What's missing from this Top 5 uses of Blockchain list?

TechRepublic's Tom Merritt  walks us through the "Top 5" uses of blockchain in the following video. The accompanying post lists the following 5 use cases:

• Stocks
• Shipping
• Diamonds 
• Livestock 
• Law

What's missing? 

Stocks use case is actually limited to Initial Coin Offerings (ICOs). For more on an overview of ICOs, check this article. However, the post excluded Linq's blockchain that allows for the settlement of private securities.

But on a broader note, the post excluded the financial industry altogether in terms of being a forerunner for the use of blockchain. Following the hype-cycle, one of the early areas of interest for the use of the permissioned blockchain were financial institutions. It seemed like every week that a company joining the R3 Consortium.


However, since that initial fervor, a number of players, such as Goldman Sachs, Santander, Morgan Stanley and the National Australian Bank, have left the consortium.

Why?

The problem lies in understanding the actual business case for the permissioned blockchain (for the differences between public and private/permissioned, see this post). The permissioned blockchain helps parties to have a common view of transactions that they have transacted with each other via a shared ledger database. With the use of digital signatures, it incorporates authorization into this as well, so in addition to sharing information, it also enables the ability to "sign-off" on that information.

The banks could decide that they would use such a framework to make it easier to settle payments, however, how do they keep things private such as pricing and other data? This is something that needs to be sorted out but points to a bigger question as to what is the strategic advantage of blockchain for FIs. That is, this exponential technology doesn't lead to cost savings like robotic process automation or strategic insights like big data analysis.

And that's why I think something like shipping or supply chain more broadly is a much better beachhead for blockchain. With multiple partners involved in supply chain, have a shared database enables the partners to see where things are at between the wholesaler, shipper, and retailer, enabling each partner to get better insights into movement of goods and other business information. Such a system would allow for creative ways to settle payments or even enhance the ability of retailers to design consignment contracts with wholesalers. For example, BestBuy is marketplace (e.g. Brainydeal is one such retailer) within its retail front requiring such coordination. The one caveat, however, is to ensure that (cheaper) existing technology doesn't actually do this already. After all, shared databases are not a novel concept.

I would contend that legal would be a great place for the blockchain to expedite paperwork - more so than supply chain. However, such technology would be fought tooth and nail by lawyers. And they have unlimited resources to fight such technology in the courts. Also, politicians have little incentive to look into such advances as most of them are lawyers, depend on lawyers or have friends who are.

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.

Did artificial intelligence kill the BlackBerry? It did for me.

Recently, Globe and Mail noted in their political briefing newsletter that Samsung's Knox software is deemed to be as secure as the traditional BlackBerry:

"Shared Services Canada, the department in charge of overseeing IT for the federal government, is set to offer alternatives to bureaucrats over the next 18 months as part of “a new approach to mobile service to better serve its clients, use new technology and adapt to changes in the marketplace.” Samsung and its line of Android-powered smartphones was the first to be approved by Shared Services, but only after two years and several tests showed that Samsung’s phones passed military-grade requirements."

In this blog, we've covered Blackberry's steady fall into oblivion. For me, BlackBerry was my first smartphone. I even got excited about the Torch, thinking it was the perfect compromise between the touch screen and the classic keyboard. However, that feeling faded quite quickly after using the device. It was so underpowered and underwhelming compared to the competition.

When looking at the Porter 5 forces that surrounded this once mighty Canadian tech giant, we could say that both Apple's iOS and Android offer better substitute's: better devices, more power, better apps, etc. Essentially, these devices has evolved so much that they bring the power of the PC into the palm of one's head (Samsung's Note 8 is expected to have 6GB of RAM!).   This alone doesn't explain why BlackBerry was ultimately displaced from corporate IT - well before Samsung's Knox became equal-to-BlackBerry in terms of security.

I think there were two key developments that enabled BlackBerry's decline.

