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The State of Blockchain and Its Impact on Finance Profession The State of Blockchain and Its Impact on Finance Profession What do Blockchain and cryptocurrency really mean and what are the opportunities? What about the risks that come with such wholesale change to business processes. Learn this and more as you look beyond the hype and walks through these new technologies in a business setting. Jason Wood, CA CISA CPA (US) CIA Triple Ledger Limited, Managing Director Techemy Limited, Head of Compliance & Audit “Blockchain is an accounting technology. It is concerned with the transfer of ownership of assets, and maintaining a ledger of accurate financial information. The accounting profession is broadly concerned with the measurement and communication of financial information, and the analysis of said information. Much of the profession is concerned with ascertaining or measuring rights and obligations over property, or planning how to best allocate financial resources. For accountants, using blockchain provides clarity over ownership of assets and existence of obligations, and could dramatically improve efficiency.” Source: https://www.icaew.com/technical/technology/blockchain/blockchain-articles/blockchain-and-the-accounting- perspective 02 Crowd Polling Question Have you or your businesses/clients started to use or are thinking about the potential use of blockchain technologies or cryptocurrency? A: Yes, we have or our clients have already started using the technology! B: Yes, we have or our clients have already started thinking about the technology! C: No, we have not nor have our clients even considered this technology! D: Unsure, I do not know what this technology is! 03 What do we mean by Blockchain and cryptocurrencies? 04 distributed ledger technology (DLT) and blockchain disruptive technology what do we mean Think about a technology that facilitates transactions and is a custodian of records. This could be payment systems, identity management, transfer of legal ownership of assets, etc. This can be on “private” ledgers; “public” ledgers; or “hybrid” ledgers. DLT and blockchain is much more than cryptocurrency. how can I be affected Companies are already exploring how to use the technology; and the use cases affect the processing of financial and operational information. Therefore, as a finance and accounting business partner, you need to stay abreast of the technology so you know how to evolve the business processes and get comfortable with the underlying technology processing the information. 05 So what is Blockchain? “…a digital, distributed transaction ledger with identical copies maintained on each of the network’s members’ computers. All parties can review previous entries and record new ones. Transactions are grouped in blocks, recorded one after the other in a chain of blocks (the ‘blockchain’). The links between blocks and their content are protected by cryptography, so previous transactions cannot be destroyed or forged. This means that the ledger and the transaction network are trusted without a central authority – a ‘middleman’.” Source: https://www2.deloitte.com/nl/nl/pages/financial-services/articles/blockchain-technology-speeding- up-and-simplifying-cross-border-payments.html 06 What are the characteristics of Blockchain? ✓ Decentralised/Distributed – You can conduct transactions directly peer to peer. You do not have to rely on a centralised network or authority. ✓ Immutability— Once transactions data has been recorded on the blockchain it is impossible to tamper with it. The data become incorruptible and non-expirable. ✓ Transparency— Blockchain by definition is a network of computers used to power it. Any node in the network or anyone who interacts with it has full access to every piece of data recorded in real time. ✓ Autonomy — Individuals who use blockchain technology are in full control over their assets, they are also responsible for their security and storage. ✓ Permissioned/Permissionless – depending on the blockchain, it may require that you are permissioned to join the private blockchain; or permissionless meaning anyone can join the public blockchain. ✓ Censorship resistance— Since blockchain technology is a gigantic network of computers located around the world, it makes it by design practically impossible for regulators to interfere with this technology due to its spread out global nature. Source for some information: https://medium.com/@SmartTaylorApp/why-blockchain-technology-and-cryptocurrencies-are-the-future-of-finance-fccdf25eef35 07 Graphic Representation of Blockchain Image Source: http://graphics.reuters.com/TECHNOLOGY-BLOCKCHAIN/010070P11GN/index.html 08 Graphic Representation of Blockchain (continued) Image Source: http://graphics.reuters.com/TECHNOLOGY-BLOCKCHAIN/010070P11GN/index.html 09 