How Blockchain Can Unleash An Accounting Renaissance

Accounting is a headache. Most small business owners spend at least $1,000 per year on compliance-related services — with accounting chief among them. The majority spend up to $5,000 and two out of every ten pay more than $20,000, according to statistics compiled by nonprofit organization SCORE. 40% of small business owners feel that bookkeeping is the worst part of running a company.

It's time for an accounting renaissance.

That word probably doesn't bring bookkeeping to mind for most people, who are more likely to think of giants such as Da Vinci, Michelangelo and Erasmus. But we owe much about our world to another, less famous Italian thinker: Luca Pacioli.

Does that name ring a bell?

Probably not. Unlike the iconic "Vitruvian Man" or the dazzling Sistine Chapel ceiling in Rome, Pacioli's work is not well known to the general public. You won't see his legacy reproduced as a witty meme on a t-shirt; won't read his name in a newspaper used for describing current events; won't see him honored as the namesake of a flagship European student-exchange program.

But the contributions of this Italian mathematician shape our day-to-day world as much as, or more than, those of the great artists and sculptors. The reason is simple: modern accounting, which Pacioli helped develop during the Renaissance, is a crucial foundation of life today. It has enabled more sophisticated business decisions to create wealth on a scale never seen before, bringing billions of people out of poverty and financing groundbreaking science, art, and philosophy. It has helped drive an unabated march of innovation and technical progress that continues to this day.

Pacioli's contribution was perfect in its simplicity. He merely standardized and systematized the double-entry accounting method used in parts of Italy at that time. It was a small change powerful enough to unleash a revolution in how businesses oversaw their transactions, leading to more efficient and profitable operations.

How blockchains revolutionize accounting

Blockchain technology is a 21st-century successor to Pacioli's revolution. Of the almost limitless possibilities it offers, accounting is perhaps the best qualified to take full advantage of its distributed ledger technology. Because the blockchain is, at its core, a more efficient and secure way of accounting.

And the world needs a new paradigm for accounting. Since Pacioli's day, it has grown complicated and arcane. Layer by layer, accounting has become a field of byzantine jargon and intricate processes. Double-entry has evolved into an exhausting process full of rules and complexity. Today the global accounting services market is valued at $576 billion in 2020 — an enormous amount spent paying trained experts to manage the books, since only experts can correctly navigate the mazes that comprise modern bookkeeping.

I have spent more than 20 years helping many of the world's largest corporations across a wide spectrum of industries building enterprise resource planning solutions. There, I saw first-hand how accounting's daunting complexity impacts a business at every level, from marketing to distribution to production. Big companies have access to the vast resources needed to deal with the system's multifarious requirements. But the majority of medium and small businesses have been outpaced by the complexity of the field — to say nothing of the freelancers, self-employed professionals, and start-up entrepreneurs who must spend limited time and resources struggling with these issues.

A blockchain-based protocol is a solution in the mold of Pacioli's revolution: it can facilitate an interconnected, global, real-time "account book" in which you own your data and you don't have to pay expensive licenses or fees. It is intuitive and affordable. And we can do it today: at my company, Totem, we have simplified the traditional bookkeeping process to make it seven times easier — and we have eliminated reconciliation failures altogether. In 2019, we had our "Marconi moment," connecting five random parties and three tax jurisdictions, posting accounting entries in all relevant ledgers.

Blockchain offers a simple, transformative solution to the problem of modern accounting. It's a solution that has the potential to redraw the way we think about bookkeeping and harness the power of crypto, fintech, "DeFi," and the gig economy to bring about a new accounting Renaissance.

The technology and software around bookkeeping have been growing more and more sophisticated. Accounting has become an obstacle to competitiveness at a time when solid financial information is at the heart of every successful business. But balancing the books itself has remained the same — until now. It's time for another simple, transformational change. And with blockchain, we have the tech to do it.

(Chris D'Costa is the CEO of Totem Accounting, which provides blockchain solutions for companies to modernize accounting systems transparently and efficiently)