The Blockchain
In the context, Bitcoin was born thanks to the combination of several existing technologies. We will explain the one that has great relevance in cryptoassets, the “blockchain” or better known by its English term “blockchain”, generating for each group of transactions a unique record, agreed and distributed among the nodes of the network.
The blockchain, a word that has gone viral in the last decade, is the technology used for the creation of virtual currencies that operate without being backed by any government or depending on the trust of any central issuer.
The salient features of this blockchain are:
- Public: Anyone can track or verify the transaction on the blockchain.
- Immutable: Once blocks are validated by the nodes, they cannot be deleted or modified. All data has been previously cryptographically encrypted by the miners.
- Distributed: All nodes in the network replicate the block chain (records) containing the validated transactions.
- Decentralized: there is no central authority that governs or controls the network; the nodes all act on an equal footing.
A blockchain is a ‘type’ of Distributed Ledger Technology (DLT)[1], and it is a database stored in a virtual and non-centralized form (distributed across all the nodes that make up the network), where each user of the system accesses an up-to-date and fully synchronized copy on his or her computer. It can be thought of as a digital ledger, whose individual sheets or records of information (blocks), after obtaining the approval of the rest of the system users, become part of the ledger (forming, together with other elements, the block chain). Each new block has a unique identification[2] including its linkage with the previous block, thus allowing correlativity between them.
The system works in an automatic and decentralized way, and the incorporation of new information is produced by the consensus of all users, which practically prevents manipulation or forgery of the blocks. For example, if a node modifies a record of a block validated a month ago, it would be modifying the hash of that block, and consequently, due to the chaining that the blocks maintain among themselves, it would also be modifying the hashes of all the following blocks validated up to today’s date. When that node wants to register the modified blocks in the blockchain, the rest of the nodes will automatically detect that these blocks do not match the original ones and will not allow them to be registered. In this way, the blockchain works by consecutively chaining blocks of information, creating a cryptographic chain that until now has not been broken.
Thanks to this feature, blockchain technology has uses that go beyond cryptocurrencies: it can be used to provide traceability to public procurement processes (any citizen could audit operations and be sure that records have not been modified), or it can be used to achieve adequate traceability in the food industry, or even in the financial sector to reduce costs in international transfers. Its uses (and benefits) are manifold.
Currently, due to the benefits of this technology, centralized blockchains have been designed for commercial and governmental ventures.
A Future, Today
In the face of CRYPTOACTIVES, concerns and challenges arise for the profession. As it is in the process of definition or unified legal conceptualization the concept of the same, from the point of view of regulatory entities, both from Argentina and the rest of the world allows us to measure the reasonableness in the use, as well as the results or economic or social impacts that could generate in society as a whole.
The world of BlockChain and cryptocurrencies / cryptoassets is already here, a scenario is identified in full operation and with an exponential growth in the course of time, according to the period between 2008 – 2021.
Regulations
But not everything is so perfect, as with any social phenomenon, it is necessary to advance in its regulation in order to guarantee transparency and security to ensure sustainability. At present, there are many questions regarding the regulatory framework, since it is necessary to define issues related to digital identity, the responsibility of the different actors that make up the network, among other relevant issues. These challenges are not unrelated to the actions of the auditor, whose objective is to verify the legality, regulatory compliance, quality and legitimacy of the transaction and control the operation of the system. Thus, in order to provide security and transparency in the execution of the transactions, the auditor will go from obtaining, surveying, verifying and validating data to auditing algorithms, tokens, technological platforms and may even be a mediator between the different actors that are part of the BlockChain.
Therefore, if there is a regulation on digital assets, it should have among its objectives to defend financial stability, protect consumers and address the various issues related to money laundering in order to generate security and transparency, beyond promoting the General Welfare.
Therefore, since the current context allows the manipulation, use and exploitation of today’s oil, data, the auditor’s work will change radically, and emphasis must be placed on guaranteeing the support, reliability and security of the information.
