Answers on Blockchain

Posted 2021-03-28 BetterYolnda

Before blockchain's impact on the workingworld can be grasped, the technology itself must be understood. Here, threeThomson Reuters professionals provide an easy-to-understand guide.

Blockchain is going to reshape the waythings work.

If it fulfills its potential – and thesigns are it may – blockchain will dramatically alter everything fromestablished industries like law and accounting to many of the small, routinetransactions people perform every day.

“While this started out as a way to move money around, it turns outyou can put a lot of information, like contracts and property records, onblockchain,” said Dan Bennett, Vice President and Head of Enterprise DataServices. “It can’t do everything, but there are some problems it’s uniquely suitedto.”

But what exactly is blockchain?

Here, three Thomson Reuters professionalswho understand blockchain provide a layperson’s guide to understandingblockchain, how it works and why it matters.

What is blockchain?

The easiest way to think of blockchain isas a two-column balance book spread across a network. This is why it’s oftenreferred to as a “distributed ledger.”

“Imagine a cloud ledger, like Google sheets, but where each cell canonly be modified if you unlock it with a highly complex password,” explainedTechnology Services Manager Andrew McLennan-Murray.

At its heart, blockchain is a digitalplatform for recording and verifying transactions.  Each transaction is written to a “block” andthe list of blocks becomes a “chain,” hence the name “blockchain.” Once a blockis closed and added to the chain, it can never be modified again.

 

The record created by blockchain doesn’texist in one place. Rather, copies of it exist with each user. Sincetransactions are recorded chronologically and the member computers canperiodically and systematically verify the record of transactions, blockchaincreates an unchangeable record that can’t be falsified.

 

“Consensus is an important part of the nature of blockchain,”McLennan-Murray said. “All of the computers that are participating in aninstance of blockchain have to all agree that a certain record has a certainvalue. The consensus mechanism means it can’t be altered by a single user.”

What is blockchain’s relationship withBitcoin?

Blockchain and Bitcoin are linked inpeople’s minds because Bitcoin (a cryptocurrency, or unregulated digitalcurrency that is thought to have value without the backing or authority of agovernment) was the first widely adopted Blockchain application.

 

Blockchain and Bitcoin aren’t the samething, but they’re often thought of together because Bitcoin transactions arelogged on an open-platform distributed ledger that exists on a peer-to-peernetwork; in other words, blockchain.

 

Bitcoin can also be the reward for sharingthe workload of maintaining the blockchain. There needs to be an incentive formaintaining a computer that forms part of the network. With the Bitcoinnetwork, the possible generation of new coin (so-called “mining”) is theincentive.

Why is blockchain a big deal?

For a comparatively simple technology,blockchain has an outsized ability to create philosophical, sociological and economicchanges.

 

“What would happen if you didn’t have to have just one authority,like a government, for master records?” Bennett asked. “If we’re freed fromthat, what would be possible?”

 

If blockchain is widely adopted, its “trustwithout authority” characteristic, as McLennan-Murray put it, will mean peopledon’t have to trust many of the institutions and roles they’re asked to trusttoday (if they do in the first place, or if they even think about it.)

What industries will blockchain impact?

 

The short answer to the above question is“Most of them,” but here’s a look at three specific industries:

• Tax and Accounting

Tax and accounting may be the firstindustry to see the earliest significant changes as a result of blockchain.Since it automatically verifies transactions, blockchain will possibly mean theway we perform auditing today will become outmoded. If every transaction ispublicly inspectable then the need for audit is diminished. It’s important tonote, though, the advent of blockchain won’t necessarily mean auditing itselfwill become outmoded; just the way organizations perform it currently might.That’s an important distinction.

 

“For the near future, I think the answer to whether blockchain isgoing to largely replace decision processes, rather than supplement them, isprobably ‘no’,” said Hella Hoffman, a data scientist with Thomson Reuters Labs.“Blockchain technology can increase transaction transparency and automaterepetitive bookkeeping tasks, but it won’t replace the need for human guidanceto answer complex questions about the transactions themselves.”

• Legal

Blockchain will likely streamline andsimplify the more mundane aspects of legal work, meaning attorneys will be ableto concentrate on the kind of legal work that is more demanding and moreprofitable.

 

“You don’t need to contact a lawyer on every single contract yousign” Hoffmann said. “However, you do need a lawyer to help establish the basisof the contract in the first place. We’re not going to replace lawyers, butwe’re going to need lawyers to understand technology more. We’re going to needprofessionals to understand what goes into the contract and what level of, say,proof of authority is needed. If a lawyer can work with technology and say ‘Weneed this to go in the contract’ or ‘This is vulnerable to exploitation in thisway,’ that’s very valuable and necessary.”

• Finance

While blockchain may make some things infinance easier (banks can use it to conduct transactions between each otherquickly and cheaply, for example) it will first cause a period of great tumult.Smart financial contracts and tokenized investments, for example, both useblockchain as a launching pad and both are going to alter the way financialinstitutions do business. Finance’s era of disruption may not be as close asthe tax and accounting industry’s, but it promises to be very eventful.