Five Top Tech Takeaways: Writer's Get Concessions on AI, FTX's Auditor Sued by the SEC, Windows 11 goes AI, and Dalhousie's Battery Discovery

The Pen Is Mightier than the Robot

The Pen is Mightier Than the Robot? Writers Draw the Line with AI

Hollywood writers, after one of the longest labor strikes in history, have secured a significant victory over the implementation of artificial intelligence (AI) in the film and television industry. The Writers Guild of America (WGA) managed to strike a deal with the Alliance of Motion Picture and Television Producers, establishing strict guidelines on how AI can be used in the industry. The contract doesn't ban AI but imposes limitations to ensure that the technology remains under the control of the workers and doesn’t replace them.

The deal prohibits studios from using AI to write or edit scripts and from treating AI-generated content as "source material" that could be assigned to screenwriters for adaptation at lower fees and lesser credit. The contract allows AI to be used as a tool but ensures it doesn’t undermine writers' roles or reduce their wages. It maintains that AI is complementary to humans and should be under the control of the writers, not the studios. If writers adapt output from AI models, it will still be considered an original screenplay. Studios are also required to disclose any use of AI in providing material to the writers. While writers can choose to use AI as a research tool, they cannot be forced to use it. (Source: Guardian)

FTX Auditor Under Fire: SEC Sues Prager Metis for Independence Violations

The U.S. Securities and Exchange Commission (SEC) has initiated a lawsuit against accounting firm Prager Metis for purported violations pertaining to auditor independence, citing the incorporation of indemnification provisions in engagement letters during December 2017 to October 2020. Prager Metis is contending the allegations, asserting that the contested provisions never influenced the quality of their audits nor were enforced. The firm was associated as an auditor for the FTX Group; however, the SEC clarifies that the accusations are not related to any FTX matters. The SEC aims to secure an injunction and penalties against Prager Metis, with the investigation currently in progress. (Source: Reuters)

Blockchain Meets AI-enabled Entertainment: A New Era of Content Creation with Story Protocol

Story Protocol, developed by entrepreneur Seung Yoon Lee, is a groundbreaking blockchain-based platform aspiring to reconfigure the $2.3 trillion entertainment and media industry. The integration of artificial intelligence in content creation acts as a catalyst for this initiative, allowing exponential growth in fan-generated content and posing challenges to traditional copyright frameworks, thereby making a system like Story Protocol essential. The platform allows creators to manage, collaborate, and set terms of licensing and remuneration through Ethereum-based smart contracts, optimizing interactions and transactions between creators and fans, and enabling fans to influence and monetize their contributions. With substantial backing, including a $54 million investment led by Andreessen Horowitz, Story Protocol heralds a shift in intellectual property management and content production in an era dominated by AI innovations and fan-driven content. (Source: Forbes)

A Leap in Battery Efficiency: Dalhousie University's Tape Discovery.

Researchers at Dalhousie University have discovered a new way to extend the battery life of most laptops and cellphones by identifying a power-drainage flaw. The standard lithium-ion batteries use polyethylene terephthalate (PET) tape to hold its components together, which can dissolve due to a chemical reaction in the battery, causing charge depletion without sending out an electrical current—a phenomenon called self-discharge. The researchers have found that replacing PET tape with chemically stable polypropylene (PP) tape can decrease self-discharge by up to 70% and increase battery life by up to 10%. Polypropylene tape, having stronger chemical bonds, is more stable and costs about the same as PET tape, offering a simple and cost-effective solution for manufacturers. (Source: CBC)

Windows 11 Update: Microsoft Goes Big on AI
Microsoft’s latest update to Windows 11 brings a suite of AI-powered enhancements and features aimed at creating a more intuitive and versatile user experience. Here's a condensed overview:

• Windows Copilot: Acts as an AI-powered digital assistant, integrating many parts of Windows, controlling settings, launching apps, and answering queries.
• AI-Enhanced Paint: Equipped with Photoshop-like features, it supports transparency, layers, and an AI image generator called “Paint Cocreator,” which creates images based on text prompts and selected styles.
• Upgraded Snipping Tool: AI allows for text extraction and redaction from images and sharing in other apps, with automatic redaction for sensitive information.
• AI-Powered Photos App: Offers a background blur option that auto-identifies the background, enabling customization of blur intensity and areas to be blurred.
• Improved Windows Backup App: Facilitates seamless migration to new devices by backing up existing settings to the cloud
• Windows 365 Integration: Incorporates Windows 365 Cloud PCs, enabling direct boot and switch between local desktop and Cloud PC within Windows 11.
• Dev Home for Developers: Offers an efficient setup for Windows dev machines, utilizing Windows Package Manager to install necessary tools and apps and configuring coding environments in the cloud.

These features are rolling out progressively, with availability to all users anticipated in the coming months, and further advancements are expected in the Windows 11 2023 update. (Source: TheVerge)

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist who is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else. This post was written with the assistance of an AI language model. The model provided suggestions and completions to help me write, but the final content and opinions are my own

Time to Upgrade the Internet? A look at the hope and hype around Web3

Is the Internet ready for a version upgrade? Some blockchain enthusiasts think so, but others - Tim O'Reilly in particular - think we need to hold off. 

What is Web3?

Deloitte, for its part, sees the Web3 as part of a larger concept of the “semantic web”:

“Many people identify Web 3.0 with the Semantic Web, which centers on the capability of machines to read and interact with content in a manner more akin to humans. Recently, definitions of Web 3.0 have begun to include distributed ledger technologies, such as blockchain, focusing on their ability to authenticate and decentralize information. Theoretically, this could remove the power of platform owners over individual users.”