Training
This change in the social paradigms, will force professionals to permanent training in everything related to the application of new technologies, being necessary to form interdisciplinary work teams (experts in accounting, auditing, taxation, computer systems and tools, sustainability and environment, etc.) that have as a premise the permanent search for tools that allow guaranteeing and providing security when evaluating the use of the BlockChain, thus reducing the probability of violation of norms or standards that are established for this purpose.
Datalogica Auditability
“In a world flooded with irrelevant information, clarity is power.”
Yuval Noah Harari, 2018
Building trust in a world of data
We have to be aware that the probability that the information needed to perform any kind of control is already collected in an information system is increasingly high. Society is moving more and more at the speed of computers and communications. The systems that help us to live are becoming more and more intelligent and therefore, auditors will not only have to use artificial intelligence techniques to find evidence, but they will also have to create confidence that the systems that use them are reliable, unbiased, ethical and generate results based on an agreed set of values.
This is one of the biggest challenges of the digital transformation of auditing. But it is not the only one. It is joined by that of cybersecurity. A risk that we all face and that must be mitigated with the collaboration of all stakeholders, including auditors who will have to devote many resources to this task.
A great innovation process
It’s taking risks… and allowing failures
Saskia J. Stuiveling. Presidenta of the Netherland’s Court of Auditors
Managing innovation means overcoming a number of challenges, such as:
- changing the organizational culture;
- developing a long-term perspective for implementing innovations;
- disseminating experiences with innovations;
- not being afraid of failure
“The speed at which digitalization is taking hold leaves no time to judge whether or not it is appropriate to embrace a policy of transformation of control and audit bodies.
We must react now, as there is a risk of doing work that is incomplete, irrelevant and increasingly unnecessary.
And it is not a matter of evolving step by step following the principles of a continuous improvement process; we must act in a disruptive way by building a new parallel model of digital auditing.
Success will depend, to a large extent, on the support of the management level, which must understand what is at stake and lead this major cultural change”.
Transformation to the ABCD of Digital Auditing
Digital transformation is an imminent phenomenon. In recent years, there has been an exponential development of a wide variety of innovative technologies alongside the growth in the production, openness and flow of data. Data science has penetrated all spheres of human life, driving the application of digital technologies, Big Data, artificial intelligence, Blockchain, cybersecurity, ABCD) data analytics, machine learning, chatbots and drones, among others, to guide decision making in virtually all areas of society.
Information technologies (ICT) at the service of government control can strengthen the independence and legitimacy of Supreme Audit Institutions (SAIs), promoting public trust and accountability. The use of ICTs translates into greater transparency, integrity and accountability, which, in turn, contributes to increasing the effectiveness and efficiency of government management.
The symbiosis between digitalization and control
The development of information systems poses challenges such as the need for the architecture to respect standards that will allow interoperability, maintainability and, above all, confidence that the system does not contain malicious parts that would allow fraud or deception. The records of operations automatically generated by the information systems (in computer jargon “logs”) are an available mechanism that allows us to trust the data. But the question arises as to whether this is sufficient or whether, on the contrary, fictitious, modified or malicious logs can also be generated.
To answer this question, other control mechanisms must be designed to ensure our trust in the systems.
At this historical crossroads where the “internet of things”, robots and artificial intelligence, Blockchain, cybersecurity, ABCD) data analytics, to name a few of the emerging technologies, converge, it is urgent to call on computer scientists, legislators, auditors, and all the necessary technical personnel, to work together to design the “digital transformation” of control activities; To invest their efforts in creating systems that are built from the earliest stages of program conception, and that are capable of identifying and capturing data in an agile manner during all stages of their life cycle. Not only will these systems require fewer resources, since control can be automated, but also, since they can be performed in real time, they will represent a major qualitative leap forward compared to more traditional forms of control. In this context, ex post control becomes less important, and the main objective shifts to immediate and continuous control that feeds back into the system and allows actions to be corrected.
