Bitcoin Usage and The Future Of The Blockchain. Despite some ups and downs over the years, Bitcoin is still hanging round as an alternative currency. There are those who still believe that the future is bright, and that Bitcoin may just represent the future of money. Indeed, we’re still pretty early in the life of the leading cryptocurrency. Archived block trades information. Read the list for details. As more companies begin accepting it and more consumers begin using it, it’s becoming less of a concept and more of a reality. There are a lot of specific reasons for the continued presence and potential of Bitcoin, and many would point first to foreign nations because their treatment of Bitcoin has been newsworthy. From Greece to Argentina, there have been rumors about nations with struggling economies turning to Bitcoin as a national alternative to save citizens from crippling regulatory restrictions. And while such a maneuver is still a long shot in any national economy, we have seen citizens in such countries turning to Bitcoin on their own. Most notably, when ATM withdrawals were capped in Greece, people began investing in Bitcoin so they could access their finances how and when they needed to. For the most part, however, the continued relevance of Bitcoin comes down to a simple increase in the number of companies and stores that are treating it like currency in the U. S. Indeed, the largest proliferation of Bitcoin- friendly merchants remains in the U. S. From independent, local shops, to massive online retail chains, we’re simply seeing more and more companies growing comfortable with the idea of these tech- based transactions. And this certainly bodes well for at least the short- term future of Bitcoin. Despite all this, there are still many skeptics who don’t view Bitcoin as a long- term solution for those looking for alternative currencies. Historically alternative currencies tend to either fizzle out or gradually be treated as commodities, and many view the latter as the logical path for Bitcoin. Recently, concerns have even been raised that the energy costs of mining and using Bitcoin may ultimately be the cryptocurrency’s undoing. But if it does die out or succumb to commodity status, it won’t do so without leaving a monumental impact on society. That impact comes in the form of the blockchain, which has already become far more than a digital ledger on which Bitcoin transactions are tracked. The blockchain is not a specific software used by Bitcoin, but rather a concept that can be recreated and adapted by most any financial institution, industry, or even individual. The basic concept, as many know, is that it’s a public registry of transactions that cannot be altered or erased; every relevant transaction is marked down in permanent ink, so to speak, for every involved party to observe. Not long after Bitcoin became a mainstream phenomenon, people around the world. And so, regardless of what happens with Bitcoin, the blockchain wars have begun. Many who are working on developing new forms or applications of the blockchain view it as possibly the most impactful technological development since the Internet, as it holds the potential to change the ways in which pretty much every type of market or industry operates. We’ve seen banks adopting forms of the blockchain, either for their own record- keeping purposes (so, a private version of the technology) or to keep consumers at ease via transparency, and thus keep them from seeking alternatives. Music is for everybody, and this is a party for everybody. Saturday 27th August sees the first of the Future Bubblers’ Block Parties for Year 2 taking place in Hull. This is a free community event for everyone in.We’ve also seen the real estate industry flirt with blockchains as a means of eliminating title fraud. And more surprisingly perhaps, we’ve even seen a company emerge with the sole purpose of cleaning up the diamond trade by tracking and recording the origins and transactions regarding individual stones. Dear Readers, Yes I'm very aware of the fact that I haven't written in a while. I'm taking a step back from writing and exploring different mediums to use for this blog. I've got some exciting things in mind, but before all. About 30 years ago, Sandor 'Sandy' Shapery saw a Nova television show about trains that cruised on magnetic cushions at mind-boggling speed instead of chugging along on steel wheels. Impressed by the revolutionary. A follow on from “block chains and the future of audit” This post is in response to a great article by Matthew Spoke on Coindesk, which discusses financial audit and how the block chain may help to improve it. The road-rail Kerch Strait bridge, which is probably the biggest and most ambitious infrastructure project undertaken by Russia over the last decade, is designed to provide a land route between mainland Russia and. Most exciting of all, it appears that these adaptations are only the beginning. As simple as it seems in practice, the blockchain holds enormous potential to disrupt all kinds of industries and transactions. While Bitcoin’s future remains a hotly debated subject, there appears to be no logical reason for blockchain growth to be held back. Craig. Like this article? Subscribe to our weekly newsletter to never miss out! Follow @Dataconomy. A follow on from “block chains and the future of audit” – Medium. This post is in response to a great article by Matthew Spoke on Coindesk, which discusses financial audit and how the block chain may help to improve it. Have a read and get up to speed. Good. One thing that article didn’t discuss was any specific architecture or implementation details. That’s what I’ll explore here, with the aim of answering the question, “is the future of financial audit all about block chains?”