Building Blocks in the Digital Data Chain

Building Blocks in the Digital Data Chain

Most people by now are aware of the existence and purpose of virtual currencies, or crypto-currencies, such as Bitcoin. Some, particularly in certain tech-heavy areas of London, are using Bitcoins on a daily basis to purchase items or make online payments, building an asset base or trading them. Amazon, Subway and certain coffee shops now accept Bitcoin as an alternative to sterling or dollars. However, despite the growing popularity, virtual currencies on the whole remain more or less irrelevant to the majority of SME businesses and individuals.

Blockchain was invented in the aftermath of the 2008 financial crisis

To financial technologists, and increasingly economists, bankers and politicians, it is not the crypto-currencies themselves that they are interested in, it is the technology that underpins them, Blockchain.

Blockchain was invented in the aftermath of the 2008 financial crisis by Satoshi Nakamoto (who has never been publicly identified) as a peer-to-peer, decentralised digital data transfer system based on a network of identical ledgers, linked and secured using cryptography. The Blockchain is a ledger which exists on thousands of computers and constantly updates itself on every server which holds a copy of the ledger. The breakthrough is that the system does not rely on a third party intermediary and exists as a highly secure, pure peer-to-peer network, owned and controlled by its participants. This is bad news for banks that rely on charging transaction fees for facilitating financial transactions.

Unlike a traditional bank which owns (and by extension controls and can manipulate) a ledger of financial transactions, the Blockchain is not owned or controlled by any one entity. Its security is ensured by the fact that if a single participant wants to update the ledger, all copies of the ledger must be updated simultaneously. No singular entity could manipulate the system unless they owned more than 51% of the ledgers, which is virtually impossible. This ensures independent verification of all transactions across the distributed ledger without the need, control or cost of a third party intermediary, as with traditional bank transfers.

No singular entity could manipulate the system unless they owned more than 51% of the ledgers

The extent of the potential power of Blockchain technology has now extended to leading economists and commentators looking at it as a viable alternative to traditional banking platforms, as well as many other uses which depend on secure data transfer. Russia are said to be developing a virtual central bank using Blockchain technology in order to trade financial securities with China free from the constraints, regulations and costs of western financial markets.

Aside from Bitcoin, whose long term survival has recently been called into question, outside of Silicon Valley and western tech circles, Blockchain technology is still relatively untapped, in much the same way the internet was before web browsers were invented, but experts are increasingly looking to the decentralised, secure distributed ledger model as the future of international financial markets, among other things, particularly in the international monetary transfer markets.

Blockchain technology is still relatively untapped

Closer to home, as an accountancy and tax advisory firm, we are aware that traditional accountancy and book-keeping services are becoming less and less relevant, with the cloud accounting revolution, the impending Making Tax Digital scheme and complementary technologies such as smartphone payment systems, having, and continuing to, rid the financial and SME sectors of paper transactions, in much the same way contactless payment has reduced the wider use of cash in society.

As a firm, having been initially engaged from a taxation and corporate advisory perspective, we are now actively involved with a handful of British tech companies who are leading the charge in developing pioneering Blockchain based systems and products and looking at ways to apply these to a local and international marketplace.

With Blockchain based technologies on the ascendancy on a global scale, together with existing FinTech products, we are looking ahead with excitement to being involved in the development of full B2B and B2C end-to-end paperless digital systems for the SME market.

Watch this space!

Jason Steedman
Latest posts by Jason Steedman (see all)

Jason has over two decades of experience in accountancy, finance and technology gained in London, Edinburgh and Manchester with Deutsche Bank, Baillie Gifford, Edinburgh Partners and, most recently, BNY Mellon where he was Fund Accounting Vice President.

Jason has a BSc in Mathematics from Heriot Watt University, Investment Management Certificate (IMC), Investment Administration Qualification (IAQ), PRINCE 2 Practitioner status and is a member of the Association of Chartered Certified Accountants (ACCA).

Jason works with clients across many sectors and specialises in helping start-up companies launch and grow, implement systems and access funding and tax reliefs.