Gartner links the origins of the term to “Gavin Wood, co-founder of Ethereum, who argues that centralization is not socially tenable long-term. Also called Web 3 and Web 3.0, Web3 eliminates the need for, and functions of, Web 2.0 central authorities and “gatekeepers,” such as major search engines and social media platforms.” [Emphasis from the original quote]

Ethereum, while admitting “it's challenging to provide a rigid definition of what Web3”, lists 4 “core guiding principles, including decentralization, permissionless, use native payments (i.e., cryptocurrencies instead of “outdated infrastructure of banks and payment processors”), and trustless (e.g. relies on miners instead of “trusted third-parties”).

What does Tim O’Reilly, Bill Gates, and Gartner have to say about this?

Tim O’Reilly coined the term “Web 2.0” back in 2005. According to his seminal post on the topic, he introduces the jump from Web 1.0 to Web 2.0 by looking at how Google (which he believes is “the standard bearer for Web 2.0”) compares to Netscape. Specifically, he notes that “the value of the software is proportional to the scale and dynamism of the data it helps to manage.”. He also touches on a number of other concepts, including the ability to harness the wisdom of the crowds, cloud computing, as well as the long tail. 

The original post is worth the read because it gives a benchmark of sorts as to what does “good look like” when claiming the web has gone through a version upgrade.

In terms of what O’Reilly thinks about Web3, it can be found here. He summarizes his primary challenge in a single sentence:

“None of the examples in the article focus on the utility of what is being created, just the possibility that they will make their investors and creators rich.”

The article he is referring to was this one published by NY Time in the fall of 2021. The article mentions, social media, collectibles, and gaming.

Bill Gates is a bit more direct:

“Speaking at a TechCrunch talk on climate change Tuesday, the billionaire Microsoft co-founder described the phenomenon as something that’s “100% based on greater fool theory,” referring to the idea that overvalued assets will go up in price when there are enough investors willing to pay more for them… Gates joked that “expensive digital images of monkeys” would “improve the world immensely,” referring to the much-hyped Bored Ape Yacht Club NFT collection.”

Regardless, O’Reilly and Gates end-up in the same place. Compared to the Railway, Radio, and Internet Bubbles of the past, there is no infrastructure being built here to move people/goods, broadcast programming through the air, or enable the routing of packets of information in a dynamic way that enables us to work from home during a pandemic.

In contrast, there is literally nothing when it comes to crypto. With bitcoin, you do not actually have a tangible thing to hold on to; there are no digital coins or pieces of code to point to. Instead, your holding are mathematical calculation of your “ins” and “outs” (see here for our post/process flow of bitcoin).  Sure, that’s part of the security – but from an economic perspective that is quite a difficult pill to swallow. Add on top of that, there is no centralized intermediaries to turn to when things don’t work out with these “assets” – you have massive issues in understanding how this different than people paying fortunes for tulip bubbles, I mean bulbs.

As noted in the previous post on NFTs, I do think that NFTs offer some type of infrastructure to the future. O’Reilly is not so sure. However, what we do agree is there massive gap on the institutional side of things:

“The failure to think through and build interfaces to existing legal and commercial mechanisms is in stark contrast to previous generations of the web…The easy money to be made speculating on crypto assets seems to have distracted developers and investors from the hard work of building useful real-world services.”

O’Reilly points out that the Web 2.0 – despite the DotCom Crash – still had successful ventures that could be pointed to, such as Amazon and Yahoo that were making money, hiring people, providing services to millions of users and “had all built unique, substantial, and lasting assets in the form of data, infrastructure, and differentiated business model”.

And Gartner?

Gartner on a recent blogpost unveiling its Hype Cycle for Blockchain and Web3, 2002, made an important observation:

“In the meantime, other than cryptocurrency trading, we still have not seen killer use cases yet. They need to leapfrog over current applications in terms of making our lives better.”

Though Web3 is something new, there’s a lot more that needs to be done before it can be crowned a Version 3.0 of the World Wide Web. 

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

NFTs: Heading for the Trough of Disillusionment?

The recent sale of NFTs from Yuga Labs showed both the promise and the peril of the hyped technology. On the one hand, Yuga Labs made “$320 million in what was considered the “largest NFT mint in history”, with its “sale of Otherdeed nonfungible tokens that represent digital land deeds on their new venture, the Otherside metaverse”.

 

Minting is the NFT equivalent of an “initial public offering” (IPO). But instead of selling stock, they are selling a digital token. In this case it was land rights in “a metaverse game world”. Each parcel of “digital land” was sold for “305 ApeCoin (APE), or nearly $5,800”. The incentive for the buyer is to get in early and then sell the NFT on secondary markets. For example, on OpenSea (a major reseller of NFTs) the Otherdeeds were selling for an average of just over 9 ether (ETH) or nearly $27,000.  

 

The peril?

 

The rush to cash in on this craze resulted in overloading the Ethereum blockchain. And that didn’t just result in slow service. It cost millions: $123 million. Users got hit with transaction costs that exceeded the cost of the “digital land deed”, coming in between “2.6 ETH ($6,500) to 5 ETH ($14,000)”.

 

In contrast, Visa charges merchants between “2.87 percent and 4.35 percent per transaction”, which would have been about $160-$260 per sale. It’s hard to see how the decentralized finance (DeFi) approach is superior to the “classic” approach of centralized finance (CeFi).

 

So, should we discard NFTs?

 

NFTs: What took them to the Peak of Inflated Expectations?

Before running for the hills and closing the books on NFTs, we should remember the Dotcom era. It was the late 1990s, Google was still a scrappy start-up and Microsoft was seen as the bully those days. And people will all starry eyed about the “new Internet economy’. Slap a “.com” behind your company’s name and voila! Millions of dollars of investment would be thrown at you.