The data quality crisis is accompanied by the opportunity to create new systems based on trust
In this context, it is not surprising that blockchain, considered by some authors to be one of the most disruptive technologies since the advent of the internet, has crept onto the agenda of public administrators. There are several reasons for this. First, it is a technology that is characterized by generating trust in information and processes in circumstances where the number of actors, or users, is large and heterogeneous. Second, blockchain creates traces that facilitate control and make it possible to know who has done what and when; thus becoming a tool to contribute to transparency. Third, it does not require a centralized certification authority to manage access and use of services by large populations.
Interaction between Crowdfunding and Tokenization: A regulatory framework to be applied, Analysis Tools
Tokenization is defined as a method or process to represent rights over an asset in a digital token, which will be registered in a second generation BlockChain, e.g. Ethereum. In this sense, tokenizing an asset or a right is basically to generate a digital representation of it through a token created by a smart contract that will reflect the value of that asset because it will be backed by the represented asset itself.
In the face of an accelerated advance of Tokenization in the world, which would generate a financial movement of billions of dollars, represented both in fiat currencies and in cryptocurrencies or cryptoassets, it is important to advance in the study and research of potential regulatory frameworks and analysis tools, which will be necessary to reach a consensus for its implementation, in order to generate stimuli and alerts to entrepreneurship; thus seeking genuine ways to raise funds and encourage innovation and protect investors from potential fraud or scams.
Beyond the legal vacuum, it would be interesting to develop tools that make it possible to identify, either through valorization or traceability, genuine projects, so as to allow us to differentiate between cases of a) Projects without any possibility of value or utility, even subject to scams with Cryptocurrencies (Shitcoin), or b) Projects of fraudulent pyramid schemes, without any software to support them or the possibility of trading their native tokens in exchanges by their mere staging (scam coins).
In this sense, the dynamic evolution imposed by the application of technology in the different social environments, it is relevant the permanent search for indicators that allow, as a whole, the evaluation, sustainability and projection of ventures based on new technologies.
An essential characteristic of this tool must be its flexibility, thus allowing the inclusion or modification of indicators according to the different modalities and ways of doing business.
Price / Quotation is not the same as Value
Based on the premise that “price and/or quotation is not the same as value”, we advanced in the development of the matrix, a tool for analyzing tokenized projects.
In the lines of research and testing of tokenized projects, the idea arises to generate a tool for project analysis that allows developing a double-entry evaluation, zooming in on both the valuation of projects and their traceability: thus takes shape “the matrix”, which, based on indicators that reflect the traditional business model linked to the CritpoActivity, seeks to combine in this way an interrelation between the traditional model and the new disruptive technologies.
The approaches to be followed are:
- Valuation (marking the difference between Price / Quotation and Valuation)
- Traceability (applicable for the purposes of Audit or Expert Proceedings)
New Technologies, New Business, New Challenges
Faced with this new scenario that will surely generate economic and social impacts worldwide, the complexity of the BlockChain should be an incentive, and never an obstacle, to reflect on its deeper implications, so as to find a lever that encourages debate and reasonable discussion. Today, in the current circumstances, it is difficult to believe in a self-regulated society, without institutions and with power distributed in a network. But the fact that it is difficult to imagine does not mean that it is impossible, that it cannot happen.
Thus, the advantages and opportunities offered by the new disruptive technologies are quite remarkable, presenting weaknesses as risks to be faced at present, and evidencing threats that will enhance, in their use, the generation of defenses against potential risks.
All of the above positions us before the challenge of adapting ourselves, as a society and obviously as professionals, and in view of this, it is well known that all change generates uncertainty, being transcendent to assume the leading role in this scenario, training ourselves, making ourselves and the rest of our colleagues aware of the importance of developing tools that contribute to the development of our role in society.
