The Kansas City Shuffle, Bitcoin and the End of the Accounting Industry
Aug 17, 2015
Bitcoin is the saviour. Bitcoin is a Ponzi scheme. Just like everything else on the Internet these days, debate has been polarised and constructive discussion is hard to find. The narrative appears to be that unless Bitcoin unseats traditional currency as we know it, it will have been a failure. Critics argue that Bitcoin is deflationary are so can never become a unit of account, Bitcoin proponents disagree. Critics also argue that Bitcoin is too volatile and lacks a viable stabilisation mechanism, Bitcoin proponents disagree.
I think I speak for the whole Frost & Sullivan organization when I say that Bitcoin is a Kansas City Shuffle by Satoshi Nakamoto. While everybody looks right arguing about Bitcoin as currency, over here on the left, blockchains are undermining the business models of whole industries. Real-estate, legal services, and accounting are the three industries that we believe will be disrupted by blockchains. Our full Market Insight on this will be published later this year.
You may have already heard of blockchains. You will definitely already know about their first application, Bitcoin. Bitcoin uses it’s own blockchain aptly named the Bitcoin Blockchain. Blockchains are distributed, cryptographically secure, open-source ledgers for digital transactions. Bitcoin is one asset that can be exchanged on a blockchain, but it should only be viewed as the first asset. Just as email was the first application on the Internet, Bitcoin is the first application on a blockchain. Blockchains will piggy-back on the Internet infrastructure and smartphone pervasiveness to achieve scale extremely rapidly, faster than many businesses will be able to react.
The Internet allowed all sorts of content to be packaged up and sent to anyone else as data without the need for a distributor. Blockchains are the economic infrastructure that allows all sorts of assets to be packaged up and sent to anyone else without the need for a central authority. The network, rather than a third-party, validates a transaction. Any company that provides validation and trust services in a network is at risk from disruption. Financial exchanges such as NASDAQ, real estate companies, e-commerce companies such as eBay and Amazon, and accounting.
Blockchains are a more efficient tool to meet the accounting needs of the majority of customers. Checking financial statements, payment and planning of tax, account reconciliation, and auditing are all tasks that have a relatively high degree of repeatability and can be recorded on a blockchain. On a blockchain, the transaction and the record of the transaction are the same, this allows all transactions to be audited in real-time by the network itself. Once transactions are recorded on a blockchain, they can be programmed to execute based on set parameters in a smart contract. This would lead to all sorts of accounting innovations and back-office efficiencies in areas such as payroll and financial reporting.
Accounting firms are already moving into higher value-add services such as consulting, and that process will likely speed up. Many global corporations will require bespoke accounting solutions for the foreseeable future, but distributed ledger accounting services will be good enough for many small businesses in the short and medium term. As per disruption theory, we expect blockchain-based accounting solutions to first serve the low-end, add functionality, and over time move upmarket eating up the market share of the Big 4 Accounting Firms. I will leave you with a surprisingly relevant exchange from the film Lucky Number Slevin;
Mr. Goodkat: A Kansas City Shuffle is when everybody looks right, you go left.
Nick: Never heard of it.
Mr. Goodkat: It's not something people hear about. Falls on deaf ears mostly. This particular one has been over twenty years in the making.
For more detail on how blockchains will impact your business, reach me at firstname.lastname@example.org.
Or for more #hottakes on blockchain and niche movie references, follow me on Twitter @lawrencelundy and on Medium @lawrencelundy.
Please add your bio info through your member profile page, or through your dashboard.