Why the Blockchain can transform how we run organisations and how we structure them

Although accounting is said to have been invented more than 7,000 years ago in Mesopotamia, we owe our ‘modern’ double-entry system of book-keeping to the 15th-century mathematician and Leonardo Da Vinci acolyte named Luca Pacioli, a Venetian now best remembered for his Summa de Arithmetica, Geometria, Proportioni et Proportionalità published in 1494, that includes the world’s very first treatise on book-keeping. We owe him most of the symbols still in use today, as well as the accounting cycle as we know it today. Pacioli is said to be “the Father of accounting”: he invented what would become balance sheets and income statements.

The invention did not only lead to the development of professional accountants. It was a long-lasting revolution that enabled trade, investment in other entities, taxation, the creation of the modern state, the development of public services…and a large number of activities and services we take for granted today.

In many ways, record-keeping has not changed significantly since then. Today, a whole class of certified and trusted professionals is still trained to keep records, enforce contracts, and validate transactions, more or less the same way as in 15th-century Venice. Because paperwork is expensive, corruptible and open to interpretation, this class of professional intermediaries is absolutely critical. There could be no trusted contracts and transactions without them.

And yet they could soon be replaced by technology. Many prophetise that blockchain technology will be the “most significant advancement in record-keeping” since the invention of accounting. As the “only incorruptible ledger” mankind has created, it has the potential to reshape how we structure and run organisations. A ledger that has no ownership, that is shared publicly, distributed among thousands of computers and continually reconciled, a blockchain does away with the need for middlemen to enforce compliance. Unlike traditional records that can be manipulated by unscrupulous bureaucrats, or forged by dishonest parties, with blockchain technology there is no central database for attackers to corrupt. (See Wikipedia: “a blockchain is a continuously growing list of records, called blocks, which are linked and secured using cryptography. Each block typically contains a hash pointer as a link to a previous block, a timestamp and transaction data. By design, a blockchain is inherently resistant to modification of the data.”)

No powerful intermediary is required to authenticate blockchain transactions. With the use of state-of-the-art cryptography, there can be global, distributed databases that can record the fact that a transaction has been made. It can also record any type of structured information, including anything related to authentication and trust. Thus the very raison-d’être of a number of professions — lawyers, solicitors, notaries, chartered accountants… — will be (at least partly) challenged. One can easily imagine the transformational power of such technology: it can make transnational transactions safer, facilitate contracting between various entities, and ultimately it could render the old theory of the firm somewhat obsolete (and firms themselves).