We all heard of bitcoin, a virtual currency that allows global transactions without banks or other trusted third parties. It was said that bitcoin will democracies money, but since mining (creating more bitcoins) became a business mainly in Asia, I doubt it. Starting with bitcoins and in particular mining needs a big investment today, so most of the people like you and me, we are already too late to compete with big mining-factories (server-parks).
But what is interesting is the system behind it – the so called blockchain – which verifies all transactions within the network (so that we don’t need trusted third parties anymore).
My father is a tax advisor and accountant. I consider him as a highly intelligent man and would never question his work. Not long ago, we were sitting together to compare investment opportunities for my economy class at university. Not that I didn’t understand it, but I like to spend time with him and he is brilliant with numbers.
The problem with depreciation
So when you want to invest in a new product, you often need to buy new machines and equipment. Since you will benefit from it over time, you can depreciate it over more years (also to save taxes). I am good with things I am not supposed to do, and I usually question everything. So why not changing the depreciation over the years according to the actual turnover? It seemed to me to be more faire – less use of the machine, less percentage of the total investment costs allocated to that year. This way, even more taxes could be saved and an investment would become more attractive.
My father is not only good with numbers, he is also a kind and fair person. Changing depreciation is wrong! That is also why accountants have to check the books of companies if all is correct and depreciated in a (the) correct way. There is just one correct way, but people cheat anyway, so other people like my father have to check it. That is waste of time/resources. Seriously. I am sorry that now the moment comes where I question the work of accountants.
What if all the data about depreciation would be saved in the blockchain?!
This would not only eliminate the cheating, reduce the work when checking the books, and provide a real time book value (total costs minus depreciated costs) at moment x, it would also introduce new opportunities – just think of the work it makes today when two companies fusion or start a joined venture…
The physical part of virtual data.
Before going more into details of accounting, I want to extend the idea a little further. By the way, I am not studying economics but strategic product design, so the idea might sound a bit strange in the beginning.
The big advantage of the blockchain is the trusted third party which is not anymore necessary to verify what happens in the chain. But this is also the problem. How to verify/control what gets into the chain? If we put the machine information in a blockchain, the CAMchain, we can control (virtual) ownership. You bought a machine, you get the coin. But how do we know that machine x is still there?
That is why we need a possibility to see it. Normally an accountant would ask to see the machine and go there. What we need is a physical representation of the virtual. There is another development which could bring this idea further, the Internet of Things (IoT).
When pairing our machine information, let’s call them CAMcoins, with sensors (eg. RFID), we would have a huge range of news interaction possibilities with those information. We could link sensor information and know where it is.
New opportunities of capital asset management in a blockchain.
Besides location tracking of a machine, new forms of depreciation and ownership would be possible. Imagine we could use the sensors of the machine to measure the frequency of use, and who uses it. This is an interesting aspect when thinking of a shared economy in the future. We could allocate and divide taxes and depreciation to the users of a specific machine or equipment.
Let’s stick for one more moment to the circular economy idea. Right now, the book value of a machine depends on the time passed, but less the use and the environment/maintenance. With the CAMchain, so the capital asset management system in the blockchain, it would be a possible scenario to increase the book value when maintaining it well (sensor measurements of environment, eg. humidity) and replacing parts of it. This would contribute to a better use of resources within the production cycle.
Integration into other systems and the power of the “if”.
These are just few of the ideas where it could go. Imagine integrating the CAMchain system in the Building Information Model (BIM). We would not only have data about the financial side but we could also time actions (if this, then that, if else…).
Besides guiding the building process, if clauses would allow to manage substitutes which depends on specific criteria. For example, let’s assume that shared equipment will be substituted to support smaller businesses. The sensors of the machine will measure the frequency of use and who uses it. This way, only if a certain percentage of share and use is reached the substitution will be given.
An idea that would today lead to massive accountant workload – checking, measuring, documenting, verifying,… In the CAMchain (blockchain) all will be self regulated and verified within the network.
You think this idea is strange and will not work? But then tell me why it can’t work. Maybe I have the wrong background to talk about Blockchains and accounting, but I keep thinking of it and I remember one quote of Mahatma Ghandi:
“First the ignore you. Then they laugh at you. Then they fight you. Then you win.”
With this words and all respect I want to thank my father for sharing so much time with me looking at numbers. But still, I think that accountancy by humans will not longer be necessary.