The more well known one is the "consumerization of IT" phenomenon: users wanted to use their latest iPhone or Android device instead of the BlackBerry in the corporate environment. Going back to Porter 5 forces this speaks to "bargaining power of buyers": the people no longer wanted to be limited to the "one trick pony" of email and BB Messenger. And they were willing to lobby their corporate IT departments to bring on the Android and Apple devices.

This leads to the second less well known factor.

What allowed consumerization to take place was that Microsoft took an open approach to licensing it Exchange Active Sync. This move paved the way for iPhone and Android to connect their devices to the corporate email server. Microsoft open attitude essentially transferred the power from BlackBerry to the consumer.

But for me it was a little different. Of course I like the apps and GPS that my Android and iPhone bring to me: the ability to read the Kindle, listen to audio books and podcasts without having to carry multiple devices is definitely a productivity. But really it was one particular app that made me able to switch: SwiftKey.

And that's where we get to the artificial intelligence.

I was a big fan of the Blackberry,  primarily because I thought I couldn't live without the physical QWERTY keyboard. But friends who were encouraging me to switch mentioned that Android sported the SwiftKey keyboard which is powered by artificial intelligence. This keyboard is much better for me in terms of learning the words I use when I type than the predictive text feature in its iOS counterpart (which I use for work).


A little while ago, I tried a colleague's BlackBerry and the irony is that my hands hurt. And that's probably because I type a lot less specifically because of the AI approach taken by SwiftKey. As per the native analytics tracker (see graphic below) in my app I have been saved myself over 350,000 taps and am 28% more efficient. 

Today, over a quarter billion people use SwiftKey on their mobile devices. Although a little hidden from the view of analysts and academics, advances in artificial intelligence enabled SwiftKey (now owned by Microsoft) to offer a substitute for the once dominant BlackBerry physical keyboard. And for me personally it was this little piece of exponential technology (along with the relatively giant landscape of the Samsung Note 1) that convinced me it was time to switch.

And like I said, I can never go back.

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

End of an Era: Blackberry to exit hardware business

CBC reported that Blackberry is exiting the hardware business. The news doesn't come as a surprise. As noted in this interview with CNBC in June of this year, the interviewer notes how Blackberry was steadily outsourcing the manufacturing of its devices. The CEO, John Chen, also confirmed that they were planning on exiting the business if it failed to be profitable:


Blackberry was my first smartphone, the 8900, to be exact.

However, when I saw the Torch, I remember thinking that after using the device how it was the perfect compromise between the touch screen and the classic keyboard. However, that feeling faded quite quickly after using the device. It was so under-powered compared to the competition and of course it lacked the apps that you could find in the Apple AppStore. But at the time I could never imagine giving up the physical QWERTY keyboard.

Since then I have moved onto Android and more specifically to the SwiftKey keyboard - to the point I can't go back to a physical keyboard!

How did BlackBerry fail to keep up with the times?

As noted in this article, Mike Lazaridis the founder of the CEO, was inspired to develop the BlackBerry when he recalled his teacher's advice while watching a presentation in 1987 - almost a decade before the Internet - on how Coke used wireless technology to manage the inventory at the vending machines. What was his teacher's advice? His teacher advised him not to get swept in the computer craze as the real boon lay in integrating wireless technology with computers.

BlackBerry caused a storm in the corporate introducing it's smartphones in 1998. It went on to dominate the corporate smartphone market as the gold standard in mobile communications. The following graphic from Bloomberg really captures the subsequent rise and fall quite well:

What happened how did the iPhone, unveiled in 2007, and the Android Operating System outflank the Blackberry?

This article in the New Yorker larger blames BlackBerry's inability to understand the trend of "consumerization of IT": users wanted to use their latest iPhone or Android device instead of the BlackBerry in the corporate environment - and was it just a matter of technology to make this happen.

Although luminaries, such as Clay Christensen, have written extensively on the challenge of innovation. And there's always the problem of hindsight bias.

However, is the problem more basic?