 

So, is history repeating itself? In a sense, yes.

 

According to Gartner’s Hype Cycle, there is an initial hype phase when the innovation causes mania in the markets, which is known as the “Peak of Inflated Expectations”. That is, the innovation is seen as that silver bullet that will cure all.

 

Conceptually, NFTs provide a means to create “digital scarcity”, hence the term “non-fungible”. Specifically:

“NFTs allow ownership and use rights to be demonstrated for any piece of digital content by assigning the content a specific, nonduplicable identifier that is recorded on a distributed database, or blockchain, typically Flow or Ethereum.” (link)

 

This then allows physical collectible items – basketball cards, comic books, art, and so on – to be unique digital items. Previously, this was not possible as all digital “assets” were fungible, i.e. copies of copies with no way to distinguish one from another.

 

A secondary area of value within NFTs is the use of algorithms to generate art.  Specifically, algorithms are used to synthesize “different design features, accessories, and special traits… [to create] thousands of unique combinations.” In other words, an artist does not have to generate each work of art. Instead, they can “draw” one piece and then let the algorithm generate thousands of images based on that initial design. For example, the “Ape images” generated as part of the Bored Ape Yacht Club “collection” relied on this “procedural algorithms that can create tiers of rarity and value”.

 

Beyond art, sports media looks to be a potentially lucrative NFT market. Deloitte Global predicts between 4 to 5 million gifts/purchases for such digital work that “will generate more than US$2 billion in transactions in 2022”.   

 

Entering the Trough of Disillusionment: 10 Challenges with NFTs

The value of NFTs is intuitive at first glance. But there are challenges. The emergence of these problems, issues, and outright scams is a sign that we are heading into the next phase of Gartner’s Hype Cycle which is “the Trough of Disillusionment”. If this was the early days of the Internet, it would be the moment when investors realized that pets.com was not such a good idea after all. It’s in this phase that the problems with the innovation become apparent. Let’s look at 10 issues that have arisen with NFTs.

 

Issue #1: Blockchain does not scale like the Cloud

The +$100 million gas bill that Ethereum effectively issued to “digital land deed” speculators was not a first. This problem was previously experienced with CryptoKitties. As noted in this paper, “CryptoKitties was the first widely recognized blockchain game. Players could own, breed, and trade kitties, which are the only prop in the game.” The paper explains how collectors experienced massive gas bills from Ethereum to get in on the hype:

“The cost of performing operations on a public blockchain system is highly volatile due to the unstable price of cryptocurrencies, resulting in it difficult to control the cost of the applications deployed on the blockchain. As CryptoKitties was deployed on Ethereum, the cost of playing the game (including the costs of buying, breeding, and renting kitties, as well as the fees paid to Ethereum miners) has risen significantly due to the rapid rise of Ether price in the third stage. Ether price increased from US $451 on December 10, 2017, to US $1,322 on January 10, 2018…resulting in a significant increase in the cost of playing the game, raising the bars for new players entering the game.” [Emphasis added]

 

We’ve been conditioned by the cloud to expect automatic scaling; such bottlenecks seem to harken back to a more primitive era of computing. However, that’s the price of trust. The proof-of-work consensus mechanism is designed precisely to slow things down to allow for the miners to verify the transactions and prevent hackers from committing non-authorized records to the blockchain.

 

Issue #2: NFTs do not necessarily convey digital ownership

According to Deloitte Global: “Ownership of an NFT may include ownership of the underlying digital asset, though most sports NFTs sold to date have no ownership or use rights in the underlying media.” [Emphasis added, italics from original]

 

But perhaps a bigger smoking gun is at Christie’s auction house – the same one that sold Beeple’s digital artwork for $69 million. As highlighted by the well-known nocoiner, David Gerard: “Christie’s auction of an NFT is a fabulous worked example. There’s a 33-page terms and conditions document, and if you wade through the circuitous verbiage, it finally admits that … you’re just buying the crypto-token itself…”

 

He goes on to cite the terms of sale, right from the Christie’s site, which clearly states:

“You acknowledge that ownership of an NFT carries no rights, express or implied, other than property rights for the lot (specifically, digital artwork tokenized by the NFT)…”

 

Issue #3: If all that’s transferred is a hash, then where’s my “digital asset”?

The “what” is not the only issue. The ”where” is also an issue. As noted on CoinDesk: “On the simplest level, an NFT is a record (a document with a hash) stored on Ethereum (usually) that points to where its associated content (the image) lives somewhere else on the internet (it's much too expensive to store images on Ethereum).” [Emphasis added]

 

Like scalability, we are accustomed to the idea that storage is cheap and plentiful. But such assumptions don’t hold for the blockchain. Therefore, this disconnect between the location of the ownership record and the digital item itself can be baffling. Moreover, this approach contradicts that generally accepted wisdom that ‘possession is nine-tenths of the law’.

 

Issue #4: Is digital art a great vehicle for money laundering?

As noted by the US Department of the Treasury: “…the emerging digital art market, such as the use of non-fungible tokens (NFTs), may present new risks, depending on the structure and market incentives.”

 

Though specifics were not provided, it’s not surprising the that the US government has their eye on the area. Given the reputation that Bitcoin has for us in less than legal transactions, it’s not surprising that NFTs potential for nefarious purposes.

 

 

Issue #5: NFT Price Volatility is an Understatement

One of the more famous NFTs was Jack Dorsey’s first tweet, which was sold for $2.9 million. According to the Guardian, Sina Estavi, a crypto entrepreneur, who bought the tweet wanted a cool $48 million for it. What was he offered? According to CBS, only $280.