. We’ll have to cover a fair bit of ground but firstly. It’s also terrible value for money as only . Everyone loses as a consequence when fraud and errors go unnoticed. The expense and fallibility of audit are symptoms of two broad ranging problems, only one of which gets any air time“Financial audit and the audit firms need reforming”The solutions range from mandatory auditor rotation to big data. Will they have any impact? Perhaps. Auditors have their own problems, however I’d argue that one of the key issues actually lies with our approach to building accounting infrastructure, transaction systems and developing accounting workflows. I’ve touched on this before, so I won’t go in to detail here. Summary: ERP software is abysmal, no digital signatures, bad data interoperability, poor usability, poorly built spreadsheets, reliance on manual tasks, data duplication, etc. To quote Paul Graham, it’s a “schlep task” — tedious unpleasant work. As each accounting journal is posted the . Don’t hate the partner. Mission critical spreadsheet workflow. Believe me when I say there are a lot of hidden costs here. It doesn’t have to be like this though — it turns out that the thinking and technology to edge us closer to audit utopia has actually existed for over a decade. Clue; it’s not. At the “audit innovation” meeting. It’s a pretty amazing piece of technology, but hold your horses — we aren’t going to jump on the block chain band- waggon just yet. Censorship resistance driven by proof- of- work is key when one is operating in a highly adversarial environment, like a cash system, where the identities of your counter- parties and transaction verifiers are not necessarily known. The Bitcoin block chain was designed for this exact use- case — where exploits and government crack- downs are the most concerning threats. A currency system needs to be secure and Bitcoin achieves that. And what are the disadvantages? Bitcoin is slow, proof- of- work (although currently subsidised by mining rewards) is expensive, transactions must be publicly broadcast and governance is sub- optimal. Similar trade- offs are inherent in the design of any SRL. Take Eris for instance; to allow for more effective governance, oversight and control of their block chain design, they have had to sacrifice decentralisation and censorship resistance. This is the key — each SRL must be carefully designed to match domain requirements and block chains won’t always match our requirements optimally. SRL as a concept, block chain as an implementation. We should cease thinking in terms of block chains and instead view them as just one very particular implementation of a SRL. Indeed, there are many ways to implement an SRL; Hyperledger, Eris, Ripple, Open Transactions, etc. Firstly, what is a SRL? Richard Brown defines “shared” and “replicated” as. Shared: because multiple actors can read or write to different parts of the ledger. Replicated: because everybody who needs a copy can have a copy, rather than relying on a powerful central entityand for completeness, I’ll bolt on. Ledger: An immutable append- only collection of records. In my view, SRLs mostly solve accounting and transacting problems so our efforts should focus on“What things do we need to transact and account for, what’s the problem with the current method and what do we want to achieve?”As opposed to“What can we apply block chain technology to?”Companies of all shapes and sizes around the world are currently at panic stations, asking the latter question. Perhaps we can use a block chain, Factom will do, to expensively, securely and pseudo- anonymously — because it’s embarrassing — record all the superfluous block chain uses we came up with, so we can look back in 1. Workflows and infrastructure. The main problem which SRLs can elegantly solve is this: “Parties to the same transaction, record all source data and subsequent accounting journals unilaterally, in separate systems”Bob and Alice are at it again! In other words, performance of the transaction is separate to the recording of the transaction and its associated audit trail. Some of the consequences are; wasted time, operational risk, fraud, increased audit costs, mistakes and more hidden costs. Accounting frameworks, reporting currencies and fraud aside, both parties should be posting equal and opposite journals. Each party should post a journal which is based upon the raw transaction data, e. Makes sense? So, if all of this is