When we look at the financial crisis, some people like to blame poor modeling. But I think that is more convenient than accepting the reality that people got swept up in the wave.

Isn’t it fair to say that people knew that house of cards was going to come down (and some of the investment banks were even betting on it falling apart), but were overly optimistic that they would get out before everyone else does?

But that’s the point.

When we are in a situation where we are surrounded by people who confirm our understanding of the world – we may believe them instead of trying to see if our understanding of the situation is correct. With the housing bubble, the key players wanted to believe that those models were correct – even though models have failed the infamous Long Term Capital Management.

With BlackBerry, what I wonder is did they not even try to see within their families and those around them who were using the iPhone or Android devices? Weren’t they curious what “all the fuss was about”?

Although this is problem with many of us who want to believe that the present situation is going to continue indefinitely (especially when things are going our way), there are others who do stay on top of things. Most notably is the Encyclopedia Britannica that actually stopped issuing physical encyclopedias and moved to the digital channel instead.

Change is a challenge, but the key is to be prepared to admit that the current way of doing things can be done better, faster and in radically different way.

Reflections on the demise of Yahoo!

By now we've all heard that Yahoo!'s web assets were bought by Verizon. According to the Wall Street Journal, Verizon paid $4.83 billion in cash for the assets. Yahoo itself will continue to hold the remaining assets but will eventually change its name and become an investment company. In total, the company was rumoured to be worth $6 billion.

For us Gen Xers this is an interesting day: we witnessed the end of a company we saw as innovative and fresh just a "few" (i.e. read ~20) years ago.

I was recently explaining to a young lad in his early 20s about life before the Internet: you had to find books at the library and it was almost impossible to connect socially with people beyond your classmates. So to use Yahoo or other search engines to access information or people was a completely new and mind-blowing concept.

As I noted in this post commemorating Google's 17th anniversary:

"It's especially memorable for those of us who were in university in the late 90s because we had access to high speed internet on campus unlike the painfully slow dial-up at home. 

I remember my first job as a coop student at the UW Federation of Students (I can't believe this quote is still hanging around from that time!) when a co-worker was explaining to me how OpenText was the best search engine (of course using my NetScape Browser). Of course back then there was a number of search engines including, Yahoo, Lyco, Alta Vista, etc. However, I stuck to OpenText for a while then eventually switched, along with everyone else, to Google...Well Lycos, OpenText (as a search engine) and AltaVista may be long gone, but it looks like plaid is back!"

So now we can add Yahoo! to the pile of "has beens" search engine.

Beyond nostalgia, I had the following reflections on the Verizon of Yahoo based on the WSJ article above:

• Verizon is no longer just pipes: Verizon has a strategy to move beyond just serving mobile and broadband services. Verizon is adding Yahoo to its existing portfolio of content plays, such as AOL. For Verizon, it's an overall strategy to make billions through content and advertising. Net neutrality can potentially limit their ability to use this vertical integration to undermine competition, but regardless it shows how being a "pipes-only" company is not enough. Of course it is a bit ironic that former rivals, Yahoo and AOL, are now sitting in the same tent.  
• Big Data is monetized at the expense of privacy: The ability of Verizon to combine the data plays between its various content plays is a great illustration of a point that I have noted before: for big data achieve value it must water down privacy. Since there are synergistic values (i.e. instead of just being additive) of combining the data, it could be argued that it's something that a user should explicitly consent because a user may simply not want Verizon to use their Yahoo data this way.  
• Remember the Internet Bubble? Yahoo! had a market capitalization of "more than $125 billion at the height of the dot-com boom in early 2000", which is quite a steep decline to $6 billion. I wonder if it ever produced the cash flows to justify that valuation. 
• Algorithms win over people: WSJ today published a good read comparing the algorithmic approach of Google, in contrast manual effort required to index the Internet. This is similar to Amazon's who found that the algorithms to better than humans in getting people to buy things: "Amabot replaced the personable, handcrafted sections of the site with automatically generated recommendations in a standardized layout," according to The Everything Store, a new book exploring the history of Amazon. "The system handily won a series of tests and demonstrated it could sell as many products as the human editors."
• Innovation and exponential thinking: On a separate note, but related note Yahoo could have bought Google for $3B in 2002 but it didn't. It's a great example of how Google embraced leading-edge technology to deal with the exponential growth of the Internet and Yahoo's inability to recognize Google's approach as the winning approach led to its demise.