Cryptocurrencies Broad Categories dApps Utility Tokens Use Ethereum blockchain to build A business uses these tokens to help decentralized applications – basically facilitate transactions, such as an a user interface on a decentralized Exchange using their own token for protocol. payment of transaction fees. Example: Crypto Kitties Currency Coins Privacy Coins Use the word currency cautiously as it depends on the jurisdiction. However, these Facilitate anonymous transactions without an coins essentially facilitate the exchange of identifiable trail. Transactions cannot be value for products and services. traced. Supply Chain Example: Bitcoin Examples: Monero, Zcash Protocols Enabling track and trace, Source: https://medium.com/predict/do-you- inventory management, and know-the-5-different-types-of- the facilitation of the supply cryptocurrency-medium-29298d1fad2f chain between trading partners. Example: VeChain 010 Cryptocurrencies Did you know? There are over 2,100 cryptocurrencies out there! The top 3 are: Source: https://coinmarketcap.com/all/views/all/ 011 What is Bitcoin (BTC)? “Bitcoin was created in 2009 as an open-source software (Satoshi Nakamoto). How does Bitcoin work? Using blockchain technology, Bitcoin allows users to make transparent peer-to-peer transactions. All users can view these transactions; however, they are secured through the algorithm within the blockchain. Only the owner of that Bitcoin can decrypt it with a “private key” that is given to each owner.” Image Source: https://www.visualcapitalist.com/wp-content/uploads/2017/09/bitcoin- Source: https://www.trustetc.com/blog/September-2018/types-of-cryptocurrency ethereum-other-cryptocurrencies.html 012 What is Ethereum (ETH)? “Created in 2015, Ethereum is a type of cryptocurrency that is an open source platform based on blockchain technology. While tracking ownership of digital currency transactions, Ethereum blockchain also focuses on running the programming code of any decentralized application, allowing it to be used by application developers to pay for transaction fees and services on the Ethereum network.” Source: https://www.trustetc.com/blog/September-2018/types-of-cryptocurrency Image Source: https://www.visualcapitalist.com/wp-content/uploads/2017/09/bitcoin- ethereum-other-cryptocurrencies.html 013 What is Ripple (XRP)? “Ripple was released in 2012 that acts as both a cryptocurrency and a digital payment network for financial transactions. It’s a global settlement network that is designed to create a fast, secure and low-cost method of transferring money. Ripple allows for any type of currency to be exchanged, from USD and Bitcoin to gold and EUR and connects to banks, unlike other currencies. Ripple also differs from other types of digital currencies because its primary focus is not for person-to-person transactions, rather for moving sums of money.” Image Source: https://www.visualcapitalist.com/wp-content/uploads/2017/09/bitcoin- ethereum-other-cryptocurrencies.html Source: https://www.trustetc.com/blog/September-2018/types-of-cryptocurrency 014 What are the opportunities for the business and finance team? 015 Is Blockchain for real? Source: https://www.accountingtoday.com/opinion/blockchain-is-already-changing-accounting Image Source:https://hackernoon.com/how-is-blockchain-revolutionizing-banking-and- financial-markets-9241df07c18b Amounts in $USD 016 Blockchain Illustrative Use Cases Finance and Accounting Reduce costs of Investments and Share Accept Crypto and maintaining and Trading (Digital Assets) reconciling ledgers Cross-border payments Instead of using traditional brokers and Instead of using traditional banks (and stock exchange, stocks could be traded with Blockchain could help accountants currencies) to send money around the world, faster settlement and transaction validation. focus on planning rather than blockchain can make money remittance recordkeeping. The accountant more affordable and faster. As a finance and accounting function, how could focus on the value of the As a finance and accounting function, how will you treat the investments in crypto data. What would you do with the will you “account” for these transactions from shares; or what if your own company’s extra time? a book and tax standpoint? shares were tokenized? You could also do capital raising! Improve auditability and Smart Contracts fraud detection Pay Employees Contractual arrangements could be (Governance/Compliance) programmed to self execute when Employees could be paid in crypto Accounting applications will be able to certain conditions have been satisfied. or part of their retirement funds evidence that transactions between parties As a finance and accounting function, could be linked with crypto were legitimate and a joint register with a how will you work with legal
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