There is a lot of hype, about Bitcoin block chains (especially in the FinTech market), and bitcoin like digital automation replacing accountants, at the moment..
Bitcoin was designed to substitute technology for trust. "What is needed is an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party" Nakamoto wrote in the original Bitcoin white paper.
A fair bit of BitCoin is the normal "marketing hype", generated by geeks, start ups seeking to raise capital based upon a little know set of crypto, and a promise of something unique and new, or people simply wanting to print money themselves.
Bitcoin like most technologies has a number of advantages and disadvantages, i.e it "cut the suit" to meet a specific purpose, From a technical crypto perspective, bitcoin has some very cool aspects in their various protocols, especially the ECDSA signature usage, which is quite innovative.
Bit of history on digital currencies..
From a security perspective Bitcoin is light years behind technologies which predate it by at least a decade, one such example is Mondex, The lack of any mandatory security within Bitcoin is one of several reasons exchanges and personal wallets have been relatively easy compromised, and millions perhaps billions of value lost; no one actually knows?
I personally had a play (it was just technology, back in the early days) and left the resultant mined bitcoins on a hard disc, which has been lost many moons ago, I am sure I was not alone in doing this. Who knew people, would actually trade real value, for a signed blob of bits that simply resulted from generating a hash, all with zero intrinsic value, there is no gold here, its just a bag of bits?
Unlike Mondex, which was independently evaluated and achieved ITSEC level E6 accreditation, there is nothing to justify any claim of security within the various implementations of the bitcoin protocols or even the bitcoin chainblock, it is crypto driven by individuals and groups which want to play in the money printing business.
There is a mantra in the security world "hardware, hardware and then some more hardware"..
No independent security evaluation, no provable security, think snake oil?
One simply cannot make any software only solution, secure, its this basic..
So why did the likes of Mondex simply vanish, and bitcoin seem to f lowish?
Some reasons are related to simple economics, bitcoin allows miners to make money from basically nothing, the whole work factor stuff and consensus is a bit of a security con, more closely related to "junk bonds" than anything else. There are a lot of people who can simply print money; if bitcoin is successful i.e if BitCoin is accepted as exchange fir items of real value.
Miming and consensus are all about printing money, nothing more..
If one compares Mondex and Bitcoin one sees nothing functionally new or different in bitcoin over Mondex; both support anonymous transactions, both make intensive use of Crypto. Mondex does not need a 20MB blockchain, and growing by the minute, to secure every transaction. Mondex was a truly decentralized transaction solution (no blockchain), there was no real central control or processing, there was control over money supply, which only effectively exists when bitcoin is transferred to Fiat currencies. This is perhaps one reason why is believed ~80% of the original mined bitcoins have not been spent, they need to move out of the junk bond model, before redeeming the bag of bits. The fundamental difference is that Mondex was "actually secure", also very simple to explain. While the crypto underpinning bitcoin is quite simple, the way this crypto is sold, is close to snake oil.. As a simple example the selected ECDSA algorithm, is still immature technology compared to what was used in Mondex.
So why did Bitcoin take off, and Mondex disappear from the digital currency market?
A few thoughts:
- A programmer in their spare time, with almost zero capital, could not create/mine Mondex (money) and almost zero effort, at least those at the top of the mining pyramid ?
- Bitcoin is heavily skewed to these original miners, more like a pyramid selling scheme, than a currency, the Gold reference is also a con, to justify this skewed scheme, and provide the early miners a significant monetary advantage which everyone following or participating in bitcoin is paying for (the pyramid).
- People have been sold a bogus concept, that "crypto" equals security, when nothing could be further from the truth. The whole "crypto" equals "trust" is simply beyond belief, yet this flawed concept underpins bitcoin.
- Mondex was created by the Banks and hence had has all of the establishment "baggage",there was no room for non banks to play in the "Mondex Money pond" even though it was anonymous, truly distributed, and secure?
