The Next Frontier in Accounting Technology

Editor's Notes

• #2: Adoption rates of cloud and mobile accounting solutions are going through the roof, but for many small businesses the cloud is still a scary place to store data and operate a business. A big part of the resistance is that today's internet lacks a "trust layer" to provide security, identity management, and data validation.   The next frontier in accounting technology will be filled with increased automation of transactional data, global commerce solutions based on digital currency and blockchain technology, and renewed focus on security and identity management.   In this session, Doug Sleeter will open your mind to the compelling technologies that will drive solutions in the future. As Doug says, your ability is important, but it's your agility in business that will determine your ultimate success. #AgilityTrumpsAbility
• #3: I’d like you to take out your cell phones and get on Twitter. Throughout the session, if you like something, or have more to add, please tweet it, and add my @dougsleeter with #AgilityTrumpsAbility to the post. I’m currently NOT working full time and this gives me time to ponder the past 30 years of my career, and hopefully apply this experience accurately to what I think will drive us to transformation in the future. My experience at Adobe and Apple in the 1980s essentially implanted a certain perspective on the future into my DNA, and I’ve always strived to give my customers a view into what I see coming in the 5-10year timeframe. This presentation will definitely open your mind so some huge, exciting changes coming in that time frame, or maybe even sooner as long as the innovators are left alone to work out the bugs and build a truly bullet-proof solution.
• #4: Currently on Sabbatical - Since January, I’ve done a few things that were always impossible while running a business. Lots of: Exercise Relaxation Travel Celebrating my 30th wedding anniversary Learning new skills Reflecting on 30 years of building a business, and obsessing on what’s the next big thing for Accounting and Business.
• #5: Today’s solutions are just cloud versions of yesterday’s processes For the most part, today’s solutions, even the cloud-based ones that are popular now, are really just software implementations of yesterday’s paper-based, banking-centric, double-entry, manual processes. In my opinion, this is what is holding the entire industry back. It prevents vendors from truly delivering solutions that meet changing customer demands, and delivering on the needs from vertical markets. The idea that all businesses could use the same software is naive at best because every business has their unique business process needs. Force-fitting a standardized software into every business eventually runs into unbearable friction between what the business needs and what the software can do. Chunkification: As early is 2006, I began predicting that Chunification would blossom in the coming years. The reasons we needed chunkification were: All-in-one products were “out of gas” as far as being customizable enough for individual businesses Vertical markets were increasingly off-loading important functions away from accounting software and using custom apps and/or Excel All-in-one products were almost all desktop, and therefore unable to deliver on the anytime-anywhere, mobile and cloud based functionality But are accountants really recommending chunks or just closing their eyes to the reality? Ask audience who is actively recommending add-ons… Assuming low adoption there, this supports why the big vendors will have pressure to build the vertical functions into their cloud products. Is it a pendulum? Will the big vendors eat their children? We're already seeing many “chunks” being either competed with by big vendors, or integrated in such a way as to “hide” the fact that they are chunks. (E.G. Single Sign on, unified interface features of Bill.com and Tsheets direct integration with QBO and Debtor Daddy in Xero). This is evidence that perhaps the pendulum shifting back towards all-in-one solutions. Digital plumbing is the current challenge Everyone is challenged by connecting data between software solutions. The “Digital Plumbing” using APIs is maturing, but still lacking in many areas Even when connecting systems together, we’re frustrated by how the connections often fail to really solve the problem. Security is a huge concern across all these connected systems. Often the digital connections fail to abide by security policies set in any of the component software solutions. Bad data frustrates everything And since data has “context” wherever it is stored, moving data between systems, often causes BAD data to multiply Beware of big bad data! It’s a completely different speech, but of all my worries, it’s BAD data that tops the list. Because big data is really just an aggregation of small data, and as many of you can attest, we have lots of bad “small data” in our accounting systems, CRMs, and social media feeds.
• #6: As Huey Lewis put it in his famous song, I want a new drug. One that: Automates transactions without causing errors in the data Enforces truth is represented to all parties involved in every transaction Delivers accuracy that everyone can trust - No more audits? Or continuous auditing of every transaction. Cannot be defrauded by nefarious humans Is global from the start, not as an additional translation And one that provides a secure, trusted Internet storage mechanism. Pipe dream right? Well, I think I’ve found something that gets us much closer to solving for nearly all of theses goals.
