China’s continued clampdown on bitcoin has provided an impetus for miners to relocate to USA and Canada. In this article, Forbes noted that China’s, National Development Reform Commission (NRDC) might identify bitcoin mining as an activity that is causing harm to the environment. The article also cited that problem of the ability for the rich to evade the country’s capital controls, which I raised in this post. The NRDC has put May 7th as the deadline when it will ban bitcoin. As a result, Bitmain Technologies is looking to relocate in Canada (and the US) and BTC.Top is “opening facilities in Canada.”
Will this relocation to Canada prove to be a boon or is it a prelude to the inevitable bursting of the Bitcoin bubble?
Cryptocurrencies, on the other hand, are highly volatile. Some companies use the spot price to determine their value and report it on their financial statements. Hive Blockchain notes on financial statements that:
“Digital currencies consist of cryptocurrency denominated assets (Note 8) and are included in current assets. Digital currencies are carried at their fair value determined by the spot rate based on the hourly volume weighted average from www.cryptocompare.com. The digital currency market is still a new market and is highly volatile; historical prices are not necessarily indicative of future value; a significant change in the market prices for digital currencies would have a significant impact on the Company’s earnings and financial position”.
“While this boom and crash was unfortunate for investors, it actually produced some of the most innovative ideas that were simply just ahead of their time. Concepts developed by many companies that went under, including VoIP, eCommerce, big data and the web experience, still live on today, in many cases as the fundamental concepts driving success in large corporations.”
“The 1840s were a period of dramatic growth and change for British accountants. Many of today’s big accounting firms trace some of their roots to that period. As just one example, the accounting firms around the world that use the name “Deloitte” derive it from William Welch Deloitte, who set up his own practice in London in 1845. There is rare unanimity among experts on this period in attributing the growth in the ranks and prosperity of accountants to the rising demand for accounting services from the railway industry.”
When applying these lesson to crypto-currencies (that use the proof-of-work algorithm), the reality is that there is no underlying asset or service – other than a digital token that cannot be double spent. Therefore, unlike the Dot Com companies – who could at least feign a business model – cryptocurrencies have no mechanism of delivering value to its holders or purchasers. Consequently, the best way to mitigate against valuation shocks is to avoid investing in such speculative investments.
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.
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
Why is Fox News afraid of upsurge socialism in America?
And it’s “not a Democratic Socialist, just a straight-up socialist”!
One reason is that they see – regardless of their uber-Capitalist stance – corporations engorging themselves on the wealth of the nation. Specifically, Fox Business analyst, Chris Payne commenting on GM’s decision to lay off nearly 15,000 workers said:
“And again, it's not like they're in dire straits. Now, they're trying to get ahead of things, they want a big fat cash flow. But this is why, I think, capitalism in and of itself is in a lot of trouble in this country…Because these companies keep posting record earnings and they keep firing people. They keep posting record earnings and they buying back billions of dollars of their own stock. The American public is going to get hip to this and my fear is that they're going to end up electing, not a Democratic Socialist, just a straight-up socialist because of these kind of shenanigans. They should have saw this coming a long time ago.”
What does this have to do with automation?
The interesting aspect about the layoffs, from a technology perspective, was that it was mostly white-collar workers that were impacted - 8,000 workers according to New York Times. The article went on to say:
"The cutbacks reflect a transformation underway in both the auto industry and the broader U.S. economy, with nearly every type of business becoming oriented toward computers, software and automation."
According to this clip from the CBC's the National, Goldman Sachs slashed its cash equity from 600 to 2, but gets the same amount of work done because those traders have been replaced with 200 computer engineers. Furthermore, the expectation is that between 1.5 to 7.5 million white-collar jobs will be lost due to automation.
But what does all this have to do with a people-free economy?
For that, we have to go back an exchange that is said to have happened at a Ford plant:
"Henry Ford II showing Walter Reuther, the veteran leader of the United Automobile Workers, around a newly automated car plant. “Walter, how are you going to get those robots to pay your union dues,” gibed the boss of Ford Motor Company. Without skipping a beat, Reuther replied, “Henry, how are you going to get them to buy your cars?"
The Capitalist economic system is a system that maximizes the freedom of ownership by focusing on investments. Everything else is secondary. Sometimes people in society can impose a cost on the Capitalists that forces them to accommodate them. However, the Empire inevitably Strikes Back. For example, the concessions made to labour unions in 1930s (that upheld Capitalist beliefs) was temporary. Once Communism was dead, these unions were destroyed through the Volcker interest rate hikes in the 70s, globalization and the non-enforcement of labour laws (meaning the government let the companies commit illegal acts).
However, given this, people should realize that the right number of workers at a company is zero. That is, if one can get more output from investment in machines instead of HR, there is no law or other mechanisms that will force a corporation to hire people.
“With government driving up the cost of labor, it's driving down the number of jobs…You're going to see automation not just in airports and grocery stores, but in restaurants… They're always polite, they always upsell, they never take a vacation, they never show up late, there's never a slip-and-fall, or an age, sex, or race discrimination case.”
All doom and gloom or can innovation lead to hidden jobs?
According to the same Freakonomics podcast, approximately 600,000 in total (200,000 in radio and TV broadcasting, 300,000 in motion-picture and sound recording and another 100,000 in the repair of electronic equipment).
Although this is likely a good way to think about the future, it is important to remember that the underlying economic system has no consideration for people. It's cold hard logic is about generating cash for the shareholders - even if it means laying off everybody. But it seems like the best way to do this is with the combination of man and machine - for now.
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
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
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?
"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
Had an interesting conversation about Google Traffic with my step-daughter the other day. Originally, my wife was supposed to pick her up, but the way things worked out was it made more sense for me to intercept her at the bus station and then bring her back from home. We were able to calculate timings and distance using Google Traffic.
I was explaining to her "life before Google": those days that I would work late at the client only to be stuck in traffic because a game just got out. We don't know how to avoid these jams because we didn't have Google traffic in those days and so we just had to wait it out.
She was a bit bewildered at the prospects of having to plan one's journey without having the benefit of being able to use Google Traffic. She compared to an era when trains didn't have the benefit of centrally coordinated time zones. As explained in this PBS clip, both trains and cities independently maintained their time based on the sun. Consequently, a train passenger had no way of knowing when they would arrive at their destination because the cities didn't coordinate on time. Hence, the invention of time zones.
And that's the connection.
We can no longer can we blame traffic for being late for an engagement, as we should have checked Google Traffic before we left to make sure we are on time. Google Traffic has now become essential to coordinating with others. Even for getting things done more efficiently requires us to leverage such information. For me, it helped me pick up my step-daughter and made me realize that I hailed from a pre-historic era ;)
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.
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