- There was minimal ability within Mondex for "laundering" of money, due to the lack of any anonymous "mining process".
- No mandatory or even minimal security is required in bitcoin, zero independent security evaluations exist. The need for "real" security was an impediment to Mondex adoption.
- Bitcoin runs on the same irrational basis as caused millions of people, to up and leave their homes, and families to travel all over the world, to "mine" gold, diamonds and almost everything of value. Mining does not need to be rationalised.. bit like gambling or many other aspects of our society.
Where else, outside of bitcoin, can a computer simply print money and people line up to buy it with a fiat currency or something of real value? There is in fact no need for any human involvement at all? This is a conceptually broken concept.
Anyway, enough of Mondex vs Bitcoin and history.
Lets focus on the good bits from the Bitcoin BlochChain, and what it means for Accountants and FinTech Ledgers generally..
The concept of securing accounting ledgers with BlockChains is not new, many accounting supplies toyed with secure or triple entry accounting back in the late 1990's.. We released our first secure Web Ledger back in 2004. And yes accountants and users alike hated it, as they could not simply delete/alter transactions like they could with all existing SME desktop and can do today with the latest generation cloud accounting systems. How times change..
So what has changed since the 1990'? Today there is a market acceptance for crypto ( right or wrong) and cloud accounting ledgers. The Cloud has become a commercial reality.. Also there is a fair bit of the basic Bitcoin BlockChain that is useful to the next generation secure ledgers, rather than just an dedicated payment system. i.e a Ledger secured by a BlockChain for anything.
So what is required to be fixed in BitCoin to meet a secure ledger application.
- There needs to be actual security applied to the blockchain, this means there must be at minimum, some elements that are secure, i.e. a Hardware Security Module(HSM) which protects all critical "secret" elements of the blockchain system. Very basic for overall system integrity and risk management
- The "printing" of bitcoins must go, the removal of miming also removes a number of the side issues within bitcoin.
- The consensus process can also go as not relevant, this is a poor mans "trust chain, that can compromised, especially when the mining return trends towards zero.
- The centralized and endless growing bitcoin blockchain needs to also become a fully distributed blockchain, which can still be navigated on a global basis as required.
- A Trusted Third Party, needed to replace the "consensus" and "work factor" elements.
What is the role of the Accountant/Auditor in this new World?
The same as the old world, the Accountant adds "trust" and a lot more trust than any crypto algorithms does.
To this end, we have added a secure blockchain to our Cognition Cloud Accounting Engine, which is available to all FinTech or other VAR's. Note solving the general secure ledger problem, is bit simpler than creating a payment system.
The accountant can add "trust" to the blok chain, in the identical manner they do today, in our case they append their audit signature to the blockchain at the appropriate points, reconciliations and year end audits as an example, if required multiparty signatures can also be applied, to suit various applications.
Our BlockChain is underpinned by a cloud based HSM (similar to Mondex, except in the Cloud), and traditional mature crypto, digitally combined with TTP and Accountant audit processes, The resulting secure Ledger, can be applied to any accounting process.
The future is here today,and can be applied to all accounting applications,
Typical usage:
- Financial accounting
- Portfolio management and broker trading
- SMSF solutions
- and much more.
Accountants and "Trust" cannot be replaced with cartographic algorithms, and money printing..
We believe, the future for the next generation "Digital Knowledge Accountant" is very rosy, robots and cryptography are not a threat to trusted knowledge workers..
Check out the our next generation public block chain ledgers, and initiative to secure global electonic commerce our Free Bitcoin ECDSA private keys.
The author has no commercial relationship, with Mondex, it is simply a technology that existed within the digital money market place, and one which was technically interesting to the Author, and is still the only one that has a strong security platform which under pins the currency transactions, and had meet the normal social "trust" requirements.
Disclaimer The contents of this site should not be understood to be accounting, taxation or investment advice but rather as general product related educational information that may or may not meet your specific requirements.
