Cryptoasset Wallets

: on 18 March 2020

A bit of a diversion from the current series on financial professionals and graphic-oriented tools for creation and collaboration (rather than presentation), but triggered from the discussion of Decentraland, I wanted to write on the topic of cryptoasset wallets. Wallets are key to self-custodied use of blockchain, and so understanding what they are, what they are not, and the risks associated with them are important to the financial professional.

As I noted, the legacy virtual environment, Second Life, was going to revolutionize business and communication, but did not reach widespread usage as the far more focused Twitter did. Part of the reason was the complexity of the environment, and that it required a fairly heavy client, software loaded on your own computer. After that, with a login name and password, off you would go. In contrast, Decentraland is browser-based (although still highly resource intensive), but requires a cryptoasset wallet to do anything meaningful.

The simplicity of using a wallet falls somewhere between getting on the Web in 1995 and going on today. While some grans and gramps have done just fine, others find getting a wallet in place to be a non-trivial exercise.

There’s a lot of misconceptions about what a wallet is in the first place (even amongst my colleagues in blockchain standard setting). Unlike the wallet traditionally kept in the left rear pants pocket or in a purse, a cryptowallet does not store bills or coins or cards (or receipts, or calendars, o lucky charms). A cryptowallet manages public and private keys; the assets themselves are tracked on blockchains/distributed ledgers, and the keys are the trackers of which addresses are “yours” and the authorization to move amounts from one blockchain address under your control to another blockchain address.

There are online wallets, some of which are managed by third parties and others of which are self-managed. And some of these online “wallets” are not wallets at all.

Many people who have worked with Bitcoin, Ethereum, Litecoin and the like have purchased them through an online service (exchange), such as Coinbase. Coinbase as a service is no more a “wallet” than your broker is a wallet. You do not have direct control of your assets (or keys); you must work with the exchange to conduct a transaction. If there are “forks” and “airdrops” and the custodian chooses not to support it, you lose the additional assets. Coinbase has, however, recently released a true wallet, “Coinbase Wallet”.

Being your own custodian has its advantages and disadvantages. There is no recourse if you lose your methods of getting into your own wallet. Setting up the wallet, working with recovery phrases and keys, knowing what is safe to do and what will expose your investments to others … this is new and not always intuitive. Having to figure out how to set up MyEtherWallet and MetaMask just so you can save your Decentraland avatar’s appearance and goodies is a high entry point to play a game for the uninitiated.

I have learned to use these tools as I think they will have value beyond investing/gambling on cryptocurrencies. Therefore developing an understanding of these “key” issues will be important in a blockchain-enabled future.

Comments

No comments found

Forum Recent Posts

Data Driven Sustainability Decisions

Tuesday, 03 May 2022

Gerald Trites, FCA, CISA

While companies have traditionally viewed sustainability decisions as separate from monetary decisions, this is changing. It’s partly because of generational changes, with millennials now being the largest component of the workplace and partly considerations driven by customer demand, investor demand regulatory requirement and common-sense observation of the destruction caused by climate change. Compelling reasons.

Companies have been moving more clearly to data driven decision making for several years. So it makes sense they would turn to data to drive their decisions in the sustainability area.

To accomplish this, they need to first define their sustainability goals. This usually begins with industry trends and information from stakeholders about their sustainability concerns and the development of a sustainability strategic plan. Second, begins the process of data modelling and analysis drawn from internal and external sources. Many organizations have well defined data gathering processes already in place, but these need to be modified to take into account sustainability goals. Finally, the adoption of data driven sustainability decision making requires the adoption of AI techniques to automate data gathering, modelling and reporting functions.

Established enterprise systems are moving in this direction, the availability of which, as well as their compatibility with existing systems, is an important consideration.

Overall, a creative combination of data management, analytics, AI and integration of sustainability processes with established corporate processes are crucial to a successful outcome – the creation of a truly sustainable enterprise.

How All Accounting Reports Will be Digitized

Thursday, 31 March 2022

Gerald Trites, FCA

The SEC was the major regulatory body that got the ball rolling in 2009, when it mandated rules for the use of the interactive data format (XBRL) for public company financial statements. Then several other countries and organizations got on the band wagon. There was a relatively quiet period for a few years, when the new electronic form of reporting seemed stalled. But then the EU stepped in and began requiring their ESEF filings in 2021. That meant most of the major companies in the world were using digitized reporting.

For regulators and governments, digital filing of reports has been an opportunity to streamline the processing and analysis of the reports. Users such as investors, on the other hand, have often been unsure about what to do with these reports.

The fact is, much attention has been given in recent years to the production of digital reports, but very little given to their consumption. True, there are utilities that can be purchased to enable people to read reports in digitized form, the SEC provides such a one, and the recent moves to inline XBRL mean the reports can be read in the conventional way, (ESEF is a variation on inline XBRL). But most of these attempts to render digital reports readable cater to the idea of sequential reading in the conventional sense. Most people do not read this way, unless perhaps they are reading a novel. When they want information, they tend to go to that information as fast as they can. This is the standard approach most people follow in using the internet. People don’t read the internet. Nor generally do they read a corporate website from beginning to end. That would be bizarre!

But yet, we provide annual reports in paper or PDF form, which extend to around 150 pages and often more, of difficult, often technical, material and expect people to read them. It doesn’t happen. Professional analysts might, but they are more likely to employ analytical tools to get the information they need.

There is an excellent article on the website of the International Federation of Accountants (IFAC) by Amir Ghandar, titled “The Accounting Revolution Will Be Digitized”.^[1] In that article, Mr Ghandar points out that “A 2D, static annual report format in paper or pdf is not that different to the papyrus on which Egyptian scribes reported on the royal inventories more than 7,000 years ago.”

Much more than this is needed in the modern world. Technology and complexity have advanced tremendously and the style of reporting needs to keep pace.

Two areas need further work. One involves the steps necessary to encourage legislators and regulators in countries to adopt digital reporting. While a majority of countries have adopted it, there is still a number who haven’t. Then there is the need to take the steps to change digital reporting to make it more understandable and usable to the users. This means providing the resources for them to actually draw out the data they want. These resources need to be made available along with the reports themselves. Some companies in their websites have started doing this, through the provision of data banks and some analytical tools, however it needs to become commonplace and much more powerful and sweeping.

Developing this approach to corporate reporting requires interaction and discussion between corporate reporters and users, regulators and standards-setters to address the issues.

Those issues involve more than figuring out how to present digital information and how to use it. It involves determining what information to present, how to present it and when. It involves looking back at the basic tenets that have ruled accounting since its beginnings. The need for annual and other periodic reports. Can they be continuous? Can we eliminate the need for those pesky annual accounting judgements that cause so much trouble? Can we include the tools for analysis within the disclosures rather than relying on the software industry to deliver them? This cannot be accomplished within paper or pdf reports, but rather on the corporate websites. Most companies have moved their reporting to their websites. But they generally have ported over the old paper paradigm, rather than seriously adopting new and innovative ways to report in the information age. It’s well past time we did that.

https://www.ifac.org/knowledge-gateway/contributing-global-economy/discussion/accounting-revolution-will-be-digitized

^[1] https://www.ifac.org/knowledge-gateway/contributing-global-economy/discussion/accounting-revolution-will-be-digitized

ThinkTWENTY20