Two words that I seem to keep across in recent weeks and months. Every day Bitcoin, the crypto-currency that keeps breaking records, appears on the news and mainstream media. Closely followed by the technology that allows it to thrive – Blockchain.
But what does it all mean and how can it impact the finance function and more specifically, CIMA?
I’ve only begun to scratch the surface myself but thought it would be worth writing a blog post to see what kind of discussion it would generate.
Bitcoin and Blockchain: A brief introduction
Blockchain has been around since 2009 when the technology was developed in order to facilitate the crypto currency Bitcoin. It was designed to provide an anonymous and secure digital way to transfer payments between two parties without needing a third party to verify the transaction.
A blockchain is a digital database for recording transactions, all parties involved in the transaction can see the database and each transaction is recorded as a block in the chain. All transactions are encrypted and it’s alleged to be tamper proof.
The technology has proved highly successful with large multi national corporations now looking at how they can use Blockchain to drive efficiency through the business, save costs and increase the bottom line.
Here is a simple example:
Say I want to send $1000 to a friend in the USA.
Traditionally I would go to my bank and submit a payment request to my friend, but in doing so I would incur charges by bank for the transaction as well having to wait two, three, four days plus for the money arrive.
Blockchain, in this instance, eliminates the “middle-man” i.e. the bank. I would send the $1000 using Blockchain technology to my friend in the USA who would receive the money instantly, no fees for me and both sides of the transaction.
Not only does Blockchain streamline the process it’s also more transparent and can be easily audited by any third party.
But how exactly does Blockchain work?
I came across this explanation in under 100 words by Richard Bradley from Deloitte.
Bitcoin: The crypto-currency
You’ve probably seen the crazy price charts of Bitcoin recently or heard about the dramatic rises the crypto currency has been making. I don’t want to go into much detail, so this video from weusecoins dot com sums it all up quite nicely.
Personally, I know very little about Bitcoin as an investment opportunity and how secure it is long-term but that’s not the point of this blog post. The idea was to raise awareness of the technology Blockchain and how modern businesses are using it or exploring the possibilities.
Blockchain and Accounting
There was a brilliant article in the October edition of the CIMA FM magazine – you can read it online here. It as an interview with the management at Airbus and how they are looking at Blockchain technology to improve their external transactions and interactions with other parties.
A 2016 report written by Deloitte starts with the introductory sentence:
“Blockchain technology has the potential to upend entire industries”
It’s a quite a statement but the possibilities and potential are endless, you can read the report entitled Blockchain: A game-changer in Accounting here.
Auditing & Compliance
Blockchain technology could make the audit process of a company much more efficient and less costly. The auditor wouldn’t need to spend hours and hours reconciling transactions, they could rely on the companies “blockchain” ledger and spend more time analysing risks to the business.
Meanwhile, the automation of processes within the finance function could be developed. The obvious one would be supplier payments being made directly to the supplier once the vendor invoice is booked, goods received and it reaches payment date the supplier would receive the funds instantly.
And the transactional data involved is highly secure and visible to all parties concerned. Furthermore, it will increase efficiency and save the associated costs and times involved with a third party banks.
But what does this mean for CIMA?
This leads me to my final question – what does blockchain technology mean for me while studying CIMA?
Of course I can only speculate at this stage but it wouldn’t surprise me to see the subject of Blockchain or Cypto-Currency to come up during one of the CIMA case studies in the coming months or years.
And if it doesn’t come up directly in the form of a scenario then there is definitely room for students to consider this real life trend and technology when considering risks in the case study.
- Are your competitors considering Blockchain technology to gain competitive advantage?
- What risks are associated with potentially implementing Blockchain and is it worth negating them?
- Project Management – how to run a project on implementing Blockchain?
- HR Issues – how do you educate your staff on the benefits of the technology without the fear of them losing their job?
These are the types of questions that pop into my mind at this stage.
Finally, it was pointed out to me on Twitter last week that the fact it’s now possible to buy/sell “futures” contracts on the cypto-currency Bitcoin as of today (Monday 11th December)!
Future contracts is a subject that comes up in the CIMA P3 exam so I would recommend keeping up-to-date with the latest news on the Bitcoin Futures that you will no doubt keep seeing in the news for the next few weeks.
Here is the latest news from the UK Guardian news website on the Bitcoin future contracts.