AIS Chap 15

• Blockchain


  Distributed ledger system originally designed for bitcoin exchange but is not used to exchange a variety of digital assets
• Blockchain vs traditional system

  • Blockchain is decentralized and has multiple copies of data, while traditional system is centralized with only one copy of data
  • Blockchain has no middleman, traditional system requires a middleman to approve and record transactions
• Blockchain


  • Write-once, read-many type of system
• When is blockchain useful

  • Blockchain enables multiple parties that do not fully trust each other to collaborate with a shared source of truth
  • Allows parties to see latest updates in real time
  • Eliminates middleman, accelerating transaction settlement and verification
  • Eliminates fraud or potential human errors
  • Automatically keeps an immutable audit history of all transactions
  • Cuts costs and resources that would be spent on manual efforts
• How blockchain works


  1. Distributed and decentralized data

  2. Consensus - every transaction is validated by participants and packaged into blocks

  3. Immutability - transactions confirmed are tamper proof and cannot be altered

  4. Proof of work - miners create and validate blocks by solving mathematical problems
• Proof of authority


  • Consensus algorithm that requires a few members in the network with known identities to prevent malicious behavior
• Proof of stake


  • Miners must stake a portion of their own cryptocurrency to ensure blocks are created honestly
• Bitcoin


  First cryptocurrency, eliminates double spending, anonymous peer-to-peer transactions, public blockchain, validation through proof of work and mining rewards, immutable transaction history, distributed ledger, block added every 10 minutes, not economically efficient
• Ethereum


  Cryptocurrency that runs on the Ethereum network, used to pay for computational resources and transaction fees, block added every 12-15 seconds, transaction fees differ by computational complexity, mining of ether occurs at a constant rate, lower transaction fees than Bitcoin
• Blockchain use cases


  • Supply chain - provides transparency and real-time visibility
  • Loyalty programs - partners and airlines have a record of all customers and their points
  • Auto industry - buyer sends car info, seller puts together smart contract, bank checks funds, DMV ensures license, seller creates and delivers car
• Challenges with adopting blockchain technology
• Impact of blockchain on audit and assurance


  • Information stored in blockchain and relational databases complicates auditor tasks
  • Continuous audit becomes possible, traditional audit activities can be eliminated or reduced
• Natural language processing (NLP)

  • A branch of AI that allows computers to understand, analyze, and respond to written and spoken human language
  • Natural language understanding - a subset of NLP that focuses on interpreting the meaning and establishing the proper intent of written and spoken human language
• Robotic process automation


  • The use of technology, such as AI, to automate structured business processes
  • Can perform high-volume repetitive accounting tasks like preparing tax returns, managing accounts payable, determining cost allocations and account classifications, preparing financial statements