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Public vs. Private Blockchains: What CPAs should know

GettyImages-917325314The word “blockchain” has been tossed around as if all blockchains are the same. Real-time access to information, increased transparency and encryption are standard benefits of any blockchain. However, there are two different types of blockchains: public and private, both of which are important for CPAs to understand so you can decide which option is better for your organization or firm.

Public blockchains

The idea of a public blockchain is what most people think is, and what technology purists would consider, the “real blockchain.” Completely decentralized and open to any individual or institution to join (known as members in blockchain parlance), the most well-known example of a public blockchain is the one that runs Bitcoin.

While a purely public option does include many of the benefits associated with blockchain technology, these same attributes can make implementing a blockchain less than ideal for business purposes. By allowing anyone and everyone to join a public blockchain, the approval and consensus process can take too long for it to be it useful for the volume of daily transactions. And depending on how data is approved, the electrical cost can be too expensive for practical use, considering the sheer volume of information processed by most organizations.


Private blockchains

A private blockchain network is usually established by an organizing entity, which can be a CPA firm or any other company that lays the technical foundation and groundwork for data verification and approval. The organizing firm also selects which members have access to certain types of information.

Because members of a private blockchain are usually known to one another, the time and energy necessary to confirm and verify information and transactions are lower than a public blockchain option.

Bonus blockchain benefits

Finally, since the organizing firm lays the ground rules for what members have access to, it’s possible for auditors, regulators and other stakeholders to also have access to some blockchain information without compromising the integrity of organizational information.

Cost savings, transparency and efficiency effects are some of the reasons why private blockchains make more sense for business implementation. This is why most organizations that have adopted blockchain technology, have done so using a private blockchain. In fact, some of the largest organizations in the world – including British Airways, FedEx, IBM, UPS and Walmart – have already adopted blockchain technology.

If your organization is interested in adopting blockchain technology now or in the future, keep in mind you need to operate in a cloud-based environment. To help stay on top of this technological tidal wave, CPAs in firms of all sizes should stay up-to-date on how the technology is impacting the profession. If you’re looking for more information on what blockchain will do, and already is doing to audit and attest work, a great place to start is the AICPA’s whitepaper on how blockchain could change auditing.

Sean Stein Smith, Assistant Professor at Lehman College, City University of New York. Sean is the co-host of the Entrepreneurial CPA show, and a recognized expert in the intersection of blockchain and accounting. His work and research have been featured in dozens of articles and media interviews. Follow Sean on Twitter @seansteinsmith.


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