Bitcoin and Blockchain

Bitcoins are stored in a

"blockchain" (i.e., a type of fancy database)

A blockchain record is an electronic file that consists of

"blocks," which document transactions and each block includes a time and a link to a previous block using a unique code

Bitcoin is the first and most popular

"crypto-currency" (i.e., a currency that relies on encryption technology for validation and control)

Bitcoin is also considered

"electronic cash" however, unlike most cash, no central government or authority manages bitcoin.

Bitcoins are created by

"mining," which is basically solving mathematical puzzles requiring dedicated, very fast computers.

Bitcoin Risks, According to the Securities and Exchange Commission

- New investments, including new currencies, have a heightened risk of fraud - Do not expect to recover bitcoin losses from fraud - Holding and investing in bitcoins has unique risks.

Bitcoin transactions are favorites of

criminals and terrorists since they were originally designed to be untraceable. But it is now challenging to make bitcoin transactions untraceable since new methods exist for tracking these transactions

For accounting and accountants, Bitcoin and, more importantly, blockchain are

critical, potentially disruptive technologies and a basic knowledge of these technologies is essential

A peer-to-peer network is

decentralized, which is essential to bitcoin's goal of independence of centralized authority, governments, and financial institutions.

Supply chain auditing of blockchain

Go the company's blockchain and trace its supply chain to its source. The company Provenance offers this service.

Auditing and monitoring using Blockchain

If auditors can begin with a transaction record that does not need to be audited, considerable time (and client money) will be saved in internal and external auditing.

Blockchain Applications include

Smart contracts Internet of Things (IoT) Open source payment Financing and crowdfunding Corporate governance and financial reporting Supply chain auditing Predictive analytics Identify and access management Auditing and monitoring

Open source payment of Blockchain

Why use financial institutions, and their fees, for payments when a verifiable, open-ledger network is available for these payments?

Identify and access management in Blockchain

With blockchain, users' might need only a single point of identification (e.g., a fingerprint) to link to their permanent record, which could be confirmed by any transaction identifier in the record

Because bitcoin is taxed as property,

gains or losses are capital gains or losses.

Simply stated, blockchain is an

independent, secure, non-modifiable audit trail of transactions, collected into an open ledger database. It is also an encryption-secured, distributed database of transactions.

Bitcoin transactions are taxed as

investments.

You send or receive bitcoins with an address, which is like a bank account, and that are

matched to private keys, which need to be kept confidential.

TAccounting for (i.e., tracking) bitcoins operates on a

peer-to-peer network, which is an alternative to the client-server network

Blockchain was created as part of

the invention of bitcoins to provide a secure, decentralized cryptocurrency tracking system.

blockchain is a powerful example of

1) COSO's advocacy of continuous monitoring 2) a new technology that enables continuous monitoring of the accounting system.

Risks and Limitations of Blockchain

1) Hacks, cracks, and attacks 2) very complex and relies on sophisticated, advanced encryption and networking technologies.

The security of blockchain depends on three factors:

1) independent confirmation; 2) asymmetric encryption; and 3) cheap, fast computing capacity.

Difficulties in committing fraud in the blockchain include:

1) would require changing all copies of the record across the entire distributed database. Anyone monitoring the fraudster's blockchain could identify the alteration and the fraud. Game over! 2) Altering other copies (i.e., those other than the fraudster's) of the blockchain would require acquiring the private keys for all other copies of the blockchain. In a large distributed network, this would be impossible. 3) Cheap, fast computing power makes it easy for networked computers to monitor for attempts to change the blockchain.

Bitcoin transaction costs are cheaper compared to

Banks and other financial institutions that charge (sometimes large) transactions fees.

What Is bitcoin?

Bitcoin is an intangible asset according to the IRS view that bitcoins are taxed as "property" not as currency

Predictive analytics using Blockchain

Blockchain can be used to aggregate millions of users' expectations about an event like forecasting of weather, business outcomes, sporting events, or elections.

Smart contracts of blockchain

Blockchain enables the enforcement of contracts through mutual block monitoring (e.g.., Ethereum)

What Is Blockchain?

Blockchain is a decentralized, distributed ledger.

Corporate governance and financial reporting in blockchain

Blockchain makes any recorded issue open to be investigated by anyone with access to the blockchain. If all financial records are available always and everywhere, would we still need external auditors as monitors?

The ledger that tracks bitcoins is a(n) ____________ ledger while the network that accounts for bitcoins is a(n) ___________________ network.

Blockchain; peer-to-peer

Financing and crowdfunding of Blockchain

Crowdfunding (e.g., Kickstarter and Gofundme) offers another opportunity for blockchain, including the possibility of crowdfunded start-up operations that are financed by investors investing through blockchain technology.

Business transformation through blockchain is likely to occur __________________ and requires ___________ adoption.

Eventually; widespread

Bitcoin is a peer-to-peer (i.e., decentralized) currency that relies on

a database system (called blockchain) to authenticate and validate the audit trail and existence of bitcoins.

Bitcoin is a decentralized currency that is not under the control of

a government, centralized authority, or financial institution.

Because blockchain relies on decentralized users confirming one another's ledgers, it requires

adoption by many users to be useful. Hence, blockchain is unlikely to transform business in the short term.

Committing a fraud in the blockchain would require

altering a block (i.e., a transaction record)

Some users try to make their bitcoin transactions

anonymously by using anonymous accounts and exchanges that work to hide users' identity.

In a peer-to-peer network,

any node can communicate with any other node unlike a client-server network in which all client computers communicate only with the server.

"Decentralized" and "distributed" mean that

anyone in the peer-to-peer "network" (i.e., the people and machines that are allowed access to the ledger) can always log, view, and confirm its validity and accuracy.

One difference in bitcoins from some intangible assets is that

bitcoins can be bought, sold, and traded

Bitcoins are great alternative to currencies that are

controlled by governments and for investors who distrust central authority and love markets (e.g., libertarians),