 

Issue #6: You could be buying an NFT that has been copied without the author’s permission

OpenSea noted in a tweet that “Over 80% of the items created with this tool were plagiarized works, fake collections, and spam.” Perhaps, the worst incident of this was how fraudsters sold the work of a dead artist. Moreover, “NFTs themselves can be used to fraudulently attribute digital designs to multiple owners”.

 

Issue #7: The superstar NFT artists make all the money, the rest of us don’t

The hype would make us believe that we all can get rich from NFTs. A study published on Nature found that 75% of NFTs sold for a price less than $15:

“We observe that the average sale price of NFTs is lower than 15 dollars for 75% of the assets, and larger than 1594 dollars, for 1% of the assets. Considering individual categories, NFTs categorized as Art, Metaverse, and Utility reached higher prices compared to other categories, with the top 1% of assets having average sale price higher than 6290, 9485, and 12,756 dollars respectively.”

 

Issue #8: For all the promise of blockchain’s transparency, opaqueness abounds

As noted earlier, digital artist Beeple (Mike Winkelmann) sold his "Everydays - The First 5000 Days" for $69 million. But the buyer was a mystery. But nocoiner Amy Castor had a hunch. She thought it was MetaKovan (Vignesh Sundaresan). And this was confirmed on CNBC.

 

But so what? It turns out that MetaKovan and Beeple were already business partners.

 

Beeple owns 2% of the B20 tokens that is behind Metapurse “a crypto-based investment firm”. Metapurse is controlled by MetaKovan. That firm had previously purchased “Beeple’s “Everydays: 20 Collection” artworks for $2.2 million”. (See Castor’s post here). Though the "Everydays - The First 5000 Days” is owned by MetaKovan and not Metapurse, the previous relationship does dampen the hype behind the sale and calls to us to question the valuation.

 

But a more important question, is why wasn’t this visible on the Ethereum blockchain? According to Castor:“…it sounds like the funds may even have gone into Christie’s escrow wallet…Anyhow, if both parties had Coinbase accounts, the exchange could just change the database records off-chain to flip account balances. In this way, Coinbase acts like a second layer, and you wouldn’t see the ETH transaction.” [Emphasis added]

 

Issue 9: NFTs still rely on “classic” intermediaries for mega sales

NFTs that sell the best still rely on “old-world” forms of intermediaries. That is, NFTs are not a way for the “common person” to make it rich simply because of their artistic talent. Instead, the more successful NFTs rely on the following:

·        Celebrity endorsements: Paris Hilton, Jimmy Fallon, Eminem, and others used their celebrity status to give a boost to the NFT “Ape Art” from the Bored Ape Yacht Club.

·        Whitelisting: Bloomberg reported on Chainanalysis’s finding that “[t]he practice of whitelisting appears to be similar to the preferential treatment of some insiders and investors that has long been practiced in the cryptocurrency world, especially with so-called initial coin offerings before the sales were shut down by regulators”. Citing the Chainanalysis study, Bloomberg also noted that “[u]sers who make the whitelist and later sell their newly-minted NFT gain a profit 75.7% of the time, versus just 20.8% for users who do so without being whitelisted”

·        Official Auction Houses: Beeple did not sell his $69 million piece of digital art on some random site on the Internet. He sold it at Christie’s. Christie’s has been around since 1766. It doesn’t get more classic than that.

 

Issue 10: NFTs are rife with information security issues

Speaking as a CPA/CISA, one of the craziest aspects of NFTs is that the process requires you to grant the entity issuing NFT (or the minter) logical access to your wallet. And what happens if you grant access to the wrong individual, i.e. a hacker? All that crypto will be emptied out.

 

The other scam that is out there is that people can “airdrop” an NFT into your wallet. And if you click on that? As RAC explained to Rolling Stone, “[e]verything’s programable, so what they do is they make these tokens unsellable. It basically locks you into something and forces you to give them access to your funds, and then they steal your money.”

 

What RAC is referring to is the programmability that’s baked into the Ethereum blockchain. Consequently, clicking something (even deleting something) could initiate malware that would result in your digital wallet being drained of funds.

 

Closing thoughts:

 

So with all these problems, what does the future look like?

 

It’s really about governance. The unregulated nature of stocks in the 1920s ultimately led to the Great Depression, which brought the Security Exchange Commission into existence and the need for financial audits. Similarly, governance will ultimately need to be implemented to enable true ownership of not just the hash in the NFT but the underlying asset. That is, just like you own a painting, you should have the underlying code that is the actual digital art.

 

In terms of AML, Know Your Customer (KYC) controls are percolating at NFT marketplaces. Wired reported that:

 

“A Twinci spokesperson says the platform is implementing something like this at the moment – it is verifying artists to make them stand out from ordinary users. Green-ticked artists have verified their identity in a process similar to how Twitter doles out its blue ticks. People are asked to give their name, a photo of themselves, proof of them creating an artwork as well as a digital portfolio. Twinci cautions its community to re-consider collecting NFTs from non-verified artists.”

 

But doesn’t this contradict the decentralization that blockchain is supposed to bring?

 

The challenge with this idea is largely based on the myth of individualism. Society is not simply composed of individuals. Rather, it’s the institutions and collectively shared norms that hold society together. For example, if Canadians did not collectively respect private property then anything you held could be stolen without recourse. But perhaps the greatest illustration of such conventions goes back to how disputes were handled on the blockchain itself. Consider the DAO hack of 2016. The consensus amongst the Ethereum community felt and injustice was done because of the theft of ether (the cryptocurrency used on Ethereum). So they turned to Ethereum’s leader/inventor, Vitalik Buterin, to mutate the immutable. This is why the term “immutable” shouldn’t really be used; tamper-resistant is more accurate.