Yahoo! is now literally a shell of its former self - both in structure and the assets it holds. However, it's a good case study of how failing to identify exponential trends - and acting on them - can ultimately lead to disaster.

CATS2016: Exponential Tech & the CPA

Today, I presented at the Canadian Accounting Technology Show and discussed how exponential technologies and their potential impact on the profession.

During the presentation, I promised a blogpost for the attendees who wanted to dig deeper in the presentation. So here it is!

IBM Watson's Victory over Ken Jennings
During the talk I refer to Ken Jennings and Brad Rutter's defeat at the hands of IBM's Watson. (See Engadet's video for more on this "exponential event".)
This post gives some background on the new "space race" between the tech-giants for the killer AI app and also gives a link to Ken's talk.

For additional information on Watson and the medical profession check out this video.

Exponential versus Linear Technological Change
Kodak - who invented the digital camera in 1975 - was ultimately disrupted by that very same technology. In fact, one of their employees applied Moore's Law to pixel's per dollar in digital cameras.

Why?

The problem illustrate that Kodak (as well as Polaroid) had linear thinking and didn't realize how quick digital technology would become the norm and preferred way of consuming photography. In this post, Peter Diamandis talks about how 30 exponential steps contrasts to 30 exponential steps (and talks more broadly about linear vs exponential thinking) and Ray Kurzweil talks about the infamous story of how the inventor of chess requested an exponential amount of rice (and is rumoured to have lost his head).

Predictions on the Automation of White Collar Work:
These stats are what actually prompted me to propose to CPA Canada that we should have a talk that would discuss this phenomenon. The variety of sources that have chimed in on the topic - combined with the understanding of exponential change - highlights the importance of looking deeper into the trend instead of dismissing it as just fear, uncertainty and doubt (FUD). This of course is not just limited to the accounting profession, but impacts all white collar worker (check out IBM's Watson latest application to automate aspects of the legal profession

• "Job destruction will happen at a faster pace, with machine-driven job elimination overwhelming the market's ability to create valuable new ones.” (Gartner)
• “…knowledge work automaton tools and systems could take on tasks that would be equal to the output of 110 million to 140 million full-time equivalents (FTEs).”’ (McKinsey)
• ‘94% probability accounting/auditing will be automated’ (Oxford Study)
• Finance Department has seen a decrease from an average of 119 people (2004) to 71 people (2014); a reduction by 40% (Hackett Group; as taken from this WSJ article "The New Bookkeeper Is a Robot")

Exponential Technologies
As noted during the presentation, the key exponential technologies that are likely to enable the automation.

Artificial Intelligence: "Science of making computers do things that require intelligence when done by humans." During the presentation, I mention this pharmacist robot being able to dramatically reduce medications errors, which according to the FDA is responsible for 1.3 million injuries.

For other information check out this Deloitte publication on AI and Cognitive.

Internet of Things: "Billions of interconnected sensors and devices will soon exchange data; effectively the physical flow of goods, people, and things will now leave a “digital trail”." RFID inventory does provide some insights in how this digital exhaust left by physical goods can improve inventory management and responsiveness to customers (see this RFID Journal article for more details).

For more on IoT, check out the Deloitte TMT Prediction regarding the technology.

