The Concept of Blockchain Technology

This article explores the concept of blockchain technology and its impacts in the financial sector. It discusses the five basic principles of blockchain technology and its relevance in accounting. It also highlights the potential benefits and challenges of blockchain technology.

Running head: ICT100 1
The Concept of Blockchain Technology
Student
Tutor
Institutional Affiliations
Date

ICT100 2
Introduction
Almost everything is about technology in the 21st century. Due to the ever increasing
need for modernization in our daily lives, there is always a need for new technologies. Cutting
edge innovations have been noticed across all sectors ever since the inception of the information
era. Technologies like Internet of things IoT and augmented reality have gained pace in the past
decades and today, we have another new addition to the pack. Blockchain is a newly trending
technology that allow the current generation to generate, store and manipulate blocks of
information that are linked cryptographically through a system of peer to peer computer
networks.
Research on this subject is very essential due to the great potential this technology have
in changing the financial sector in future which will offer an alternative for the current methods
of transaction where a third party have a critical role to play. Moreover, the technology could be
particularly significant because the current methods are affected by crisis (Zheng, Xie, Dai, Chen
& Wang, 2017, pp. 557-564). Following the immense potential benefits of the technology, we
are motivated to venture into this critical aspect. In this rationale, this particular article seek to
research the blockchain technology and its impacts in the financial sector.
Blockchain technology concept
The mastermind of this technology is Shatoshi Nakamoto. The blockchain technology has
experienced a growing interest since its innovation. Studies have it that blockchain is another
technology that can be as important as innovation of the internet technology. According to Kim
& Laskowski (2018, pp.18-27), blockchain is defined as a decentralized digital ledger and data
management technology. Blockchain technology is the technology behind bitcoin

ICT100 3
cryptocurrency. The bitcoin technology is the first form of decentralized system for virtual
currency that enable online money trading without involving any intermediary like bank. The
transactions are registered in a publicly available digital ledger to ensure authenticity and
security. Blockchain is the technology that keeps all these process functioning without the need
of any third party. According to Tapscott & Tapscott (2017, pp.2-5), the technology works under
five basic principles.
Five basic principles of blockchain technology
1. Distributed (decentralized) database
The major characteristics of blockchain that makes it different from other traditional
technologies is that it is decentralized (Tapscott & Tapscott, 2017, pp.2-5). This decentralization
usually occur in public domains. The significance of this feature can be seen by looking at the
opposite scenario where data is kept in one location. With the blockchain technology, each party
can access the entire database as well as its complete past transactions without any limitation.
Nobody controls the information or data. Blockchain allow each user to verify their transaction
records without a middle man. This eliminates the risks that are associated with the data which
are kept centrally.
2. Peer to peer transmission
The transactions in blockchain are peer to peer involving at least two parties. In the peer
to peer transaction, the people involved can verify if a transaction is correct without any single
intermediary. For instance, a user can send an invoice to another person through blockchain who
can verify and accept the invoice. The transaction intrinsically connect the two parties and not

ICT100 4
any of the parties can make any change to the transaction details without mutual agreement,
which is a significant potential in accounting.
3. Transparency with pseudonymity
In the blockchain transaction, the transaction details of both parties are concealed. They
can as well be opened for the parties to the transaction. Each participant or node in the
blockchain is provided with unique address consisting of thirty or more character alphanumeric
alphabets that identify it. This way, the technology ensure transparency as well as pseudonymity.
4. Irreversibility of records
After the blockchain transaction records are inserted into a database, and the accounts
updated, no any record can be altered. This is due to the reason that the records are linked to the
initial transactions records thus the term “chain.” Computational algorithms and methods are
applied to make the records in the blockchain permanent, arrange them in a chronological order
and anyone in the network can access the records.
5. Computational logic
In the last principle, blockchain has computational logic for each transaction in it. The
ledger’s digital nature means that the transactions in blockchain can get tied to computational
logics (Pilkington, 2016, pp.21-43). This way, it allows its users to set up algorithms as well as
rules that triggers any transaction automatically between two parties.
Blockchain’s relevance in accounting
This technology has a potential to cause significant ramifications in the finance industry.
The technology has triggered curiosity among various sectors and industries especially in the

