Accounting Automation and the Impending Crypto Tornado

As long as humans have been keeping records, there’s been a need to automate. Technology was used to automate record-keeping long before technology = computers. New methods of record keeping, such as double-entry accounting, were devised over hundreds of years to improve efficiency and accuracy in financial record keeping.

Eventually computers enabled programmatic advances in accounting, starting with simple, specific purpose programs. These systems could perform individual, specifically-designed tasks, but still required a separate ledger to bring everything together. In the early-mid 1980’s, general purpose accounting systems started to achieve traction in the market, allowing businesses to have a single piece of software as their master accounting record.

A lot has changed since the 1980s, but general purpose accounting software has not changed that much. Sure there have been significant advancements like cloud computing that allow for the easy exchange of information and multiple geographically dispersed users to work in the same system, at the same time. But the idea of an “industry-agnostic” system that can be customized to enable accountants to take any type of unstructured financial data and make sense of it, remains largely the same.

The Challenge

Every month, millions of accountants around the world tear out their hair trying to close the books on time with the hopes that they can close quickly and have a couple weeks before they do it all over again. Maybe that’s a bit too dramatic, but the reality is that we’re talking about improving a process that runs every month, with sub-processes running weekly and even daily within the month. And the result are financial reports, salary payments, tax calculations, etc. that have to be 100% correct, every time.

To actually automate accounting and financial reporting in a meaningful way, is incredibly difficult to do. There are entire large industries, with multiple $1B+ companies working to automate vendor payments, customer billing, and other components of the accounting and reporting process. These have done wonders to improve accuracy, efficiency, and even increase revenue for companies.

That said, the general purpose accounting system is still the keystone holding the whole process together. No matter how much automation there is in each component of the accounting process, there’s still somebody hemming and hawing over the numbers at the end to get everything in the right spot. Maybe you can get 90% of the way there with a mix of the current products out there and a lot of careful planning, which would be really great, but that last 10% is the tricky part. A company’s financials have to be accurate every time, no matter what.

Enter Crypto

All of these challenges exist already, when we’re only talking about US Dollars, British Pounds, Japanese Yen, etc. Money has unique characteristics that simplify accounting, even with multiple currencies involved. If you’re holding Yen for instance, and it depreciates against the dollar, you’ll need to review the exchange rate as of your reporting date and potentially record a loss.

With crypto assets however, more information is required. If instead of Yen you’re holding Bitcoin, you’ll need to know the quantity and price for each Bitcoin purchase. This may be okay if you’re an individual buying and selling a few times a year, but for companies that have hundreds of thousands or even millions of Bitcoin transactions per month, spreadsheets and manual calculations are just not going to cut it.

What happens when new use cases for blockchain-based assets emerge? There are plenty of projects working to disrupt massive global industries. Tracking items through supply chains, machine to machine payments, even tokenized movies all have significant potential to automate previously manual processes. This would eliminate a lot of jobs currently done by humans, which means less people checking a much larger set of data.

It isn’t magic how source data turns into financial statements. It’s a detailed, judgmental process performed by trained accountants with certifications and advanced degrees. Blockchains will accelerate accounting automation, meaning less accountants and more transactions.

The Solution

There needs to be new software to fill the void. And a lot of it. If even a single blockchain use case takes off in a meaningful way, that could support multiple large software as a service providers specifically dedicated to that vertical. Just Google “blockchains for supply chains” for instance. There are large, established companies working on projects that could fundamentally change their technology setup.

As things continue to evolve with use cases for distributed systems, it only stands to reason that industries are going to change and new ones will emerge. Cloud computing changed industries and put many established companies out of business. Now there’s a way to do what cloud computing did, but for things that have value and need a certain level of assurance between disparate parties. This is bound to result in some big changes to the way accounting and reporting is done today.