• #7: I believe that Blockchain technology will do for global commerce what Postscript did for publishing Back in 1984, I joined a small company called Adobe Systems. We created a language called Postscript that seemed to be just another language, and who knew where it would go. The goal was to create a language for driving laser printers that suddenly had millions of tiny dots compared with the daisy wheel and dot-matrix printers with a tiny fraction of addressable “dots” to turn on or off. Fast forward to today where Adobe is one of the largest, most successful software companies in the world, and virtually every large document published on the internet is in “PDF” (Portable Document Format) which is essentially a Postscript “program” that describes the page to display and/or print. In a very real sense, Postscript transformed the entire publishing industry. Postscript technology is at the foundation of: Digital Typography Digital typesetting Digital scanning and raster-to-vector technology Graphic design and printing Global document format standard I believe blockchain is as big as Postscript, and will be the foundation for complete transformation of global commerce in the next decade What is blockchain technology? Let’s start from some fundamental assumptions about how software, the internet, and business processes are handled today, and then see how this new blockchain technology will solve for many of today’s most pressing issues for global commerce.
• #8: Who do you trust? What do you trust? Do you only trust things you directly experience? Or must you rely on “reliable sources” for what you believe to be true? Where to you get your information? The Media? Wikileaks? WebMD? Wikipedia? Google? Siri? … Yes, it’s a hypothetical question… But consider just how much you rely on external sources of information for: What you believe Who you trust What you purchase How you vote And in almost every sense, how you live your life How about NASA Satellite images? Do you trust that if you see an image from a NASA satellite, it is 100% “true?” There is no false images published by NASA from their satellite captures?
• #9: Nasa satellite http://oftechandlearning.com/bad-data-carbon-monoxide-eruption-not-real/ If you view the carbon monoxide data on the map, it shows what appears to be a huge emission of CO beginning in the afternoon of February 25th. In some places, CO levels apparently reach 40,000 ppb (parts per billion), whereas normal levels usually range somewhere between 100 – 1000 ppb. … possibility that this sudden and dramatic output of CO, as well as CO2 and SO2, signifies that a large earthquake is imminent on the west coast. The basis for these claims is a paper that appeared in the journal Applied Geochemistry authored by Dr. Ramesh Singh titled, “Satellite detection of carbon monoxide emission prior to the Gujarat earthquake of 26 January 2001.”  Disclaimer on the site: GEOS-5 data (covering all Chem and Particulates layers) comes with the following disclaimer: Forecasts using the GEOS system are experimental and are produced for research purposes only. Use of these forecasts for purposes other than research is not recommended. Nevertheless, the bloggers went crazy. The truth was: … on February 18th, the Terra satellite went into safe mode. All of the satellite’s instruments stopped collecting data, including MOPITT. Terra resumed scientific data collection late in the day on February 24th. Data began being broadcast sometime on the 25th, but they note on the 26th that instrument operating temperatures are still stabilizing, affecting the data collected using infrared channels.
• #10: Big Data is aggregated small data, and most small data is, to a greater or lesser extent, BAD data. There is a race to build, publish, and otherwise exploit "Big Data" by virtually every large company and government in the world. The Internet of Things is exploding with small sensors, cameras, remote meters, automobile-based telemetry devices, etc., and these sensors are transmitting data at an ever increasing rate. Their data is being captured and then what? The data is being DUMPED into databases. Without context, and without validation. Most small data is flawed (databases with inaccurate, missing, out of date, miscoded, corrupt, or just wrong information). If you look at your own data, maybe in your personal records or even your own accounting system, you'll probably be able to easily spot an alarmingly large percentage of "errors" in your own data. But most of us just live with that because we're either too busy or lazy to fix it, or maybe we just don't care enough because we know in our minds what the truth is. Some of the "errors" are caused because when the data was recorded, there simply wasn't enough information to completely record all of the facts accurately. But when you aggregate all this small data and create big data, you really end up with #BigBadData.
• #11: And we use this big data to make conclusions about things like the global economy and global temperatures. But what are we doing to ensure that this powerful capability we have to aggregate terrabytes of data is in fact "correct" big data? What about your accounting data? Accounts receivable aging data reported to a credit agency – what if payments haven’t been recorded when the data is reported? Credit agency data is really an aggregation of lots of small data being reported, often automatically without respect to the validity of the data. Credit reports are big data based on lots of small data. And unfortunately, lots of BAD small data. Of course we “Audit” accounting, after-the-fact to ensure that the original data recorded was correct, and if it wasn’t it is “adjusted” to correct for any errors found in the process. But wouldn’t it be better if bad data could never even enter the database? Set aside the fact that you may be making a living with accounting or auditing, and imagine a world where we always had GOOD data in the database, and that we could begin with “facts” from the data and then start working on advisory services, or other high-value services that only humans can do. Let your mind ponder that idea for a while and we’ll come back to it a bit later.