ICT100 5
finance sector. As far as accounting is concerned, the use of blockchain promises clarity over the
ownership of assets as well as financial obligations (Brandon, 2016, pp.33-40). This would
considerably enhance efficiency in the sector.
The financial accounting in the current era is majorly based on double entry systems.
This system solved the issue regarding the managers worrying whether they could trust their own
books or not (Coyne & McMickle, 2017, pp.101-111; Appelbaum & Smith, 2018, pp.28-37).
However, to gain more trust on the outsiders, independent auditors can be invited to verify an
organization’s financial data. But this would be costly. The blockchain technology have a
potential to further improve the accounting sector by enabling maintenance and reconciling
ledgers at a reduced cost alongside the provision of the certainty over ownership of an asset.
According to Dai & Vasarhelyi (2017, pp.5-21), the use of blockchain rather than
keeping separate records through transactions receipts enable organizations to record their
transactions urgently in a joint register which consequently allow the organization to create a
long term interlocking accounting system. Since all entries are distributed and get sealed
cryptographically with blockchain, there are no chances of manipulating or damaging them to
conceal activities. Through this, auditors can verify a huge amount of data at a considerably short
period of time (CGMA, 2018, pp.117-137). Thus, time and cost for conducting an audit would be
greatly reduced.
The blockchain technology promise a considerable ramifications in the accounting
industry whether small or big. One of the considerable significance of the technology in the
accounting industry is the ability of the technology to make close to no errors. Additionally, the
technology provides a fast and powerful database which can conversably increase the transaction
efficiency as it reduces errors and consequently leading to a reduced cost of operation. Another

ICT100 6
noteworthy potential of the blockchain technology involve reducing frauds. With the immutable
nature of the blockchain technology, it can be very difficult to penetrate the system thus reducing
fraudulent activities. Besides the immense ramifications of the technology, blockchain, like
every other thing is also associated with quite some issues.
Issues involved in blockchain technology
The identified problems associated with the blockchain technology are related to the
complexity of the technology. Because of its complexity, the end users of the technology may
find it difficult to appreciate its benefits (Puthal, Malik, Mohanty, Kougianos & Das, 2018, pp.6-
14). In addition to that, the technology may be slow and cumbersome. This is attributed to the
fact that its complexity which is mainly due to its encrypted and distributed nature may take too
much time to process transactions, thus making it to be slow.
Conclusion
In summary, we have examined the blockchain technology. We have also looked at how
the blockchain technology can be helpful in the accounting sector as well as the problems
associated with the technology. It is worth pointing out that the blockchain technology can
greatly change the financial industry due to its efficient, cost effective and transparency.

ICT100 7
References
Appelbaum, D. and Smith, S.S., 2018. Blockchain basics and hands-on guidance: taking the next
step toward implementation and adoption. The CPA Journal, 88(6), pp.28-37.
Brandon, D., 2016. The blockchain: The future of business information systems. International
Journal of the Academic Business World, 10(2), pp.33-40.
CGMA, C., 2018. Blockchain augmented audit–benefits and challenges for accounting
professionals. The Journal of Theoretical Accounting Research, 14(1), pp.117-137.
Coyne, J.G. and McMickle, P.L., 2017. Can blockchains serve an accounting purpose?. Journal
of Emerging Technologies in Accounting, 14(2), pp.101-111.
Dai, J. and Vasarhelyi, M.A., 2017. Toward blockchain-based accounting and assurance. Journal
of Information Systems, 31(3), pp.5-21.
Kim, H.M. and Laskowski, M., 2018. Toward an ontology‐driven blockchain design for supply‐
chain provenance. Intelligent Systems in Accounting, Finance and Management, 25(1), pp.18-27.
Pilkington, M., 2016. Blockchain technology: principles and applications. research handbook on
digital transformations, edited by f. xavier olleros and majlinda zhegu. Available at SSRN
2662660, pp.21-43.

ICT100 8
Puthal, D., Malik, N., Mohanty, S.P., Kougianos, E. and Das, G., 2018. Everything you wanted
to know about the blockchain: Its promise, components, processes, and problems. IEEE
Consumer Electronics Magazine, 7(4), pp.6-14.
Tapscott, A. and Tapscott, D., 2017. How blockchain is changing finance. Harvard Business
Review, 1(9), pp.2-5.
Zheng, Z., Xie, S., Dai, H., Chen, X. and Wang, H., 2017, June. An overview of blockchain
technology: Architecture, consensus, and future trends. In 2017 IEEE International Congress on
Big Data (BigData Congress) (pp. 557-564). IEEE.