 

Consequently, once such myths give way to practical necessities of governance (e.g. SEC-type organizations managing minting, courts opining on digital ownership, ISO standards, etc.); we will be on our way from the current wild west to something safe and stable. Again, this is history repeating itself. The cloud took time for standards to take hold. For example, cloud service providers see the SOC2 audit report on the IT controls as a standard. But it wasn’t always. In the early days of cloud, it was rumored that Eli Lily had to walk away from Amazon because they could not offer the IT controls that they needed (which Amazon denied). Regardless, the security norms took a while to become the status quo. Similarly, this standardization is part of the process to take the NFTs from the Trough of Disillusionment to the Slope of Enlightenment. This is the next phase of Gartner’s Hype Cycle. Only time will tell how players within the industry will coalesce around such standards given that the NFT/blockchain evangelists are still stuck with the idea that society is unnecessary.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

 

How can blockchain help us deal with the COVID-19 pandemic?

One of the post-peak challenges, we will face with COVID-19 is to determine who is immune and who is not. Assuming that people can get immunity (and there are reasons to believe that this may not be the case), there needs to be a way to determine who is capable of being in "high contact" area.

In other words, how do we verify that you have the COVID-19 anti-bodies that would enable you to work at a restaurant, grocery store or drive a bus?

Now the infrastructure to deliver this type of testing is still not there. For example, in "Laredo, officials discovered the tests they received were woefully inadequate. The local health department found them to have a reliability of about 20 percent."

Assuming we can get a test that works, then we would need a way to certify that the person has achieved the desired immunity.

Think about how this process could work manually:

1. The walk-in or doctor/lab will process the test.
2. The person waits for the test results.
3. They will then need to produce the results to the government.
4. The government will need to issue some type of official certification. 

There could be an incentive to fake the certification. Well, let's rephrase. That there will be an incentive to doctor these things. Not just to get a job. But also to defy quarantine orders using fake certificates. Consider the people protesting the quarantine that blocked healthcare workers in Michigan:

And so that's where blockchain comes in.

To be a bit more specific, this is the permissioned blockchain (unlike bitcoin which is a public blockchain) that is implemented between trusted parties. As noted in the process described above, there are many parties involved - the doctor, the clinic and the government - all these parties would need to be on-boarded through a KYC process that would give each participant a private key that enables them to "sign" the "digital paperwork" at each phase of the process.

This would then allow "digital immunity certificates" to be issued instantaneously. No need to wait for test results. No need to get an official document from the government.

As it turns out, Vottun is working on some type of "Immunity Passport" that "can be verified at any time using cryptography by any mobile phone that can read a QR code". The company is working in Spain and is in discussion with Dr. Fauci of the CDC.

There are a lot of assumptions on how this could work. But it could be the killer app that helps saves lives.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

What can bitcoiners reaction to Facebook Libra cryptocurrency can teach us about innovation and the blockchain?

In the last post, we discussed Facebook's Libra coin. Since then the US Treasury Secretary Steven Mnuchin, has implicitly given Facebook the go-ahead to issue the stable-coin on the condition that they "implement the same anti-money-laundering and countering financing of terrorism, known as AML/CFT, safeguards as traditional financial institutions". In the WSJ, they were a bit more explicit:

“Many players have attempted to use cryptocurrencies to fund their malign behavior. This is indeed a national security issue,” Treasury Secretary Steven Mnuchin said in remarks at a Monday news briefing. Should Facebook develop its digital coin, called Libra, to “have a payments system correctly with proper [anti-money-laundering safeguards], that’s fine,” Mr. Mnuchin said" [emphasis added]

It's impossible for Facebook to have not  known that this was an issue. The idea that this agreement didn't pass by the general counsels (who would have consulted risk and regulatory experts) at each of the organizations is simply not realistic. In fact, only two of the 28 organizations are getting cold feet. In the world of compliance, that's not so bad.  

The US is pretty committed to fostering all their muster against China and enabling capital flight from their country would be an important tool in the new "Great Game" that is being played by these hegemons. 

What can bitcoiners teach us about innovation and cryptocurrency? 

Although the grand chess match between China and the US is important, the innovation angle is also something worth analyzing.

What did bitcoin enthusiasts have to say about Facebook's Libra?

It turns out their critique, via Mastering Bitcoin's author Andreas M. Antonopoulos, yield some insight into the reality of blockchain innovation. He had the following to say about Libra:

As per the video, he notes that cryptocurrency is "open, public, borderless, neutral, and censorship resistant" (this post lays out what each means, so check that out). More importantly, he points out these characteristics can only emanate from a decentralized approach used by bitcoin and certain other public cryptocurrencies. Conversely, if we have a centralized blockchain - like Libra or Ripple - then it loses these magical qualities. As pointed above, Mnuchin requires a "throat to choke". The only way you can't have a "throat to choke" - is when that throat is decentralized.

What's the innovation? 
In the class, I teach about Audit, Innovation and Technology, I went through my Delta Framework. In this table, we have key characteristics of the old system or technology. The second column looks a bitcoinesque cryptocurrency, while the third looks at Libra.

What the analysis confirmed is how permissioned blockchain, such as Libra, is more of an incremental innovation rather than something radical that would upset the apple cart. Specifically, the ability to use permissioned ledgers will make it really easy for the consortium to fulfill their AML obligations. Why? Because all the record keeping is automated. And that last word is key: automation. Permissioned blockchain is really about "frictionless" transaction propagation between known parties via a decentralized ledger. The Libra consortium is essentially establishing systems that can trace a transaction from crade-to-grave because the underlying blockchain technology is all about automating the accounting. Regulators are actually going to love it.