• #12: In reality, it’s DATA that defines no only who we are (in the eyes of those who don’t know us), but also what we believe. Think about that. You only know what you’ve LEARNED. You only LEARN from “data” you have been able to consume. Books, newspapers, news media, etc. You augment what you learn, with what you experience, and often what we experience disproves what we thought we learned. Hmm. Why is that? How did we learn incorrect information? Of course that’s a deep subject and not really something for today, but I do want to focus on how it is that BAD data is created, recorded, published, and propagated through society, and how broken our systems are for managing all of this data.
• #13: Consider these documents Transactions in the General Ledger Patents Birth Certificates Sheet Music Match.com ads Real Estate Purchase Contracts Classified Ads Media articles Blog Posts What do these all have in common?
• #14: Consider these documents – Patents, Birth Certificates, Sheet Music, Match.com ads, Real Estate Purchase Contracts, Classified Ads, Media articles and blog posts: These all have the following in common: They must be: Recorded (on paper in the old world, but increasingly in large, centralized databases. More on that later) Securely stored Validated Time-stamped Protected from hackers or unauthorized alterations What happens when this information is WRONG? Amending such documents is next to impossible, and since the internet has no way of ERASING incorrect versions, the newer, amended information has no greater weight compared with the incorrect, older information. The internet can transmit information about them, but cannot provide: Validation, Trust, Security, Fraud protection verification of the "truth" or "authenticity" of the information. Also, there is no way to positively know the order in which information about, or execution of each of these items occurred. In every case, the timing of these things MATTERS. What was once true about any one of them may or may not still be true, and there is no way to definitively know whether the information above is still true, or for that matter, whether it was ever true.
• #15: The big problem I’m discussing here, can be summarized into this: The internet today is a global repository of information. It changed the world.  It also created a new world that isn't solved for.  What the Internet doesn’t do very well is provide trusted, secure, or permanent records of trade. What we need is, a GLOBAL, SECURE, PERMENANT LEDGER of TRUTH One that is not corruptible by human fraud One that is not subject to manipulation by any group, corporation, organization, or government.
• #16: What is Blockchain technology?
• #17: What if : Before any data was finalized on the Internet (i.e. added to the global database we call the Internet), we had a way to guarantee its authenticity? Imagine how it would be if: You always had a notary on hand to irrefutably endorse the validity of your identity and the documents you sign, You had an auditor to instantly provide verification that your transactions were recorded correctly If you had these two “trusted parties” always involved, then Approval of transactions would happen instantly assuming the notary and auditor agreed that the transaction was valid. As a result, since your identity was instantly verifiable by anyone you choose to share it with, it would be like having priority status everywhere you go. No more waiting for verification of your paperwork. Does this sounds like a utopian dream? Does it sound expensive? Would you think developing a system to handle this would take forever, and never really happen? In actual fact this is a good analogy for how blockchain technology works. And right now there is a growing legion of entrepreneurs all across the world who are aggressively re-imagining the most fundamental business interactions and inventing new styles of digital interactions…. and you should expect them to be coming to a screen or device (or thing) near you soon.
• #18: Blockchain technology is: A public ledger of transactions between trading partners It’s an open source, globally distributed database There is no central authority that controls the blockchain. No BANK, GOVERNMENT, or COMPANY is involved. Instead the blockchain a global network of computers that run open source software to store and update a distributed database. Where transactions can only be added once they are validated through complex mathematics to prove authenticity of the data. It’s the complex mathematical architecture that makes the system virtually unhackable. It uses encryption and hashing algorithms to secure the data itself and to prevent bad data from being added to the database. This means no corporation, bank, or even government can control or even prohibit blockchain But is it secure?
