IS 251 @ Loyola University Maryland: Blockchain Technology : Benefits and Concerns

How blockchain works

What is blockchain?

A blockchain is a distributed, tamperproof digital ledger. It cuts out intermediates, reduces costs, and increases speed and reach. It offers more transparency and traceability for many business processes. According to PwC's 2018 blockchain survey, "84% of executives stated that their organizations have some involvement with blockchain technology."

What challenges does it face?

Like many other innovative technologies, blockchain remains untrusted by board of directors, risk committees, and regulators. Blind trust is an unacceptable risk for them. Thus, there will always need to be an independent function to provide assurance for all stakeholders. This delays the integration of blockchain technology into firms and companies like PwC.

Why is it risky?

Blockchain is new, so most of the applications provided with it are not mature. Auditing teams may also not have the expertise to utilize this technology securely and comfortably. It is different, which introduces a learning curve to it. It requires new methods of thinking about controls. "Who controls the blockchain, who gets access, where are the servers, who monitors activity, etc". Technical expertise is limited, "86% of financial services executives said that their organizations haven't yet developed necessary blockchain skills". It had a "rough start". There is a bias against the technology due to its first explosion following bitcoin. Even though these two are not synonymous, bitcoin's effects have also affected how blockchain is seen and trusted.

The solution

PwC suggests that by combining risk and controls framework and continuous auditing software will enable companies to see into the blockchain engine. We can use the best-of-breed and middleware analogy to explain that this framework is like a middleware for companies to use to transcribe what the blockchain engine is exactly computing, redirecting information to other software and programs towards "processing into traditional audit and control evidence and reporting". This is all done through employees. The next stage of this development would be automating this process, resulting in real-time auditing processes.

What problems can emerge from this solution?

The first problem that will emerge from this solution is the expense for the development of the software. PwC and other involved companies will have to see if the cost of developing the software is less than the potential profitability of implementing the software. It then comes down to a question of ethics. What will happen to current auditors that are not familiar with the software? Will they be laid off, re-trained, and perhaps re-compensated for further training? The second problem follows with the advancement of the software to autonomous capacity. This problem will mainly face ethical questions as to where auditing associates, senior associates, and managers will go if this process becomes truly autonomous. What will happen to their salaries as a result of cheap automation of their previous work? Blockchain is certainly revolutionary and companies are stepping forward towards its implementation.