communicated when the transaction happens, why can’t we build a robust, legally defensible audit trail for that transaction, for both parties, the moment it happens? This audit trail gives us real- time assurance at the transaction level for potentially huge amounts of transactions. So, how do we do it? What’s the lowest common denominator we require from a SRL to be useful from an general accounting (and audit) perspective? Triple entry as a concept, SRL as an implementation. To make this work, we need a few (implementation agnostic) components: A secure channel to communicate transaction data between counter- parties. A way for counter- parties to robustly confirm agreement of a transaction. An entity or entities to notarise new transactions and store past transactions when required. How would this work? Taking the classic Bob and Alice example above, here’s the work flow: Alice issues the instrument, she signs it. Bob receives the instrument, agrees with it and he signs it. Bob passes the record to the Notary, who signs and then stores the instrument. Bob, Alice (or an authorised third party) can now query the Notary to ascertain whether the transaction happened. Bob and Alice can also keep a copy of the notarised instrument themselves. As the Notary is a SRL, it’s practically impossible to delete or update the instrument without counter- party approval. Even if someone does, we’ve got an instrument with their signature on it. Now, the part which is interesting for accountants and auditors. The instrument, triple signed by Alice, Bob and the Notary“is the transaction as well as the raw accounting data for that transaction”Therefore we can say that this workflow which Ian Grigg calls Triple Entry Accounting“combines the act of performing the transaction with the recording of that transaction and its associated audit trail”Ian’s paper has been on the web for over 1. Now, instead of accounting for the instrument unilaterally in their respective accounting ledger’s. Alice and Bob can simply point to the triple signed instrument on the SRL, which contains all the metadata required to post the correct accounting journal and revisit the definitive transaction particulars. Note the existence, occurence and valuation procedures — we get these for free with triple entry. Alice and Bob now always have the same data — no need for reconciliations. Furthermore, accounting fraud is practically impossible using this system. Auditing is now easy- peasy as all SRL driven journals have a robust audit trail built in. Lets look at Bitcoin in more detail. Bitcoin in an audit context. It turns out Bitcoin already implements a triple entry system as standard. Perhaps Satoshi read Ian’s paper when he was developing bitcoind. When we send bitcoin, the resultant transaction hash not only refers to the transaction but also the gives us the robust audit trail we need to post the associated accounting journal. From an audit assertion perspective, we gettransaction occurrence — did the transaction occur? BTCbalance and transaction cut- off — recorded in correct period? Completeness is more difficult as Bitcoin is a pseudo- anonymous system. However we can use heuristic clustering on transaction inputs to figure out addresses which users may have not have disclosed to us. In any case, auditors can off- load responsibility to management through the rep letter. Auditors will have to leave bitcoin completeness checks to the crypto- boffins. Image credit O’reilly. As no rights or obligations arise due to cash payments we don’t need to worry about what happens in the future. A payment either happens, or it doesn’t and thus in most cases, a public key, digital signature and a Pay. Pub. Key Hash script is all that is needed to . Ripple also implements a triple entry system — they just sacrifice censorship resistance for gains in other areas. The above is indicative of other permissionless proof- of- work driven block chains. Other instruments are more difficult to handle. What about bonds? A bond is a fixed- income credit instrument used by entities to raise funds. Upon issuance of a bond, certain rights and obligations arise. The right of the bond holder to receive interest coupons and ultimately receive the principle in full. The equal and opposite obligation of the bond issuer to pay interest coupons and repay the principle in full. These rights and obligations could continue for up to 3. The obligations may run into billions of dollars. For this to work in a SRL context we have to address. Identity. Who is the bond issuer? Reputation. Will they pay? Performance. What happens if they don’t? Lets skim over identity and reputation for the moment. Assume we use PKI for identity and a credit ratings agency for reputation. We still need to consider performance and we have two options. A robust and fair legal framework that enforces penalties in the case of non- performance, i. Payments are automated to a degree, however they still require sign- off by treasury. Smart contracts. Smart contracts would be great but instead we only have dumb ones.
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