• #19: A public ledger? How could that possibly be safe? All this time, we’ve been worried about adding more security to our databases, housing them in secure data centers surrounded by fort knox security. So how could it be safer to start recording all of our transactions on a PUBLIC ledger whereby anyone can view every transaction that ever has occurred? What's an encrypted, distributed public ledger? How is that safe? In Math We Trust Based on encryption and mathematical hashing technology Duplicate copies of the same database among thousands of disinterested, yet incentivized people who solve math problems on their computers to "validate" accuracy and authenticity of the data, as opposed to centralized organizations that can and are being hacked every day. By distributing the "workload" of verifying security, we both spread the work and enhance our confidence in the validity of the data. By having multiple, disinterested parties all providing what's called "proof of work" to validate transactions in the blockchain, we gain huge confidence in the security and accuracy of all data that gets added to the chain. "In Math We Trust" - Using encryption and complex hashing methodology, mathematics is the basis of trust instead of humans. Math cannot be corrupted, deceived, or hacked.   What does the PUBLIC ledger solve for?
• #20: To understand what blockchain technology is, and what problems it attempts to solve, consider digital currency. This is just one application of blockchain technology, but there are many other uses beyond currency and I’ll discuss some of those at the end of this section. You may have heard of Bitcoin. It’s a “digital currency” that uses the blockchain to transmit secure payments between parties using the internet, digital wallets, and a distributed database that runs on thousands of private computers all over the world. For now, hold your doubts about how “private computers” can acutally provide a more secure methodology for transmitting something as important as monetary transactions. I hope to convince you here that this methodology is in fact more secure than anything you’ve ever heard of when it comes to global payments. Here is an example of how it works: Alice wants to send some digital currency to Bob…
• #21: Each computer is a disinterested party (miners) - who owns their own hardware/software environment and runs open source software to host a node on the global, public blockchain. When Alice initiates the transaction, an encrypted, “proposed” transaction is simultaneously broadcast to all of the miners on the blockchain. Along with this proposal is the unique ID of Alice that proves she: Is who she says Owns the digital currency she intends to transmit And the public ID (key) of Bob, the person she wants to send it to. Immediately and simultaneously, all of these computers go to work on solving a mathematically complex algorithm to decrypt and validate that Alice actually has the authority to transmit this currency to Bob. These computers (called miners) actually run a “race” to be the FIRST one to solve the mathematical equations, and on average this solution takes the computers about 10 minutes. Why do people allow their computers to be used as mining machines? What’s in it for them? How can we know that someone won’t hack into the whole thing and control everything? How do we keep everyone honest? How is this different from just using a VISA or AMEX card?
• #22: No central authority Incentives are provided to miners that incent them to maintain their copy of the database and validate new data before it’s added. Running a race/winner gets the penny – who solves the mathematical equations the fastest
• #23: Essentially this gamifies the blockchain with real incentives for the miners. It’s as though all the minders are playing a game of Tetris, and gamers are rewarded when their computer solves complex mathematical equations faster than everyone else.
• #24: An internet-based, distributed, public database where transactions can only be added once they are validated through complex mathematics that prove authenticity of the data.  A blockchain is a public ledger of all Bitcoin transactions that have ever been executed. It is constantly growing as ‘completed’ blocks are added to it with a new set of recordings. The blocks are added to the blockchain in a linear, chronological order. Each node (computer connected to the Bitcoin network using a client that performs the task of validating and relaying transactions) gets a copy of the blockchain, which gets downloaded automatically upon joining the Bitcoin network. The blockchain has complete information about the addresses and their balances right from the genesis block to the most recently completed block. 
• #25: Furthermore, the new block can only be added after multiple miners solve the same equations and concur with the answer given by the first miner to solve the equations.  New blocks can only be added in the precise order in which they were proposed to the network. Timestamps on all proposals are used to ensure the order of transactions in the chain. Furthermore, every new block contains a "pointer" to the block that immediately precedes it in the chain. This pointer is essentially describes the fingerprint of the preceding node.  There are thousands of these workers, called "miners" and they are given economic incentives to solve mathematically complex encryptions and hashing algorithms as quickly as possible given their computing resources. When a new transaction (e.g. when someone wants to pay someone some Bitcoin) is proposed  to the blockchain network, mining machines go to work in hopes of becoming the first to solve the equations to definitively prove the validity of the transaction. By winning the race against all the other miners, the winning miner is rewarded with a small amount of digital currency as a reward for their "Proof of Work." Furthermore, the new block can only be added after multiple miners solve the same equations and concur with the answer given by the first miner to solve the equations. 
• #26: Blockchain technology can be applied to more than just digital currency. Blockchain 2.0 expands on the same basic mechanisms, but adds the concept of Smart Contracts that allow more complex transactions to be traded via the blockchain.