SWOT analysis of cryptocurrencies today
| STRENGTHS | WEAKNESSES |
| Without geographical borders, operations can be performed from any country in real time. | Uncertainty due to the lack of knowledge of its operation. |
| Neutral and transparent: no individual or organization can control or manipulate the crypto protocol, since it is cryptographically secure. | Vulnerability due to the lack of an Integral Regulatory Framework (they are not controlled by a Central or Governmental Organization),
Lack of investment opportunities for private individuals and/or legal entities. |
| Security (encrypted data) | Misinformation leads to erroneous advice |
| Speed in the execution of the operation | High volatility due to being a new product |
| OPPORTUNITIES | THREATS (POTENTIAL RISKS) |
| Use (means of payment, own business, investment portfolio) | New forms of fraud through the use of cryptocurrencies in violation of cybersecurity |
| Access of new user profiles to the benefits of disruptive technologies | Anonymity (no connection with the real data of the persons) is a disadvantage from the point of view of transparency (prevention of financing in terms of terrorism or money laundering), not to be used for purposes that may be involved in corruption cases |
| Low cost of exchange, no intermediaries | New forms of cyber attacks that threaten cybersecurity / New Hacker Profiles |
| Reach all types of beneficiaries, no further financial backing is required (as may be requested by banks). | Cryptojacking |
| Reduction in bureaucracy | New Economic Scenarios with the emergence of new Digital Currencies |
Bibliographic References
- “Blockchain, criptoactivos e inteligencia artificial (BCIA): desafíos para la contabilidad y la auditoría 4.0. Proyectando un futuro, hoy” – Autores: Mota Sánchez, Eva | Fraile, Virginia | Balbi, Diego Daniel, 2020. http://sedici.unlp.edu.ar/handle/10915/111565, último accedido 05.07.21
- CADENAS Eloisa. “Usar CriptoActivos ¿aumenta el valor de las empresas? (https://es.cointelegraph.com/news/does-using-cryptoactives-increase-the-value-of-companies) accedido el 15.11.2020
- QUERRO, Sebastián “Smart Contracts: QUÉ SON, PARA QUÉ SIRVEN Y PARA QUÉ NO SERVIRÁN” Universidad Católica de Córdoba Centro de Emprendedorismo e Innovación – CEINN-UCC 2020, IJ Editores. Córdoba, Argentina, 2020 VIEIRO Alejandro y otros.
- “El desafío de la administración tributarias frente a las criptomonedas”, http://ceat3.blogspot.com/2018/08/el-desafio-de-las-administraciones.html accedido el 16.11.2020
- ZOCARO, Marcos. “El marco regulatorio de las criptomonedas en Argentina – Comparativa con otros países” https://marcoszocaro.com.ar/el-marco-regulatorio-de-las-criptomonedas-en-argentina-comparativa-con-otros-paises/ accedido el 15.11.2020
- ZOCARO, Marcos. “La minería de Criptomonedas y su tributación Argentina” https://marcoszocaro.com.ar/la-mineria-de-criptomonedas-y-su-tributacion-en-argentina/
- ZOCARO, Marcos. “Una Bolsa de Impuestos” – Editorial Buyatti – Buenos Aires. 2020
- ZOCARO, Marcos. “Manual de Criptomonedas” – Editorial Buyatti – Buenos Aires. Noviembre 2020
- KAKI FU . “Superpotencias de la inteligencia artificial”- Editorial Deusto – España 2020
- TSCHIEDER, Vanina Guadalupe, “Derecho y Criptoactivos. Desde una perspectiva jurídica, un abordaje sistemático sobre el fenómeno de las criptomonedas y demás activos criptográficos” – Editorial Thomson Reuters – La ley, 2020
- Boletín Informativo #2, Abril 2021, HTC PBA
[1] A DLT is a database managed by several participants, which is not centralized, meaning that there is no central authority with the role of verifying arbiter. Distributed records increase transparency while making fraud and manipulation more difficult. A blockchain is a DLT with particular characteristics: it is a database shared by means of blocks that form a chain. The blocks are closed with a seal or cryptographic code called ‘hash’ that will be linked to the hash of the next block. This ensures that the encrypted information has not been tampered with.
[2] Hash: is an algorithm with useful properties for data encryption, using keys. When the algorithm is run on a message of any size, it is encrypted, resulting in a unique alphanumeric string of fixed length (called digest or simply hash), regardless of the size of the original message.
