If you pay attention to cryptocurrency markets, you’ll notice that prices have gone up—way up. Since 2009, the value of Bitcoin has gone from below 10 cents to beyond $56,000 (as of this writing). The value quadrupled in 2020 and surged more than 63 per cent in 2021.
Though investing in cryptocurrencies is not for everyone–they are incredibly volatile, can’t be purchased through a brokerage account, and aren’t backed by a financial institution–they’re nonetheless moving steadily towards the mainstream. In February of this year, Tesla invested $1.5 billion in Bitcoin and announced it would accept it as payment. The same month, Mastercard announced it would support cryptocurrencies. And, there are now several crypto ETFs (Exchange Traded Funds) that make trading more accessible for the average investor.
Why Should Finance and Accounting Professionals Care About Cryptocurrencies?
Most companies are not going to start investing or transacting in cryptocurrency any time soon. Nevertheless, steady blockchain development has occurred underneath the jagged 12-year rise of cryptocurrency. We are right at the start of the next wave of blockchain development.
This will likely result in practical applications in a wide range of industries. Cross-border payments and trade finance are among the most promising in corporate finance, but there are potential others. Over the next three or four years, we may begin to see some of these applications reach critical mass. Now is the time for finance professionals to start educating themselves about the technology and use cases.
What is a Blockchain?
According to Investopedia, a blockchain is a database that stores information in records, otherwise known as blocks. In the simplest of terms, incoming data is entered into a new block and chained onto the previous block in chronological order.
So far, the most common use for blockchains is to act as a ledger for transactions such as Bitcoin. The people who maintain the ledgers earn bitcoin in exchange for their work.
Here’s how it works: If I send you a bitcoin, one person monitoring the ledger will state that they observed the transaction, and another will confirm it. Once everyone agrees on the transaction details, they get a portion of bitcoin at the end of the block.
The Bitcoin blockchain is decentralized so that all users collectively retain control, and it is immutable, which means that the data entered is permanently recorded and viewable to anyone. This is an essential difference from the centralized databases we are familiar with now, where an administrator manages and modifies the database, and why blockchains are sometimes referred to as a “trustless” system, because no one individual or group of individuals are trusted with control.
Bringing Cryptocurrencies to Business
Almost any data is storable on a blockchain as long as it has an independently verifiable, factual nature. I first encountered this concept in 2018 when I worked on a project for VINchain, a blockchain-based log for vehicle data. They incentivized car dealerships, repair shops, and buyers to add and verify facts about a vehicle in exchange for a VIN coin.
There are hundreds of projects like this out there now and more on the way. In accounting, verification of vendor data and invoices could eventually be put on to the blockchain. This structure could ensure that employees take the time to verify that PO numbers line up, for example. This could become a force multiplier because you’re going to have decentralized nodes doing all of the validation around payment in exchange for a coin. That frees up people in AP and finance to focus on higher-order problems such as getting the best terms and managing cash flow.
We probably won’t see applications like that out of this wave of development. What’s happening now is the development of bridges and parachains through platforms such as Polkadot and Cardano. This allows different blockchains such as Bitcoin, Litecoin, and Ethereum to share data across ecosystems. The next big breakthrough moment will come when several products can talk with each other.
The Future of Cryptocurrency
All of this investment and development is currently fueled by the desire to get rich through speculation in cryptocurrencies. But as they grow in popularity, blockchain technology improves, which fuels investment in new applications and use cases. This interest in blockchain applications brings businesses closer to offering blockchain as a solution for long-standing business problems.
Finance and accounting professionals would do well to look beyond the current crypto-mania and start studying up. Many experts believe that the blockchain will be disruptive the way the internet was disruptive—by changing the financial system as we know it.
Sam Proschansky is a sales development representative at Nvoicepay, a FLEETCOR company. He graduated with a Bachelor’s in early childhood education and a minor in German at the University of North Georgia. Prior to his work at Nvoicepay, Sam taught German as a foreign language and developed a German immersion program for elementary schools in Georgia, and translated VINchain’s ICO website.