The public blockchain, on the other hand, is about disrupting the concept of fiat currency itself. If governments can conjure currency out of thin air, why not Satoshi Nakamoto? And there you have bitcoin. Of course, as previously published,  governments are not going to like this and have worked to crush bitcoin by going after people.  But the point is that eliminating the centralized intermediaries of trust was never bitcoin's objective and could be arguably are caught in a "gale of creative destruction". Rather, it was to offer an alternative to the fiat currency order that we live in and the blockchain technology was just the means to do it.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

Blockchain: What is a 51% Attack?

Earlier this month, Ethereum Classic suffered a 51% attack.

Although it was not the first cryptocurrency to get attacked, it did have the moniker of one of the big brand names of the crypto-world. That being said, Ethereum Classic is not the main branch of the Ethereum but rather the branch who decided not to go with the decision of the foundation to undo the damage caused by the DAO Hack.

Everything gets hacked, so what makes such an attack so special?

When promoting the bitcoin blockchain, many blockchainthusiasts have touted its tamper-resistance properties as something that users can hang their hats on. Don Tapscott, as one example, notes that since the bitcoin is"transparent, peer-to-peer, and administered by everyone who uses it, it's all but impossible to corrupt"; implying that such an attack is not something that a bitcoin user should worry about.

So what is exactly a 51% attack?

As noted in my process flow post, the idea here is that the segregation of duties concept is breached because the miner has effectively the ability to write to the ledger on their own.

Did a few searches but Ivan Liljeqvist does the best job in terms of breaking it down:

In summary, the hacker will use their hashing power to build a “secret” chain that is longer than the active chain that contains the transactions submitted by the attacker. This secret chain will not contain those transactions. Then at the right time, the attacker will publish their secret chain. Since it is the longer chain (i.e. as the attacker has 51% of the hashing power), it will be accepted by the protocol and displace the public chain, thereby allowing the attacker to spend those bitcoins again, as the official record (which has now propagated across the network) does not record those transactions as spent but as retained by the attacker.

The key to his explanation is the following:

• The longest chain principle: the network essentially is able to maintain integrity as long as 51% of the hashing power is distributed as it is only the network that is capable of generating this chain; not a single person. The bitcoin blockchain protocol uses this control to resolve to the situation where two chains are being created simultaneously. For example, let's says miner in Canada has identified the nonce for a block of transactions. However, a miner in Japan has also arrived at a nonce for the same block of transactions. Which chain should take precedence? The protocol will declare the longest chain the winner, where length is a function of the difficulty to create that chain. Therefore, as long as the majority of the hashing power is distributed across the network, the control will function as intended. 
• Specific transactions will be compromised: The attack allows to double spend on their transactions or transactions they are paid to attack. The rest of the records on the blockchain are not impacted by the attack.
• The attacker can win each competition: What's interesting is whether the attacker would bother double spending their transactions when they can simply win each mining competition. 

That being said, the system will lose trust if such attacks became rampant. If that were to happen, miners have the most to lose if such a thing. were to occur. 

The bottom line is that all blockchain is like any piece of technology. The bitcoin blockchain network, which has numerous miners is very different than a newer blockchain that is unproven. Consequently, we can't simply assume because something is a blockchain it will be "auto-magically" invincible. 

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

Cryptoassets: Key to making Googlzon a reality?

On one of my consulting gigs in my prior life, I recalled seeing the video called "EPIC 2014". One of my colleagues at the time told me to check it out. It had the "Matrix" feel to it, but for those familiar with recent movies I would say it's a bit closer to Her.

Take a look:



I've intended to write a post for a while on how Googlzon may actually come to fruition. Sure, one of the key messages of the flash-based video is that people are "amusing themselves to death", but to stick to the tech side of things I wanted to reflect on how the payments aspect works in EPIC.

And that's what struck me: it would probably require some type of crypto-asset or blockchain enabled technology that would enable content providers a way to get paid.

Is this really a scenario where blockchain could help?
I've commented on the past about "blockchainthusiasts" overhyping the technology. But this it's time different.

In a previous post, I wrote how Amazon would be the natural patron for a corporate-cryptocurrency:

"So likely a retailer alliance could be something that poses a challenge to banks and their networks. Amazon already has Amazon Coin, but I think that if they teamed up with Walmart you would have something that basically has wide acceptance. And that's when the games will begin. Retailers also have an incentive to cut-out the banks and save those credit card fees. However, for this to have user acceptance the retailers would need to give their consumers a cut."

And also I noted how a cryptocurrency could be the antidote to media's malaise, specifically:

"When I heard the panelist discuss [use of cryptocurrency-technology as a basis for micropayments], I thought this made a lot of sense. Being someone who has given into paywalls, I would most likely have a media budget set aside that would allow me to pay for articles - 10 cents here or 25 cents there - to consume content. This is much better than being on the hook for hundreds of dollars a month for subscriptions you may or may not use."

Enter the Brave Browser and the Basic Attention Token
I recently was reintroduced to Basic Attention Token (BAT).

Check out how it works:

Pretty amazing how EPIC almost predicted the establishment of a system that would require BAT?

It seems like such a small part of the EPIC system that was outlined in the dystopian pic. But it is a key part of such of a Googlzon eco-system as to how people would be paid and it seems like crypto-assets would be the best candidate for the job.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

Can Blockchain really offer a way out of the Brexit quagmire?

