insight magazine

Evolving Accountant | Spring 2022

Blockchain and CPAs: Imagining the Partnership of the Future

As blockchain technology permeates more applications, it stands to change the entire business ecosystem—including the CPA profession.
Andrea Wright, CPA Partner, Johnson Lambert LLP

When I sat down to begin this column on Jan. 26, 2022, the prices of bitcoin and Ethereum’s ether—the two most valuable cryptocurrencies by market cap—stood at $38,092 and $2,638, respectively off their recent all-time highs, and there was talk of the White House preparing to address the risks and opportunities of cryptocurrencies and digital assets via executive order. Many people in the business world have watched from the sidelines the dramatic— though inconsistent and tempestuous—rise in value and prevalence of cryptocurrency and surmised it as the endgame for blockchain technology. I say it’s just the beginning.

I can point to another use case quickly gaining mainstream attention: non-fungible tokens (NFTs). NFTs use blockchain technology for storing, exchanging, and proving ownership of physical and digital assets of value. While it’s true that we’ll need to wait for the long-term benefits of blockchain to materialize, there’s strong belief that this technology will shape how society functions in the future in ways we can’t yet imagine.

I want to present an argument for what’s possible with blockchain technology, specifically NFTs, and how they have the potential to impact all aspects of society and commerce, including the deliverables CPAs provide to their clients.

First, a quick primer: As you may know, blockchain technology is a decentralized digital ledger system that records transactions permanently in a peer-to-peer network. Cryptocurrencies are digital currencies that run on blockchain technology, where transactions are recorded and verified by the decentralized system. NFTs, like cryptocurrencies, are transacted and stored via a blockchain—specifically, the Ethereum blockchain. NFTs are digital tokens that represent ownership of unique items, allowing us to tokenize both digital and physical assets, like art, collectibles, and even real estate. Key to understanding the importance of NFTs is grasping the concept of smart contracts. Also built on Ethereum’s platform, smart contracts are simple computer programs operating on an “if this, then that” structure, as in, “If you complete this task, you’ll receive this amount of money.”

While much of the world today is focused on utilizing blockchain technology to empower cryptocurrencies to hedge against inflation, taxes, and intermediaries like central banks, and to create or prove ownership of NFTs, the use cases for blockchain technology—and NFTs—are seemingly limitless.

Yes, many scoff at the idea of being the “owner” of a piece of digital art, for instance, which is something that seemingly can be copied, but simply Googling Vincent van Gogh’s “The Starry Night,” copying the image, then saving it on your computer’s desktop doesn’t make you the owner of that artwork either. The point being that NFTs prove ownership of a unique item. That unique item doesn’t have to be a piece of art—it could be a pair of shoes, the deed to a house, a set of financial statements, or a tax return.

Why would CPAs use blockchain technology to prove ownership? Why would we want to issue financial statements or tax returns as NFTs? The answer is simply because NFTs have the ability to remove centralized clearinghouses, prove authenticity, and easily allow the recipient to prove to others that those items are legitimate. Leveraging an NFT to represent a tax return or a set of audited financial statements would allow a CPA firm to prove that they did indeed prepare the deliverables as well as provide a way to confirm the authenticity of those documents. Minting an NFT—the process of creating one—and providing it to a client would give confidence to those who may use the deliverables connected to that NFT to perform their work. For instance, banks or other lenders would be able to easily validate the authenticity of a document by looking at the blockchain.

Minting NFTs of products that CPAs produce today is one small example of how blockchain technology could transform the accounting industry. Imagine a place that doesn’t exist in the real world, isn’t governed by any one entity, has a currency that isn’t monitored or managed by any government or regulatory body, and yet transacts in the equivalent of millions of dollars a day. This is a metaverse, a digital world where businesses (even CPA firms) operate alongside the virtual population—and it’s real. In fact, Prager Metis opened the first official CPA firm in the metaverse Decentraland earlier this year. The idea of a metaverse hasn’t quite caught on yet, but we’re just scratching the surface of what’s possible today, and the rise of metaverse worlds and accelerated automation within our physical world over the next 20 years will likely introduce many new use cases for blockchain technology and NFTs.

Specifically, I believe that smart contracts and NFTs will support the automation of our future and open opportunities for CPAs to provide their clients with new and exciting services. Today, we’re at the same stage with blockchain as we were in 1995 with the internet—we’re not quite sure how to use it other than to post funny cat videos, but many understand that it’s going to be something powerful. I’m excited to see what’s to come and how the world and the profession will change as blockchain becomes the engine that powers commerce.

This column was co-authored with Dave Fuge, chief innovation officer at Johnson Lambert LLP.

Leave a comment