Blockchain: "The blockchain dis-intermediates the need for a centralized trusted authority to administer an exchange of value between parties." As I note in the presentation, I feel the blockchain needs a lot of nuance when discussing how the technology has the potential to disrupt the profession. The technology (as implemented in the exchange of the cryptocurrency Bitcoin) itself won't replace the audit because its controls are designed for the purposes of giving comfort to a retailer, such as Overstock.com, that the buyer has not spent the currency somewhere else. However, if a retailer was then to tell an auditor that they sold goods to these public addresses, the auditor would need to verify that the retailer was not selling the goods to itself (i.e. they would need to verify that the addresses that the retailer sold to are not controlled by the retailer). In other words a sale for the purposes of Bitcoin is not a sale for accounting purposes.

That being said, auditors can’t ignore blockchain as it is the first decentralized approach to exchange value that eliminates the need for a trusted intermediary.

To understand the blockchain better, check out the following videos:

• Blockchain technology will drastically change our lives: This video gives a good overview of the implications of bitcoin and illustrates the role of the network in maintaining the ledger.
• How Bitcoin works under the hood: There is a 5 minute non-tech video, 5 minute tech video and a 22 minute video, which all do a good job of using animation to explain how bitcoin is tamper-proof.
• Khan Academy: The videos are about 90 minutes in total, but it is comprehensive. 

Crowdsourcing: "Process of obtaining needed services, ideas, or content by soliciting contributions from a large group of people, and especially from an online community, rather than from traditional employees or suppliers."

For more on crowdsourcing, I wrote a post on the potential impact on crowdsourcing. The post gives a good background exploring the use-cases brought up by Jeff Howe (who coined the term crowdsourcing).

Near the end of the post, I noted that:

"Can accountants/auditors be crowdsourced like the way professional photographers were? It seems were crowdsourcing works best is an arena where you find hobbyists who do such things out of passion instead of obligation."

Since writing that post I found Gigwalk which illustrates how non-expert tasks within accounting or auditing can be done by the crowd (see this post near the bottom). Also, during the CATS conference it was noted that 50% of practitioners will be retiring over the next 5 to 10 years. Such retirees could form a huge pool of people who want to work casually in their retirement thereby enabling the audit to be crowdsourced.

Concluding thoughts
To meet the challenge of the exponential change, I feel that we need to do the following:

• Hands-on Approach to Technology: University courses on programming, data analytics and data sciences should become a standard part of the accounting student's education. Although tools change over time, I think accounting students who have an open-source statistical package like R would have more options in terms of employment. With respect to data science, (audit) sampling belongs to an era of small data. Consequently, for auditing theory to be keeping pace with the way big data is transforming the way organizations are dealing with their data auditors need to be able traverse data science and auditing theory. 
• Bring in the "hackers": An extension of the above recommendation, is to get the people who think outside the box and disrupt the way we do things.
• Greater focus on cyber security: According to Alec Ross, cyber security is currently a 400 billion dollar problem and is expected to be a $175 billion industry by 2020. Security is a natural extension for CPAs who already need to understand internal controls, governance and concepts of risk (impact, likelihood, threats, etc.). With IoT, the security risks can only be expected to grow exponentially as now even the IoT-enabled fridge can be hacked (and the FTC thinks so as well).
• Smart Contracts+AutoRepos of Smart Cars = Flash Crash¹⁰: As I have written previously about AlgoTrust (second post and first post), I noted that this was another area that CPAs can focus on - auditing algorithms. Just imagine how, these algorithms can feed into blockchain enabled smart contracts that could trigger a massive repossession of smart cars - leaving a city in chaos as people try to figure out how to get home. In other words, CPAs can act as independent monitors of algorithms to ensure such risks are safeguarded against. 
• CPAs-as-a-Crowd: CPAs should leverage the combined power of social and cognitive to get smarter by sharing knowledge and using "smart rooms" that use machine learning and other AI technologies. 

To brings such change the profession, will not the work of one entity alone. Firms, educators, professional bodies and companies need to work together to ensure that the CPA profession will thrive in the world of exponential change that is just around the corner. 

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.