For those following the continuing Brexit crisis in the UK, there have been many issues not least of which is solving the "Irish border" issue. If you need more context on this issue, see the following video by Vox Atlas which does an amazing job of summarizing the issues in about 7 minutes:


What does this have to Blockchain?

Well, it seems that blockchain was identified as a possible solution for this situation. I came across this idea from an article in CCN, which stated the following:

"According to Phillip Hammond, UK’s finance minister, the best way to ensure trade across the Irish border remains frictionless after Britain leaves the EU lies in the use of blockchain technology.

“There is technology becoming available (…) I don’t claim to be an expert on it but the most obvious technology is blockchain,” Reuters reported Hammond as having answered after being asked what the government was proposing to do to ensure smooth trade after Brexit."

I followed the Reuters link but it didn't add much context to the quote; how can blockchain offer any relief from the issues related to the customs union and hard border?

But then I found an article on FT, which stated the following:

"It is safe to say technology used at the border is a red herring, as even the best database can't poke its nose inside a lorry. Here, for instance, is one of the IT experts quoted in the Irish Times calling the idea of technological solutions to the border question “complete nonsense”...

Wired also looked at tech solutions for dealing with 6,000 heavy goods vehicles per day crossing the border, and decided that they were “untested or imaginary”. Blockchain as a border solution is both.

So what inspired Hammond to jump on the blockwagon? It might have been a “white paper” literally called “Blockchain for Brexit”, released last week by Reply Ltd, a consultancy which promised a “solution that could save global businesses billions of pounds through seamless border checks and virtually infallible tracking systems for their goods”."

Although I have commented that blockchainthusiasts need to be careful about overstating the capabilities of the blockchain (such as replacing the need for financial audits), we can hardly blame blockchainthusiasm here. Rather it's the Wizard-of-Oz trick of hiding behind the magic curtain. But this time it's not a magic trick but rather the complexity of technology that some are attempting use to gloss some key issues that have emerged in the aftermath of Brexit.

Technology at the end of the day is just a tool fashioned by human beings and is not God. It can't magically solve complex business problems let alone extremely complex political issues that have been simmering for centuries.

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else

To appreciate blockchain, do we need to appreciate accounting and auditing first?

As an accountant, we can often forget the importance of the craft of accounting and what it meant for not just business but society.

And was it an accountant who pointed this out to me?

No, it wasn't. It was actually blockchain enthusiasts who drew a straight line between the role accounting plays and the role blockchain could play. 

In preparation for a presentation on blockchain, I wanted to refresh my mind around all things blockchain and so I was going through the audiobook, The Truth Machine, by Paul Vigna and Michale Casey. These are the two same authors who wrote the Age of Cryptocurrency. (At that time, both were Wall Street Journal reports, but Michael Casey since that publication actually decided to leave his 23-year career in journalism to focus on blockchain full time at MIT.)

And it was during this book that I was reintroduced to how important accounting was in terms of societal governance as it relates to the administering resources. 

Michael Casey in this lightning talk speaks to how blockchain now offers the possibility to deliver the necessary accounting to deal with the "tragedy-of-commons-type problems" that emerge in Capitalist societies that promote self-interest above the common good and all else. 

But going back to accounting, this is how he and Paul stated the importance of accounting:

"Fibonacci’s new numbering system became a hit with the merchant class and for centuries was the preeminent source for mathematical knowledge in Europe. But something equally important also happened around this time: Europeans learned of double-entry bookkeeping, picking it up from the Arabians, who’d been using it since the seventh century. Merchants in Florence and other Italian cities began applying these new accounting measures to their daily businesses. Where Fibonacci gave them new measurement methods for business, double-entry accounting gave them a way to record it all. Then came a seminal moment: in 1494, two years after Christopher Columbus first set foot in the Americas, a Franciscan friar named Luca Pacioli wrote the first comprehensive manual for using this accounting system.

Pacioli’s Summa de arithmetica, geometria, proportioni et proportionalita, written in Italian rather than Latin so as to be more accessible to the public, would become the first popular work on math and accounting. Its section on accounting was so well received that the publisher eventually published it as its own volume. Pacioli offered access to the precision of mathematics. “Without double entry, businessmen would not sleep easily at night,” Pacioli wrote, mixing in the practical with the technical—Pacioli’s Summa would become a kind of self-help book for the merchant class.

...The Medici of Florence came first, turning themselves into vital middlemen in the matching of money flows around Europe. The Medici’s breakthrough was made possible because of their consistent use of double-entry ledgers. If a merchant in Rome wanted to sell something to a customer in Venice, these new ledgers solved the problem of trust between people who lived at great distances from each other. By debiting the payer’s bank account and crediting that of the payee—with double-entry practices—the bankers were able to, in effect, move money without having to ship physical coins. In so doing, they transformed the whole enterprise of payments, setting the stage for the Renaissance and for modern capitalism itself. Just as important, they also established the 500-year practice of bankers creating an essential role for themselves as society’s centralized trust bearers.

The value of double-entry bookkeeping, therefore, wasn’t merely in dry efficiency. The ledger came to be viewed as a kind of moral compass, whose use conferred moral rectitude on all involved with it. The merchant was pious, the banker had sanctity—three popes in the sixteenth and seventeenth centuries came from the Medici family—and the trader discharged his business with veneration. Businessmen, previously mistrusted, became moral, upstanding pillars of the community. Aho writes: “Methodist Church founder John Wesley, Daniel DeFoe, Samuel Pepys, Baptist evangelicals, the deist Benjamin Franklin, the Shakers, Harmony Society, and more recently, the Iona Community in Britain, all insist that the keeping of meticulous financial accounts is part and parcel of a more general program of honesty, orderliness, and industriousness.”

