When it comes to blockchain technology, a majority of people understand it has something to do with Bitcoin (BTC) and that’s about it. While it’s true that the popular cryptocurrency relies on blockchain, BTC represents a relatively insignificant portion of the blockchain market share. The implications of blockchain adaptation are far-reaching, with the potential to not just disrupt, but foundationally change the way most industries operate.
While the technology can sound quite complex, a blockchain is essentially an immutable, distributed ledger. This means that instead of a single, third-party record holder, every authorized party within the blockchain holds an instantly updated record of all transactions. Blockchain maintains data integrity this way because it’s virtually impossible to alter the data of every single ledger. Any discrepancies found will be compared against every ledger and any fraudulent data found will be disregarded.
Because inputs on blockchain are fully connected from start to end, forensic analysis of everything from food supply chain to cash-flow is nearly instantaneous. Blockchain will affect the way nearly all business is done, but the applications for spreadsheet and ledger-intensive industries is becoming readily apparent.
Eliminating Tax Fraud
Any asset that can be digitized can be kept on a blockchain. While that’s easier to imagine in areas like contracts and copyrights, more complex items like traditionally paper-heavy property deeds are being added to blockchains as a more efficient and reliable way of tracking ownership.
Near-instantaneous tracking of assets on a blockchain will allow federal regulators to easily determine tax liabilities even for assets that change hands often and in rapid succession. Currently, it can be difficult to determine who owns an asseet or which tax haven it might be located in. With blockchain, once an asset is recorded to the ledger, a complete audit trail automatically tracks changes in ownership, location and even tax bills. With a concrete, immutable trail, it is nearly impossible for assets to be hidden for tax evasion or other reasons.
Although the accuracy of the system is nearly 100 percent, don’t expect this tech to immediately replace all regulators and audits. Blockchain startups are beginning to develop systems for tax compliance that will allow authorized regulators to access the data as a tool to improve their reporting.
Automated Tax Provision Analysis
It’s hard to imagine a tax executive not needing spreadsheets anymore, but that’s where we’re headed. Although it’s relatively low-level work, updating and maintaining spreadsheets has traditionally taken a lot of time from tax execs who could instead be focusing on higher-impact work.
Blockchain records every transaction automatically and correctly, effectively removing the need to spend time manually entering in data, which is both inefficient and error-prone. As assets are recorded, it becomes simple to determine tax liabilities with great certainty. In fact, you can expect blockchain to eventually automate the process entirely from determination to payment.
Although Bitcoin has taken over the headlines, another cryptocurrency platform called Ethereum provides the option to execute so-called “smart contracts” with their “ether” tokens. Smart contracts are neither smart nor contracts – they’re actually digital code written to allow transactions to execute. For example, if company A wishes to purchase property from company B, a smart contract would automatically transfer ownership of the property after it had determined that payment was received and all other parameters were met.
These smart contracts will eliminate the time and resource-intensive process of escrow and contract verification. With automated payments, cash-flow cycles will be reduced dramatically. The increased cash on hand will allow for more rapid spending and growth, rather than waiting for payment and contract disputes to work through arbitration.
It’s too early in the lifecycle of this foundational technology to fully understand just how it will change and disrupt the way we do business. It is clear, however, that companies who adapt to the change will see benefits in productivity, accuracy of reporting and more effective use of time.