What is triple entry accounting? With other buzzwords like Bitcoin and blockchain discussed right along with this new accounting method, it can seem like just a theoretical way to conduct business and has little effect on your life. The truth is a little more complicated, especially if you do any type of financial transaction online, so let’s take a look at what this type of accounting is and what it is mainly used for in the digital age.
A New Form of Accounting
This type of accounting is an advancement of double-entry accounting, and it came with the rise of the internet and digital transactions. Rather than having two separate books of accounting that occur when a buyer and a seller engage in a transaction, triple entry accounting builds one record of transactions in the form of a publicly distributed ledger. The records are also digitally authorized and signed by all entities, meaning that the record is then cryptographically sealed; this means that the records are nearly impossible to falsify or destroy. While it is not the most commonly used form of accounting, it is growing as digital transactions continue to increase.
Cryptography and Accounting
In the finance world, digital transactions, either in the form of Bitcoin or blockchain, are becoming more common. This has led to a need for an understanding of how cryptography and accounting can work hand-in-hand. This is where this new form of accounting shines: by requiring a digital signature for each phase of the transaction, which then seals that transaction and makes it impossible to falsify that record, cryptography is both protecting an entity’s private information and the record that is holding all of the information in a secure location. This type of security cannot be guaranteed with double entry accounting and is the safest way to conduct business online.
Blockchain and Bitcoin
With the advent of blockchain technology, accounting is moving towards distributed ledgers that are secure, available for all entities involved to review, and completely digital. Now, with bitcoin building a base of customers, blockchain and this type of accounting are becoming more important than ever. Most Bitcoin transactions will utilize both blockchain and this accounting method because digital signatures and authorizations are necessary to complete any transfer. As digital currency becomes more common, this type of accounting will overtake double entry accounting as the accounting method used by most financial institutions.
There are a variety of benefits that come with this new type of accounting. As more transactions are conducted and recorded online, the fact that the record is tamper-proof means that fewer budgets and transactions will be vulnerable to be falsified. Additionally, with double-entry methods as well as cryptography, this type of accounting is validated and secure; the books can only be accessed by a select group of individuals, making it a private way to conduct business. And, once a transaction has been completed, there are always digitally signed receipts that ensure that a transaction has gone through.
Digital transactions and currency are changing the structure of the financial industry. With so much of banking being done online, it was only a matter of time before a new type of accounting was introduced in order to keep transactions safe and secure. The next time you wonder about triple entry accounting, take a look back at this primer to refresh your memory.