Over the last year or so, Bitcoin has seen a 1,000% increase in market value, refueling the debate on whether Bitcoin and Blockchain will take over the world. Proponents of the technology claim that Blockchain will disrupt traditional industries like accounting, law, and banking. Some ways this technology can aid these industries is:
- Blockchain can create smart contracts that ends the need for lawyers.
- Blockchain can automatically post transactions that are 100% verified and cannot be altered – ending the need for accountants and auditors.
- Making financial transactions using Bitcoin reduces the need for a middle man, thus significantly reducing transaction cost – and effectively killing banks’ profits in the process.
This article will discuss how Blockchain won’t eliminate these industries, but will instead help make them more efficient, more profitable, and more consumer friendly.
Blockchain Won’t Kill Bankers
Let’s play devil’s advocate for a second and walk through the steps on how Blockchain will make banking and other financial intermediaries irrelevant:
Scenario #1: You want to buy a home. The traditional way to buy a home is by using brokers, lawyers, bankers, and other intermediaries to finalize the transactions. You need to go through the entire process of applying for a mortgage and proving that you can afford the monthly payment. Not only this, but you need to pay a sizable down payment to avoid additional interest on the loan.
Many documents have to be signed and the closing cost can be… costly. But what if there was a better way? What if you could just go directly to the seller, transfer Bitcoin from my wallet to their wallet while transferring title automatically. No need for a bank, or a mortgage or any other intermediaries.
Makes sense, right…? Wrong! If you could buy a house using Bitcoin, then you could just as easily buy the house using cash. Even if a bank would give you a loan using Bitcoin, they would still need to go through their due diligence. A bank will need to ensure the seller has proper title and there are no existing liens on the property. They also need to make sure the buyer can afford the monthly payments so the property won’t go into foreclosure.
Using Blockchain to execute the closing process would reduce transaction cost among parties involved, but by no means will Blockchain end the need for bankers altogether.
Blockchain Won’t Kill Accountants
Scenario #2: Blockchain will allow business owners to automatically post to a ledger that cannot be modified or altered which will eliminate the need for bookkeepers, controllers, auditors, and even CPAs. Books and records would be updated in real-time and reflect the true financial position of a company. So the use of Blockchain will single-handedly end the need for accountants.
This has to be true…right? Wrong again! It may be true that blockchain and other technologies will significantly reduce the cost of bookkeeping and lower level accounting services but it will not eliminate the need for accountants altogether. Some of the biggest frauds and misrepresentations of financial statements have not been a failure to record transactions, but an error in classification instead.
Just because a company receives money from a customer doesn’t mean that money should be classified as income on a financial statement. If you receive money from a customer for services that haven’t been rendered, that should be shown as a liability and not income.
Blockchain might be good at verifying financial information, but it’s probably not the best at ensuring a financial statement is appropriately represented using Generally Accepted Accounting Principles or other reporting standards. A good portion of accounting is based on rules and laws, so you’ll always need an accountant to ensure those rules and laws are being followed.
Blockchain Won’t Kill Lawyers
Scenario #3: Say you want to get into a contract with a customer or a vendor. You want to make sure that you either get paid for your services or you receive the proper goods before making payment. Well, with smart contracts you can create self-executing contracts using Blockchain technology. They automatically receive payment when services are rendered, and automatically pay vendors when the goods are delivered to your warehouse.
No need for lawyers, right? Once again…wrong! Just because you created a self-executing contract doesn’t mean the contract will be recognized in a court of law. For example, if the contract was for illegal goods or services, then the contract is not enforceable.
What if the customer doesn’t have enough money in their Bitcoin wallet? How do you enforce the contract then? What if the goods you received don’t meet the specifications you desire. How do you ensure you get a refund?
It really boils down to how you view the profession as a whole. If you see lawyers as simply enforcement, then you fail to see the entire scope of the profession. Sure, smart contracts will make enforcing contracts easier, but who is going to write the contract in the first place? If the contract is executed but one or more parties is not satisfied, who will remedy this situation?
The introduction of Blockchain, Bitcoin, and Artificial Intelligence will surely ‘disrupt’ professional services. However, these disruptions will make these professions more efficient and greatly reduce transaction costs. Will they completely eliminate the need for these services? If anything they just might do the opposite.