Chapter 12

Consortium Blockchain

- Permissioned blockchain - Allows several organizations to participate in. - Administrators establish the access rights and permissions (private channels) for each participant. - Executed only on a limited set of trusted nodes. - Permit more complicated enterprise behaviors. Hyperledger & Corda

Private Blockchain

- Permissioned blockchain/ Enterprise blockchain - Requires permission to join the network. - Transaction data and validation are restricted. - Not expose internal information to the public.

Public Blockchain

- Permissionless blockchain - No access restrictions in viewing or participation - Offers economic reward for the computational proof of work in mining. Bitcoin & Ethereum

Deep learning

-A form of machine learning that involves complex, multilayer (deep) neural networks. -Has more than two nonoutput layers -Provides more power to solve sophisticated problems but also creates model complexity.

Proof of Stake

-A set of validators who propose the next block lock up an amount of their cryptocurrency as a deposit to ensure honest behavior. -It reduced computer costs and centralization risks

Proof of work

-All miners compete to create the next block to be committed to the blockchain. This is done by solving a complex mathematical problem. -It requires the miners use computer power so it can prevent attacks as it requires tons of computer powers to overcome

Challenges on Audit and Assurance:

-Illegal, fraudulent, or unauthorized transactions can reside in the blockchain -The records residing in the blockchain network may not provide sufficient information for auditors. -Complicated protocols involved in the distributed ledger system -An auditor needs to understand how the business is implemented and how the business uses blockchain technology in its end-to-end business applications. -Different blockchain platforms with different protocols and terms make it difficult to apply traditional audit approaches to blockchain technology. -Acquiring the skill sets to understand smart contracts is crucial to audit blockchain use cases.

There are three important concepts involved in the traditional transactions:

-Middleman -Delay -Service fee

New Approaches for Future Audit Tasks

-Recruit auditors with enough understanding of blockchain technology/ IT background and offer training in smart contracts -Recruit software and IT background people and do the onsite audit training. -Form an audit team that combines the expertise of IT, taxation, law, accounting, and auditing.

Proof of Authority

-The administrator identities who creating blocks are known and reputable. -The rest of the network can vote for admin removal in case of malicious behavior found in the network.

In a blockchain system:

-The transactions are done without any middleman involved. -Much faster transaction time (minutes vs days). -Lower service fee.

There are 20 true positive predictions, 5 false positives, 2 false negatives, and 650 true negatives in the confusion matrix. What is the precision ratio? 0.80 0.91 0.99 1.00

0.80

There are 20 true positive predictions, 5 false positives, 2 false negatives, and 650 true negatives in the confusion matrix. What is the accuracy ratio? 0.80 1.00 0.99 0.91

0.99

Which of the following is NOT true about modern neural networks? More layers increasing the complexity of the models Neural networks have been used to solve sophisticated problems like computer vision. A neural network with more than 100 layers cannot be effectively trained Most business problems require only two or three hidden layers

A neural network with more than 100 layers cannot be effectively trained

What is a smart contract used in a blockchain network? Multiple select question. A smart contact defines the transaction rules in Bitcoin. A smart contract defines the digital assets that could be transferred in transactions. A smart contract defines the terms and business rules to be used in conducting transactions. A smart contract is written in software code.

A smart contract defines the digital assets that could be transferred in transactions. A smart contract defines the terms and business rules to be used in conducting transactions. A smart contract is written in software code.

In unsupervised learning, the model discerns how elements of the dataset are ________ or not.

Alike or similar

Consensus:

All parties will be aware of transactions that take place on the network and agree to the transactions being written to the blockchain.

Select a WRONG statement about blockchain concepts. Participants on a blockchain network must reach consensus before transactions are committed to the blockchain. Past information recorded on a blockchain cannot be edited or altered. Blockchain technology uses a distributed ledger system and each copy of the ledger containing the same transaction records. All transactions on a blockchain network must be verified by a central authority.

All transactions on a blockchain network must be verified by a central authority.

Differences between Corda and Public Blockchain (Public Blockchain )

Anonymity Proof of work Crytocurrency Fixed business rules No defined roles Public transaction information

Anonymous peer-to-peer transactions, no middleman involved.

Bitcoin

One block is added to the blockchain every 10 minutes.

Bitcoin

Current Challenges with Adopting Blockchain Technology

Blockchain protocols are lacking in areas such as speed, confidentiality, and governance requirements. Most enterprises are opting to start with permissioned or private blockchain networks, which require a method to govern who is eligible to participate in the network. Challenges in integrating private blockchain network with existing enterprise solutions

What are the potential impacts of blockchain on accounting and audit practice? Blockchain technology increases the possibility of conducting continuous audit. Auditors will need to review business rules coded in smart contracts. Auditors will not need to audit blockchain transactions since transactions cannot be modified or deleted.

