalized by its potential to provide data security, streamlining of processes, and other benefits. However, questions continue to swirl about blockchain’s advantages, misconceptions, and compatibility with modern cryptocurrencies. To address these concerns, CPA Conversations turns to Dr. Sean Stein Smith, CPA, DBA, assistant professor in the department of business and economics at Lehman College, a senior college of the City University of New York in Bronx, N.Y.
By: Bill Hayes, Pennsylvania CPA Journal Managing Editor
Blockchain is a topic with growing intrigue in the accounting profession. CPA firms are particularly piqued by the benefits it can offer clients, and the competitive advantages its implementation can provide over other firms. However, before entering into such an implementation, it's vital to know the misconceptions about the technology and the traits your firm must possess when venturing into this new world. To get some answers about blockchain, and what it means to CPA firms, today we will be talking to Dr. Sean Stein Smith, assistant professor in the department of business and economics for Lehman College, a senior college of the City University of New York in Bronx, New York.
What do you think it is about blockchain and the possibilities it offers that CPAs and professionals are finding so intriguing?
[Stein Smith] One, it's totally different from the current accounting and finance model out there. All of that ties back to the core actual concepts of it because blockchain, at the core of the idea, is a decentralized way for individuals and institutions to store, share, and, to then, transmit information, and to do so in a way that, up until now at least, has been unhackable. It's a totally different model of doing business and sharing data.
Two, building on that, as this whole concept and conversation grows and develops, and as firms ranging from IBM, Microsoft, Goldman Sachs, and all of the Big Four are diving into this area, the applications for anybody working in accounting or in finance are honestly growing every day. It's a fascinating area.
In terms of competitive advantage, what benefits does blockchain bring to the firm that has implemented it over the firm that has not?
[Stein Smith] I would say that the two core benefits are, one, even being involved in the whole blockchain space, at a pilot basis, or at a sort of early stages, is a great way to attract and keep top down. Because obviously blockchain is a buzzword, but I do believe that the implications of it are going to be here now and in the future, and that the talent at all levels, from the partner all the way down, are interested in this area, and also want to be at firms that are also interested in this space.
Two, I know that our conversation is on the accounting side, as far as how blockchain is impacting and driving change, but it's important to also know that, even though our conversation is on accounting, the whole field of how blockchain is being used is actually much, much broader. It really has implications and applications for firms that are our current clients and that, hopefully, are going to be new and future clients too. It really is an important area to be involved in.
We talk about the benefits that blockchain is going to offer clients but, before entering an implementation, do you have to talk to your clients and fill them in on the direction you're heading? If so, why do you think that's so important?
[Stein Smith] I always recommend that before doing anything big at the firm level, whether it's an ERP change, or entering into the blockchain space, it is critically important to have those conversations with your clients. Because, if you don't, you are going to catch them unaware.
Also, your firm might have clients that are more interested in this space, and then other clients that are not as interested. It's important to, one, always be open and proactive with these changes. Also, two, to be able to go through and to identify which of your clients are actually going to make the best partners as you embark into blockchain.
We tend to talk about it in terms of benefits, but it's also good to have a balanced look at things. Are there organizations that simply wouldn't be a good fit for blockchain? What traits or skills does an organization have to possess if they're going to implement blockchain successfully?
[Stein Smith] I'd say that across industry lines there are applications and possibilities for firms that want to use blockchain, but it's important to also note that, even though blockchain has a lot of upside, it's not a magic solution or a perfect option for every firm and in every instance.
But if I had to boil it down to the top two traits, I'd say, one, you would have to have talents either inside the firm or with a third party firm to actually help you go into your processes and to assess and understand if blockchain is better than your current options.
Then, two, I'd say arguably more important on top of that talent issue is to have individuals from the top tiers of the firm, from the partners all the way down to your newest hires, who are interested in almost having a proactive headset because, even if blockchain isn't a perfect fit for you and your clients now, we are only in the first inning of this game.
As the whole ecosystem develops, grows, and then becomes more mainstream, it is going to be important to have those types of people at your firm who are proactive, who are out there looking for new ways to add value, and blockchain is certainly one of them.
What would you say are one or two of the biggest misconceptions that firms and organizations have about blockchain? Whether it be how it works, its origins, its benefits?
