Blockchain technology is said to have the potential to revolutionise the trust industry. What does this mean for your trust business? In this blog post, you will find concrete examples of how blockchain can fundamentally transform the trust industry.
Cryptocurrencies such as Bitcoin, Tether, Binance Coin or Dogecoin are probably the most well-known blockchain use case today. Cryptocurrencies may also have contributed to the fact that the blockchain still enjoys a controversial reputation today. However, the area of application of the blockchain is by no means limited to cryptocurrencies. For example, numerous case studies are known from the health sector, logistics and education.
Reading tip: In this blog post you will find an overview of blockchain and use cases in the health sector, logistics and education.
Fiduciaries are often sceptical about blockchain, but the trendy technology also opens up new opportunities and possibilities for fiduciary companies to rejuvenate their business model, optimise processes and meet the expectations of today’s and tomorrow’s clients. According to renowned US innovation researcher Jack Shaw, blockchain even has the potential to fundamentally revolutionise the advisory and fiduciary sector.
After 500 years of double-entry bookkeeping, the blockchain enables the next step
Among other things, the blockchain can permanently ensure more transparency in accounting. To illustrate the role of blockchain in the transformation of accounting, let’s first go back over 500 years, to the last great revolution in accounting: the transition from single-entry to double-entry bookkeeping. First described by the Italian mathematician and Franciscan monk Luca Pacioli towards the end of the 15th century, double-entry bookkeeping was not only intended to be easier to follow than single-entry bookkeeping, but also to meet the highest moral standards. Balance sheets should be as harmonious as possible, the figures under debit and credit should balance each other out. The Venetian merchants adopted Pacioli’s method of double-entry bookkeeping and it has become the standard in the Western world over the last five centuries. However, double-entry bookkeeping has not contributed to a completely transparent financial world. During the financial crisis in 2008, there were calls for more transparency in accounting. The blockchain can remedy this, as it enables triple-entry bookkeeping.
In triple-entry bookkeeping with the blockchain, one entry goes on the debit side, another on the credit side and a third in an unchangeable common logbook. This creates a common accounting system for all parties participating in the blockchain. Since the blockchain is fully automated and decentralised, entries cannot be subsequently adjusted or removed. This provides more transparency than double-entry bookkeeping. In practice, triple-entry bookkeeping with the blockchain could look like this: Company A makes an entry on the blockchain as a purchase and company B enters the sale. The transaction and the entries in the accounting of companies A and B only take place if all parties involved agree. The fiduciary companies of companies A and B monitor the transactions and the accounting. In case of conflicts in the transaction history on the blockchain, the fiduciary professionals proactively step in. Other stakeholders, such as the tax authorities, can access the transaction directly using the personal key and collect any tax or fee.
The blockchain allows more efficient data analysis than ever before
The triple-entry bookkeeping gives trustees an overview of the income, expenses and liquidity situation of the companies they support at any time. Based on the figures and information from the joint logbook, they can develop customized consulting services. More and more SME clients expect their fiduciary company to fill specific knowledge gaps. In order to meet this new customer expectation, fiduciaries are dependent on efficient data analysis. Here, too, the blockchain can contribute to a significant increase in efficiency. As described above, the data in a blockchain is tamper-proof and can be viewed by all parties with a signature key at any time and in real time. For fiduciary companies, this means that they can always access reliable data for reports and analyses of their clients. As a result, fiduciaries spend less time tracking down documents and figures and preparing reports.
Blockchain thus allows faster and more tamper-proof data analysis than ever before. This will be crucial for fiduciary companies in the coming years, as demand for customized reporting and analysis is steadily increasing, according to a study by Accounto and Treuhand Suisse. If fiduciary companies can provide reporting and analysis services in a cost-effective manner, it will give them a competitive advantage that is not essential. Keep in mind that there is no way around a more efficient way of working as long as inflation rates remain high worldwide, large parts of Europe are characterized by economic uncertainty and many SMEs have to reduce their expenses.
Want to find out how your trust company can benefit from blockchain? Get in touch with our technology experts specializing in the fiduciary industry.
Why fiduciary companies should embrace blockchain now
Blockchain is expected to transform the delivery of accounting services as well as auditing and tax services in the coming years. Triple-entry bookkeeping and a dramatic increase in the efficiency of data analysis are just two examples of potential uses for Blockchain in the fiduciary industry, but the implications of these use cases are far-reaching. As described at the outset, blockchain can play a central role in rejuvenating your business model, streamlining processes, and meeting new customer expectations. In order to be able to maintain or improve their market position in the medium term, executives of fiduciary companies already have to deal with technologies such as blockchain that seem disruptive at first glance.
In the next blog post in the blockchain series, we’ll highlight the competitive advantages blockchain can give your fiduciary company.