Blockchain technology increases the possibility of conducting continuous audit. Auditors will need to review business rules coded in smart contracts.

Which of the following is NOT an example of reinforcement learning? Multiple choice question. Self-driving cars Playing games Categorizing email Spam Robotic control

Categorizing email Spam

List the key characteristics of blockchain technology: distributed and decentralized,_________, and ___________

Consensus, Immutability

Machine Learning Cycle

Data -> Learn-> Predict Machine learning models learn from training cases or data. The models then make predictions for new products or data. Those new products then generate new data, which improves the ability to make predictions.

Which of the following is NOT a reason that the development and implementation of AI applications is exploding. Sophisticated computers Large data volumes Data is limited New data management tools

Data is limited

Which of the following is NOT true about the relationship between AI, machine learning, and deep learning. Artificial intelligence includes both machine and deep learning Deep learning involves less complexity than machine learning Deep learning involves more complexity than machine learning Machine learning encompasses deep learning

Deep learning involves less complexity than machine learning

Smart Contracts

Define the terms, business rules, and transfer of assets on a piece of software code Should be examined among the trading partners and/or regulators

Corda

Developed by R3 •Uses smart contracts for its business rules. •Only relevant parties can join the network. •Only related parties will be informed for each transactions.

How Does Blockchain Work? To be characterized as blockchain, there must be a few components that are met:

Distributed and decentralized Consensus Immutability

Artificial neural networks are the ___________ of machine learning.

Engine

One block is added to the blockchain every 12 to 15 seconds.

Ethereum

True or false: Blockchain technology is used for Bitcoin (cryptocurrency) only.

False Blockchain technology is used for many other purposes such as tracking food deliveries or verifying medical records, in addition to using cryptocurrency for transactions.

True or false: Since blockchains are immutable, auditors do not need to audit blockchain transactions.

False For most companies, smart contracts will need to be audited to verify the business rules.

True or false: A blockchain network is a distributed ledger system and all transactions must be verified by a central authority.

False Reason: A central authority is not needed in a blockchain network.

True or false: Supervised learning is a type of machine learning but it is seldom used in practice.

False Reason: It is the most often used.

True or false: Classification problems seek to minimize the differences between predicted and actual values.

False Reason: Regression problems do this, not classification problems.

Which of the following is NOT a technique to train a neural network system? Unsupervised learning Supervised learning Incentive-based learning Reinforcement learning

Incentive-based learning

Which of the following is NOT true about artificial neural networks? Connections between nodes can include loops Information moves through hidden layers Information moves from the output layer to the input layer They can be nested so the overall network includes multiple layers

Information moves from the output layer to the input layer

Anomaly detection algorithms address which of the following questions? Multiple choice question. Is it A or B? Is it different? How much is the predicted price? What should I do next?

Is it different?

Which of the following is true about the AI field of study? It began in the 1990s It began in the last 20 years It began in the 1980s It began in the 1950s

It began in the 1950s

Select the correct statements about Ethereum. It uses "smart contracts" to code the logic for transactions. The cost to implement Ethereum is cheaper than Bitcoin. It is a more robust application of blockchain technology to include business rules. For most companies, Ethereum platform is more useful than Bitcoin to conduct/record different types of transactions.

It uses "smart contracts" to code the logic for transactions. It is a more robust application of blockchain technology to include business rules. For most companies, Ethereum platform is more useful than Bitcoin to conduct/record different types of transactions.

Differences between Corda and Public Blockchain (Corda)

Known Identity Selective endorsement Asset Small Contracts Access control rules Appropriate privacy

Select the best statement in describing the concept of miners in blockchain. Miners can use various consensus algorithms while creating blocks on a blockchain network. Miners are the nodes/machines creating and validating blocks. Miners are any nodes/machines in a blockchain network.

Miners are the nodes/machines creating and validating blocks.

Immutability:

Once transactions are confirmed on the blockchain, they are tamperproof and cannot be altered.

Bitcoin

One crytocurrency

Select the correct statement on the three types of blockchain. Consortium blockchain is permissionless. Private blockchain is also called enterprise blockchain. A public blockchain requires permission to join. contracts

Private blockchain is also called enterprise blockchain.

How Does Blockchain Work? To be characterized as blockchain, there must be a few components that are met:

Proof of work Proof of Authority Proof of Stake

There are three types of blockchain:

Public Blockchain Private Blockchain Consortium Blockchain

Who published a white paper in 2008 to introduced a concept on distributed ledger system which is the foundation of the blockchain technology?

Satoshi Nakamoto

Opportunities for Future Roles in CPA

Smart contracts is one of the key areas Understand the business rules embedded in the smart contracts and the related libraries. Verify the appropriateness of tax code and regulations in the smart contracts.