[Stein Smith] I would say that probably the top two misunderstandings, or just bad information, that I would come across out there is that a large number of people in our field, as CPAs or in finance more so, have this idea that blockchain is a corporate finance, or a corporate accounting, system. It absolutely is not. It could be used in accounting and in finance, and is being used in our space, but it is not an accounting system by any means.
Then, the conversation around bitcoin and other cryptocurrencies tends to get meshed in with the blockchain area, too. It really is important for firms, and for CPAs, to understand that the whole cryptocurrency area is off to one side, and the blockchain conversation is a much more in-depth, and, I think, broader conversation. Because in order to have a bitcoin or a cryptocurrency, all of those have to run on a blockchain.
But a firm can use a blockchain and not have to use bitcoin or some other alternative currency out there. I think separating those two topics is a good thing but is not happening as often as I would like to see.
Are there particular aspects of a firm or an organization that can benefit more from blockchain, and, on the other hand, are there other aspects for which blockchain can complicate matters?
[Stein Smith] I would say that the core areas that a blockchain platform could help is any areas that have to do with a lot of paperwork, that has to do with multiple parties having to share data and verify data, and to work off of one common set of information.
I know a big area right now is anything to do with land registry, any title searches, anything to do with contracts or mortgages because there's all of this information out there and it's being shared by a high number of institutions and individuals that all have to work off of one common data set. Anything that would fall into that bucket is ripe with opportunity.
As far as where it could complicate things, and it's almost the other side of that same coin, is because blockchain is a permanent record, and all of the members of that blockchain network can actually see information that's uploaded, and the actual access levels are going to vary depending on the individual firm and the individual blockchain, but any information such as healthcare data or anything else like that, that personal and sensitive data out there is an area where I think blockchain could help, but firms and their clients would have to be careful to be still in compliance with HIPAA or other kinds of oversights.
One of the tips that you give about blockchain and the way firms can benefit their clients is helping them to link cryptocurrencies and blockchain. What exactly is meant by this, how much does it help, and how prominent are cryptocurrencies becoming at this point?
[Stein Smith] I would say that, and I would push that tip forward because I would say that, in the vast majority of cases, the exposure to this whole blockchain ecosystem and environment actually starts with an exposure to bitcoin or other types of alternative currency options, both at the firm level and also in the questions that we're getting from our clients.
Understanding using that tunnel as an introduction to the blockchain space is a method that is, one, easier to actually have that conversation, and, two, also serves as an opportunity to, I think, pull apart those two topics.
But as far as how prominent they are becoming, there are thousands of them out there, and I know they're having some updates relatively recently on the SEC side in terms of approving certain new tools and options that are coming into the marketplace.
I would say that, on one hand, the actual price action has, I think, driven a lot of headlines out of that space. Back at the end of 2017, bitcoin was trading at $20,000 per coin. Then, after the bulk of 2018, it's been trading between $550 and about $8,000 per coin. So, on that side, they are almost less prominent.
But, in terms of the work and the investment going on on the back end to help build out new products and service offerings, based off of that cryptocurrency idea, I would say that there is actually quite a bit going on right now.
We've tried to zero down into some of the aspects of blockchain here, and hopefully this last question can give people a larger, wider view of the situation, but what, at this point, would you say is the general feel about blockchain, the effect it could have on the accounting industry, and the speed at which it's progressing? What sort of impact on the industry are we looking at, and how prepared should firms be for it?
[Stein Smith] I would say, based on the work and the evidence that I've seen, that the potential impact on the whole field, at firms large and small, is going to be quite large.
As far as the pace of that change, I would say that for the most part, most of the work, as far as actually putting blockchain into place, has been focused at the Big Four or the top hundred firms.
Over time, as the cost and the customer interface on the blockchain side gets better and improves, I would fully forecast to see it hitting the mainstream in anywhere between the next five to eight years, if not sooner.
Because, as we both know, it is the hottest topic, I think, that I've seen in the accounting space, ever. Everyone's talking about it, and we're talking about it because it's a dual sense of anxiety and opportunity.
It's just interesting that you say eight years because it's so true what you're saying: It's a prominent topic that's on everyone's minds, and yet a lot of people seem to think that it's something that can be pushed down the road.
[Stein Smith] I don't think so. And really the actual driving force that might push us forward is that, even if we aren't doing it at our firms or on an individual basis, our competition is and our clients are. If you want to keep up with the needs and the expectations of the marketplace, we are going to have to, at the very least, be aware of blockchain trends and be able to offer advice and guidance.