Thanks to mathematical concepts imported from the Middle East during the Crusades, accounting became the moral grounding for the rise of modern capitalism, and the bean counters of capitalism became the priests of a new religion. Most (though certainly not all) people today have a hard time seeing the Bible as literal truth; but they had no trouble seeing Lehman Brothers’ books as literal truth—until the gaping inconsistencies were exposed.

The great irony of 2008 was that our belief in a system of accounting, a belief woven so deeply inside our collective psyche that we’re not even aware of it, made us vulnerable to fraud. Even when done honestly, accounting is sometimes little more than an educated guess. Modern accounting, especially at the big, international banks, has become so convoluted that it is virtually useless. In a comprehensive dissection in 2014, the Bloomberg columnist Matt Levine explained how a bank’s balance sheet is almost impossibly opaque. The “value” of a large portion of the assets on that balance sheet, he noted, is simply based on guesses made by the bank about the collectability of the loans they make, or of the bonds they hold, and the prices that they might fetch on the market, all measured against the offsetting and equally fuzzy valuation of their liabilities and obligations. If a guess is off by even 1 percent, it can turn a quarterly profit into a loss. Guessing whether a bank is actually profitable is like a pop quiz. “I submit to you that there is no answer to the quiz,” he wrote. “It is not possible for a human to know whether Bank of America made money or lost money last quarter.” A bank’s balance sheet, he said, is essentially a series of “reasonable guesses about valuation.” Make the wrong guesses, as Lehman and other troubled banks did, and you end up out of business.

Our goal here is not to trash double-entry bookkeeping or the banks. Were we to, you know, add up all the debits and credits, double-entry bookkeeping has done more good than harm. The goal really is to show the deep historical and cultural roots behind why we trusted this kind of accounting. The question now, in the wake of our fall, is whether a particular technology that allows a different kind of bookkeeping will help us renew our trust in our economic system. Can a blockchain, which is continuously open to public inspection and guaranteed not by a single bank but by a series of mathematically secured entries into a ledger that’s shared and maintained by many different computers, help us rebuild our lost social capital?"

Source: Vigna, Paul and Casey, Michael The Truth Machine: The Blockchain and the Future of Everything (p. 26-29). St. Martin's Press. Kindle Edition. 

Reading this, a few things jumped out:

• Double-entry accounting actually was invented by "Arabs": As the authors noted above, "Europeans learned of double-entry bookkeeping, picking it up from the Arabians, who’d been using it since the seventh century". Going through accounting, this was the first that I heard of this, but it's not surprising given the Islamic world led the globe in terms of science and technology for a few centuries. 
• The link between ethics/integrity and accounting was established at the inception:  "The value of double-entry bookkeeping, therefore, wasn’t merely in dry efficiency. The ledger came to be viewed as a kind of moral compass, whose use conferred moral rectitude on all involved with it. The merchant was pious, the banker had sanctity—three popes in the sixteenth and seventeenth centuries came from the Medici family—and the trader discharged his business with veneration. Businessmen, previously mistrusted, became moral, upstanding pillars of the community. Aho writes: “Methodist Church founder John Wesley, Daniel DeFoe, Samuel Pepys, Baptist evangelicals, the deist Benjamin Franklin, the Shakers, Harmony Society, and more recently, the Iona Community in Britain, all insist that the keeping of meticulous financial accounts is part and parcel of a more general program of honesty, orderliness, and industriousness.”" Although it's quite far to say that accountants are any kind of priest, there is a level of "financial asceticism" in terms of abstaining from investments to be able to have the objectivity required to complete financial audits. Furthermore, the profession needs to assess to the degree we are investing in this cornerstone of the profession. More thought needs to be given as to how much of threat the "post-truth era" is on the profession. If society continues to feel there is no such thing as truth, then the ability to act as an anchor of integrity is limited.  
• Pervasive importance of accounting to the functioning of society: When expressing the value of financial accounting and auditing, people seem to take it for granted forgetting that if there was no way to inspect the confidential books of companies that "game theory" would take over. In a sense, the "tragedy of the commons" that is addressed by financial audits is ensuring managers don't lie when claiming that they made profits of this much and have assets of that much. That is, without audits there would be no way to trust management as the financial fraud that we see wouldn't be limited to a few players but be much more pervasive. 
• People will blame accountants even though we are just recordkeepers: The authors call out accounting stating that: "Modern accounting, especially at the big, international banks, has become so convoluted that it is virtually useless". Accounting is the art and science of communicating the economic reality of entities to allow people to make investment decisions. It is a complex function of navigating competing opinions on how to accurately report on things. I think it's ironic that the book notes a few pages later on how Bitcoin Classic had to separate (or fork) from Bitcoin Cash because the two factions couldn't agree on the memory size of the protocol. When it comes to accounting standards there is no forking: all must agree on a common set of accounting standards to be used for  financial reporting. Furthermore, the problems that lay with the banking system really can't be blamed on financial reporting but stem from the reality that capital runs the world - even if it means running over the truth once in a while. 

With respect to the last point, it is important for blockchainthusiasts to keep in mind that standards are really at the heart of blockchain. Traditionally, setting the standard has always been hard because Capitalism promotes freedom, and so people are incentivized to get away from standards! It's hard enough when you have people trying to simply codify something, let alone trying to create decentralized distributed ledger that will be intolerant of any unauthentic interpretations. But we will delve into this in future posts. 

Author: Malik Datardina, CPA, CA, CISA. Malik works at Auvenir as a GRC Strategist that is working to transform the engagement experience for accounting firms and their clients. The opinions expressed here do not necessarily represent UWCISA, UW, Auvenir (or its affiliates), CPA Canada or anyone else