• #27: It’s not just all futuristic thinking. Blockchain 2.0 is already here with Etherium. Etherium has it’s own digital currency “Ether” and can be used to codify any contract and “execute” the contract as soon as it’s signed. Etherium.org Beyond bitcoin digital currency, blockchain technology can be used for any transaction or legal contract. Real estate contracts http://dupress.deloitte.com/dup-us-en/focus/signals-for-strategists/using-blockchain-for-smart-contracts.html
• #28: If you consider the history of accounting, it was invented all they back in 1494 by Luca Pacioli. The assumption of the entire system of accounting was that everything would be recorded on paper ledgers. Then, accounting software was developed 500 years later for the PC. And now, that we have a world-wide network of connected computers, we can realistically consider a global public ledger of accounts that contains all transactions between ALL parties across the globe. I see a future where we fully leverage the power of the internet using blockchain technology. If we embrace this, and I think it’s inevitable, then we would no longer need to have bookkeepers on each side of every transaction duplicating each others’ work and introducing errors along the way. We would have a world with my debit is your credit and it would be a transparent, ledger of truth that all would “trust” as the books of record.
• #29: Do we want a global, public, secure ledger, for everyone to see? Humans could focus on analytics of good big data instead of spending so much on securing, validating, auditing and presenting variations of the truth. I suppose it gets somewhat political to think about these issues, but blockchain tech has the capability to deliver on all of it: Decentralization is the key. But it’s also what large organizations will resist the most Delegation of security to mathematical formuli as opposed to human validation is a leap many don’t trust. But this delegation of security that is at the core of why this is so compelling. Whenever we entrust data to humans, it is exposed to risks of fraud and corruption. Mathematics cannot be corrupted.
• #30: The public ledger concept in blockchain technology simultaneously solves for 7 of the most important issues facing the future of the Internet. I call these the Seven Pillars of WHY blockchain is needed: Security and Privacy  Before blockchain, the whole concept of securing data was (and is today) a process of: Adding more physical security to centralized databases (data centers) Restricting access from computers outside the data center Password protection With blockchain, duplicate copies of “the database” exists in thousands of computers all over the world. The data gets added, after all of the nodes agree that the transaction is valid, and in order to “prove” validity, a complex math problem must be solved by all of the nodes, each coming up with the same answer to the math problem. Trust and Fraud Prevention  Before blockchain, trust and fraud protection focuses on: Trusted humans, corporations, banks, or governments have ultimate control But humans are subject to corruption, and their loyalty can be purchased. With blockchain, it’s IN MATH WE TRUST, as opposed to any human or group. Business Transaction Costs and Friction  Before blockchain, transaction costs are very high for: Money transfer, Credit cards, International conversions With blockchain, the costs are a tiny fraction, with no middle man needed. Maintaining the “Order” of transactions Before blockchain, there was no way to keep track of: Which transactions, articles, etc. were recorded first Which transactions correct earlier transactions, articles, reports, etc. With blockchain, every piece of data is timestamped and kept in chronological order in the database. It is impossible to re-order the database. BIG BAD Data  Before blockchain, the internet was full of Bad Data: bad data can easily be created, passed on from writer to reader, and then on to other readers There was no way of linking the correction of data (article updates, corrected transactions) to the data they amend No way of knowing the TRUTH Which transactions, articles, etc. were recorded first? With blockchain, bad data gets rejected before being recorded in the permanent record Transparency - Public Ledger of All Transactions  Before blockchain, where data is opaque, and must be intentionally shared: Fraud is prevalent, largely because data is centralized, hackable, and ROI for hackers is very high Because data is hidden in proprietary databases, there is a general lack of trust among trading partners With blockchain, the transparency of information will transform the “way we do things” in dramatic ways that will promote efficiency, and more free market behavior. You won’t have to “trust” the other guy explicitly, because the “system” enforces truth in the process of recording transactions. Truth Keeping - The Power of Decentralized Databases  Before blockchain, it was impossible to know: Whether information on the internet was true If your data was “stolen” and used by criminals until it was too late If the other trading partner would be honest in their dealings with you, and not knowing meant you had to accept the risks. With blockchain, nobody will be able to hide the truth, and since all can see truth, there is much less ROI for the criminals. The network enforces the truth by spreading the validation among the whole community of “nodes.”
• #32: http://www.ibm.com/blockchain/what_is_blockchain.html
• #34: Your action steps: Study what’s changing Stay curious Don’t let the “techiness” intimidate you Remember, no matter what you’re good at, it’s your agility that will determine your success. Thank you for your attention today