Plain Truths About Blockchain Projects

: on 08 October 2020

My ThinkTWENTY20 Editor in Chief Gerald Trites and I were discussing blockchain projects recently. ThinkTWENTY20 is, of course, a visible innovative magazine for financial professionals who want a deep dive into contemporary issues and their application to our profession and its practitioners. That means those with innovative solutions will reach out with press releases and editorial content ready to go.

Our readers may recall my article in an early edition of the digital magazine on fads and fallacies of blockchain related to the profession. I have had some excellent mentors – including some of the foundational contributors to blockchain itself, referenced in the Bitcoin whitepaper – and have a strong malarkey-meter for pretense in the PR.

To that end, Jerry and I mused: would our readers appreciate annotated versions of articles and press releases that expose error, unhood hoodwink and untangle the yarns? Would you like to see a regular feature of “Send Eric an article or press release about blockchain and Eric will tell you what’s wrong with it.”?

You would find common themes meandering through the malarkey. In many cases, these themes come about because the authors believe that the reader doesn’t understand the topic and have oversimplified their statements to a point of inaccuracy. The press release we were mulling over said their solution was good because it was “based on computer technology”!

For common theme #1, look for the word “encryption” in the article or press release. This touches a nerve for me particularly, as encryption for XBRL was one of my first missions; you will find my name on the XML Encryption specification from the World Wide Web Consortium as a results.

You will often see a phrase such as "blockchain technology has superior encryption capabilities." In fact, neither the Bitcoin nor the Ethereum blockchain has any encryption inherent in it. Encryption means that you take something and obscure it (turn consumable content into unreadable cyphertext) in a way that only people with the tools to recover the original content can do so – a two-way process. Blockchain uses the keys that might be involved in such a process, but for authorization and not encryption. Blockchain uses hashing – a one-way algorithm not two-way, to create a unique fingerprint used for data integrity.

For common theme #2, look for attacks on Bitcoin: better than Bitcoin, safer than Bitcoin, uses less energy than Bitcoin; a “better Bitcoin,” “[our coin] opens the door to a perhaps not so distant future in which there will no longer be any circulating currencies as we know them today, and which will be replaced by a global virtual currency system.”

For common theme #3, look for indications that success demands that all users converge on their blockchain and their coin or token. Most “triple entry accounting/bookkeeping” solutions have this as a requirement.

Common theme #4: Overpromising: “risk free,” “completely private,” “hacker-free.”

Common theme #5: Every piece of information a user needs is on the blockchain, understandable and available.

Common theme #6: Blockchain makes transactional costs disappear.

And there are other telltale signs.

What do you think? Would you like to see web sites, press releases and articles annotated to help you understand what is being promised … and overpromised?

If you have not seen the US Securities and Exchange Commission’s educational website, Howeycoins (https://www.howeycoins.com/index.html), it is worth a visit. Spurred on by the goldrush of Initial Coin Offerings (ICOs) in 2017—2018, it showcases high-return guarantees, regulatory approvals, famous team members and supporters, so-complex-they-must-be-good explanatory whitepapers that have proven successful in getting people to separate from their hard-earned cash in the hope of huge returns.

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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

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