Distributed and decentralized:

The data are distributed and synchronized among all the participants in the network.

Artificial Neural Networks (ANNs)

The mathematical model underlying machines learning; consists of inputs, nodes or neurons, and outputs in one or more layers

What is the original purpose of using a distributed ledger system with the blockchain technology? To simplify accounting concepts involved in conducting transactions To eliminate intermediaries/middlemen in perform transactions To reduce transaction cost To reduce transaction time.

To eliminate intermediaries/middlemen in perform transactions

Which of the following are NOT uses of natural language processing and understanding applications? Extract semantic meaning Recognize faces Translate text Discern sentiment

Translate text

In reinforcement learning, the model learns by ___________and error.

Trial

True or false: AI applications are also called cognitive technologies.

True

What kinds of business questions would a reinforcement learning algorithm help answer? What is this house price? What action should I take next? Will a 20% discount attract buyers? Is this website safe?

What action should I take next?

Blockchain

a distributed ledger system originally designed for Bitcoin exchange but now used to exchange a variety of digital assets

Artificial neural networks

are the engines of machine learning.

Machine learning is a subset of ________ intelligence.

artificial

Most machine learning applications are designed to perform either some sort of _______or regression.

classification or categorization

The success of an artificial neural network can be measured by using a __________ matrix.

confusion

Neural networks are mathematical models that

convert inputs to outputs/predictions, can be nested together

Hyperledger

created by Linux Foundation

Machine learning applications improve their ability to analyze patterns as they process more ________

data

If there are two possible classifications, then the confusion matrix would show each _______ cells with the prediction options.

four or 4`

Robotic process automation is used to reduce the _____ labor required

human

Feed-forward neural networks

information moves in one direction.

Deep Learning

is a type of Machine Learning.

Due to the distributed nature and real-time information retrieval of blockchain technology

it is possible for auditors to conduct a continuous audit over time.

Blockchain log file

keep track the provenance of transactions

AI is intelligence exhibited by ____________ rather than humans.

machines or computers

New approaches to data _______ allow new and dynamic approaches to gathering, classifying, and correlating data.

management

In a machine learning context, a model is a ________ representation of some process.

mathematical

Neural networks are mathematical _________ that convert inputs to outputs/predictions.

models or algorithms

The trained model is applied to

more test data or real-world data.

Machine learning is a type

of AI

In supervised learning, the _________ is a known set of values that the neural network seeks to predict.

output

In unsupervised learning, the system uses unstructured data and the system discovers _______in the data.

patterns

The precision ratio is the ratio of correct positive predictions to the number of_________predictions.

positive

Regression problems seek to real _______ numbers, such as house prices.

predict or forecast

The AI field has been around for quite a while, but early progress was limited by primitive computers and ________ tools.

programming or software

Membership identify service and the access control list (ACL)

provides an additional layer of role-based access control.

Blockchain was not originally built to

support enterprise use cases

Machine learning involves

the computer's ability to learn from experience rather than specific instructions.

Recurrent neural networks:

the connections between neurons include loops.

In machine learning, the model learns from ______ cases or data

training

Deep learning networks have more than______ non-output layers.

two or 2

A cleaned and well-defined training data set is

used to optimize predictions.

When Is Blockchain Useful?

•Enable multiple parties that do not fully trust each other to collaborate with a shared source of truth. •Accelerate transaction settlement and verification by eliminating intermediaries. •Help cut costs and resources that would be spent on manual verification (help auditors collecting and evaluating evidence to support transactions).

Supervised Learning

•Input could be anything, but output is a known set of values. •Neural network seeks to predict the output by using the input dataset. •The data includes pairs of input and output.

Hyperledger, created by Linux Foundation

•Smart contracts, configurable consensus, and member management services. •Private channels

Semi-Supervised Learning

•Some data are labeled, but some labels can be incorrect or missing. •The computer discerns values for the incorrect and missing outputs. -Active Learning: queries the user to discover the right label/output.

Traditional system

•System is centralized. •Requires a middleman to approve and record transactions. •Only one copy of the ledger

Blockchain system

•System is decentralized, distributed ledger •No middleman needed, multiple copies •When a new transaction occurs, all nodes are in sync. •Information cannot be added or deleted without the knowledge of the entire network. •A write-once, read-many system.

Corda, developed by R3

•The administrators define and restrict each user's access rights. •Only a restricted set of trusted nodes execute the consensus protocol.

Reinforcement Learning

•The machine/model learns by trial-and-error. •The program acts and learns by feedback from those actions as it works toward a desired goal. •The goal is dynamic. It can change over time based on circumstance.

Unsupervised Learning

•Uses unstructured data rather than labeled data •No input-output pairs. •The goal usually involves: -Clustering or dimension reduction -Identify outliers in the input dataset •Different parameters can result in different results.