Since the earliest days of the double-entry ledger system, accountants and bookkeepers have been at the mercy of the tools they use to record transactions.
In the 1980s and 90s, personal computers and electronic spreadsheets created a quiet revolution in the business world as accounting technicians grappled for the first time with macros and formulas. Today transactions are more likely to be conducted online than anywhere else, and new software is once again set to change how businesses track cash flow.
Just a few years ago, the idea that the world’s most powerful tech companies and financial institutions would be squaring off over ledger software would have seemed ridiculous. But the financial world is changing. Blockchain has exploded into the imagination of the largest banks, and the World Economic Forum predicts that as much as 10% of global assets will be recorded using the technology by 2027.
Just a few years ago, the idea that the world’s most powerful tech companies and financial institutions would be squaring off over ledger software would have seemed ridiculous.
From bitcoin to big banks
When it was first created, blockchain technology was designed as a practical solution to the problem of recording and tracking bitcoin transactions securely. But while accountants and bookkeepers understand the importance of security, they also recognise that ledger software must give finance professionals the necessary functionality to do their jobs.
Until recently existing blockchain technologies have lacked some important features. Bitcoin’s blockchain, for instance, was designed to be public, anonymous and permanent — from start to finish. This means that the technology does not provide any way to reverse transactions or verify the identities of people trading on the network.
Rather than working with the limitation of bitcoin’s blockchain, firms in the technology and finance sectors have instead decided to develop their own alternatives. It’s important that businesses customise the technology to fit their needs, and this means removing anonymity from the equation. For instance, banks and accountancy firms are required to perform ‘know your customer’ due diligence, which simply wouldn’t be possible with public blockchain technology.
Only “permissioned”, or private, blockchains allow users to see who they’re transacting with and enable regulators or authorities manage access to the network. Of the many projects that have experimented with permissioned blockchains, Hyperledger and Ripple are the among most well funded and highly publicised. Now, these rival projects are competing to be the first bring blockchain to the mainstream.
Making waves in global payments
Backed by Google, Santander and Standard Chartered, Ripple is a peer-to-peer lending and payments network. Its ledger technology allows commercial payments and cross-border remittances to be executed instantly and with certainty of settlement. These types of international fund transfers must often weave their way through a number of banks before reaching their destinations, incurring fees and delays along the way.
Like bitcoin’s blockchain, Ripple uses its own digital currency, XRP, to transfer value over its network. The primary goal of the project is to establish the “internet of value”, a payments platform where value is exchanged in the same way as information: from person to person across global digital networks.
Ledgers for the future
Blockchain isn’t just bringing efficiencies to the world of payments and money transfers. It has the potential to record and verify virtually any kind of transactions. This is the premise of the Hyperledger project, which is looking to create a decentralised global payments network by establishing international standards for the use of blockchain technology.
The initiative was started in 2015 by the Linux Foundation, a global non-profit software lobby known for maintaining the operating system that much of the internet runs on. The project now has 129 member firms from across the technology, finance and manufacturing sectors including IBM, JP Morgan and Intel.
Much like how the ‘http’ protocol allows people all over the world to browse the internet, the Hyperledger project aims to create a blockchain protocol so that companies and individuals can more easily trade with each other without the involvement of banks. This would allow the technology to advance from niche uses, such as exchanging bitcoin, to being able to swiftly secure any kind of asset digitally. Using the Hyperledger protocol it may one day be possible to transfer property deeds, medical records and corporate stocks just as conveniently as you can access cat memes and email.
Initiatives like Ripple and Hyperledger are still very much in their testing phases. Just like the earliest electronic spreadsheets, it may take time before these applications become the norm. But as accounting software becomes increasingly automated and sophisticated, projects like these will determine the the tools tomorrow’s accountants have at their disposal.
Jesse Onslow Norton is a writer, editor and communications consultant at Flibl. A former coder, his editorial work focuses on fintech, digital transformation, policy and regulation. His clients include corporations, governments, startups and SMEs from across the world. Follow him on Twitter @JesseOnslow.