Blockchain is Eating Wall Street | Alex Tapscott | TED Talk

“There is a real opportunity here to fix accounting. Accounting is basically broken. There are four big problems with it. The first one is that it assumes that managers will always do the right thing. A big mistake. Enron, Tyco, Toshiba, Worldcom, the financial crisis, this is a dangerous assumption to have when you are starting out.”

“The second issue is human error. Thirty-five percent of accounting fraud is actually due to some unintentional mistake. You know, poor Pam in the back office, fat fingers putting in entries into an Excel spreadsheet. And like a butterfly flapping its wings, it reverberates across possible enterprises and creates a big crisis. New rules like Sarbanes-Oxley which came into effect after Enron have done little to curb wrong-doing. And the big issue is that modern accounting practices can’t really keep up with the velocity and the complexity of companies and businesses.”

“And deciphering a financial statement is kind of like watching two people dancing under a strobe light. You see bits and pieces, an arm, the head, you know someone shaking a booty. But you don’t actually get the whole picture. Because accounting is based on a principle that is actually quite ancient. A 500-year old thing called double-entry bookkeeping where for every transaction you record a debit and a credit, and in the end your balance sheet balances.”

“It worked well in the Middle Ages, and it has worked well throughout most of modern capitalism. But there is a way to improve it significantly. So imagine every time you entered into a transaction you didn’t just record a debit or a credit, there was a time stamp receipt of that transaction which went through a distributive ledger that everyone could trust, that was not verifiable, that they could manipulate in a way that they could gain a clear picture of the financial health of a company. Financial statements would go from this thing we do with cycles of the moon every quarter where we get this sort of 2D facsimile of what is actually happening in a company to something that is living and breathing and true. There is an opportunity here for funding and investment.”