Avalara Embraces Blockchain Technology

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Avalara is exploring the potential for using blockchain, the underlying technology in Bitcoin, in its sales tax software.

Blockchain has become a hot technology that is influencing software development, particularly in the financial industry.

Avalara executive vice president of engineering Peter Horadan compared it to innovations like the cell phone. 

“It’s not just about financial transactions or Bitcoin,” Horadan said during Avalara’s Crush New Orleans conference Wednesday. “It’s something that can be adapted to the work that we all do and it may affect the future of how we do our jobs.”

He noted that Nasdaq has begun trading securities using blockchain. “Ultimately blockchain is a shared public ledger,” said Horadan.

He said blockchain is a set of journal entries, one after the other, that are all published in a series of entries called blocks. The ledger keeps getting added to as that happens.

Blockchain is able to track ownership in the shared ledger, showing whenever a company transferred money to another. In addition to money, blockchain technology can be used to track transfers of real estate and other goods.

The technology was created for the digital currency Bitcoin, but it has many other uses. “What’s happened is that the technology has really grown beyond Bitcoin because people have realized this technology has great application beyond Bitcoin itself,” said Horadan. “It can actually transform a whole bunch of business processes.” The blockchain tracks ownership and has properties such as synchronization. “We have a shared ledger where we all have a view of the ledger,” said Horadan. “Imagine us all looking at this set of journal entries and we can all see the same thing.”

Blockchain also provides a permanent record that can be checked later, with a sense of trust in its indelibility. “Once it gets written into the journal, it’s there to stay,” said Horadan. “You can reverse it later with a reversing transaction, but you can’t go back and get rid of an original transaction.”

The technology is encrypted so it has security as a crucial part. The owner of something in the blockchain has a set of cryptographic keys that is used to sign a transaction, providing a form of proof.

Blockchain also has what Horadan called a “deterministic nature,” in that a transaction item either occurred or didn’t. “If I say I’m giving you a hundred dollars and I tried to do it in a blockchain, you can go and look at whether that did or did not happen,” he explained. “There are a lot of models where you don’t know that until later, even banking transactions, where acceptances can happen days after the fact.”

Blockchain also has a “single use” aspect, in that you can’t give the same dollar to multiple people. “That also applies to other things, like real estate,” said Horadan. “I can transfer the real estate once. I can’t transfer it multiple times.”

Avalara CEO Scott McFarlane told attendees that his company is always developing new technology. “We live this life, a dual life,” he said. “We’re one of the fastest-growing software companies out there, and we’re really pretty damned good doing sales tax and transactional tax along the way.”

He started the company 12 years ago and made five acquisitions last year, including FuelQuest’s Zytax excise tax technology and VAT Applications NV, a developer of VAT compliance software.

McFarlane has developed a manifesto for what Avalara plans to accomplish over the next five years, called a “Mission to Mars.”

“When we get up every day, we know we’re swimming with the current, and we’re trying to accelerate the inevitable,” said McFarlane. “We all know this is going to be automated over time. Nobody’s going to be doing what we do in manual fashion 10 years from now or 15 years from now. All we try to do is get out there and accelerate what’s happening.”

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