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FINM4100 Analytics in Accounting, Finance and Economics Report 2 Sample

Your Task

• Create a report on Blockchain in the context of Fintech and RegTech.

• This task is to be done as an individual.

Assessment Description

Learning Outcomes: LO2, LO4 and LO5

Background: Blockchain is an emerging technology of great importance in Finance, Economics and Accounting. It impacts the way we deal with and monitor financial transactions, trade, identify ourselves, and is having an impact on auditing and regulation.

Imagine that you are a compliance manager in a financial institution. Your company wants to use blockchain for three purposes

1. As a mechanism for secure digital transactions and smart contracts

2. As a way of managing digital identities

3. To offer clients the chance to invest in cryptocurrencies however, the executives are not sure of all of the benefits of these applications or possible ethical, legal and privacy issues.

You are to explain what blockchain is, explain these uses (applications) and how it will benefit yourself and the company auditors in a report, as outlined below.

Assessment Instructions

Do your initial research from the workshops then find relevant articles on the internet to support your statements. You are to write a report as follows:

A. Introduce the idea of blockchain and its applications in general.
B. Briefly explain the applications that we are focussing on here (1,2 & 3 above, i.e. secure
digital transactions and smart contracts, digital IDs and investment in cryptocurrencies).

C. There have been dramatic fluctuations in cryptocurrency prices with current values a fraction of what they were 12 months ago. What are your views on the future of cryptocurrencies?
What are their pros and cons?

D. Describe the benefit blockchain can offer auditors and compliance officers and subsequent
positive impact on the organisation.

E. Assess possible ethical and privacy implications of the applications at the financial institution at which you are imagining that you work. The impact could be on staff and/or customers.

F. Use at least ten relevant references and the Harvard referencing style. References must be
relevant to what you are discussing in each paragraph.

G. Taking care with your report structure and novel written presentation.


A. Blockchain: A Brief Introduction

In recent years, Blockchain technology has become a massive interest among business organizations, government enterprises, and academics. Blockchain has the capability to provide transparent, secured, and tamper-proof solutions to stakeholders. Blockchain is considered the digital ledger of a particular transaction that is copied and distributed across the various network in a computer system. After every transaction, each of the blocks holds various information that gets updated in the participants' ledger. An entry, once made using blockchain technology, cannot be changed. Everyone who participates in the chain of transactions plays a vital role in the network.

In specific terms, blockchain is a distributed database that can be accessed by everyone. This means every individual can get a copy of a new record that is entered into a database, but no individual can make any changes to the data once it has been recorded in the system.

Application of Blockchain in General

Some applications of blockchain are:

• Cryptocurrency- cryptocurrency is a digital currency that is designed to be a medium of exchange wherein every coin ownership is recorded in the decentralized ledger. As cryptocurrencies make use of 'decentralized control', they are not controlled by any individual person or the government. Blockchain technology is popularly used in cryptocurrency, where all the transaction information is stored, which is not possible to hack or change. Every person can buy, sell or deal in cryptocurrency and be a part of this network.

• Cars- Blockchain technology provides a secure and digital certificate for every car. Odometer fraud is very popular, where a dealer can tamper with the odometer and make a car appear to be a newer and less worn-out car. Thus, the customer ends up paying a huge amount of money than the actual worth of the car. Using blockchain technology, the regular odometer can be replaced with modern ones that are directly connected to the internet and can write the mileage of the car to the blockchain.

• Legal Documents- to keep a good track of data over a longer period, blockchain technology is preferably suitable. Using this technology, legal documents like intellectual property, patents, and even notaries can be secured.

• Digital Voting- Currently, voting is conducted through EVM (electronic voting machine), which are special computers that run based on proprietary software. "EVM hack" can be a major problem that can disrupt the election. Therefore, blockchain technology can be used to cast votes as it is not possible to tamper with data that are recorded in blockchain technology.

B. Application of Blockchain in Specific Tasks

Secure digital transactions and smart contracts

Smart contracts are programs that are stored on a blockchain that starts running when the predetermined conditions are met. Smart contracts are mainly used to automate the execution of a particular agreement so that every participant can come up with a certain outcome without any involvement of an intermediary that can cause time loss. When a particular transaction is completed, the blockchain has updated the parties who have granted permission can check on the results (Javaid, 2022).

Blockchain as a way of managing digital identity

Blockchain is a highly trusted mechanism that can even manage digital identities. Using blockchain technology, users get the power to have better control over their own digital identity. Blockchain puts control over individuals' personal data rather than making the data public or sharing the information with industry giants. As a result, it ensures all digital data are secured and easily traceable (Ku-Mahamud et al., 2019).

Chance to invest in cryptocurrency

Cryptocurrencies are the major part of blockchain technology that was mainly designed to transfer value. Most investors use this technology to store values as the technology is highly protective, and data cannot be tampered with easily. The data are end-to-encrypted, and investors hold them for growth.

C. Fluctuation in the price of cryptocurrency

There are different kinds of cryptocurrencies that are available in the market. Some of the popular ones include Bitcoin BTC, Ethereum ETH, Tether USDT, and USD Coin USDC. Currently, the price of Bitcoin BTC is 17,392.88, whereas the price 12 months back was $48,187.22.

The fluctuations in the overall cryptocurrency are due to the poor macroeconomic conditions and the recent bankruptcies in the world of cryptocurrency. Bitcoins, one of the largest cryptocurrencies in the world, started in 2022 with a positive notion, but within a year, the price of BTC is constantly falling from $50000 levels to $15000 levels (Aziz, 2019).

Not only Bitcoins but the whole crypto world is incurring a great fluctuation due to many downfalls. This includes the Russia-Ukraine war and inflationary rise, which led to an increase in the cost of living. Interest rates in U.S. and U.K. are rising, which is another cause of uncertainty in the crypto prices. Fluctuations are noticeable in the crypto prices as China considers cryptocurrency transactions to be illegal. Fluctuations are also due to the new tax regime in India. Furthermore, the collapse of the largest cryptocurrency exchange, FTX, has caused great damage to the prices of cryptocurrency.

The fear of global recession had a great impact on equities and currencies. As a result, cryptocurrency will likely notice some revival in 2023. Most investors are losing confidence to invest in cryptocurrencies as crypto firms have insufficient liquidity and are father leading to bankruptcies. According to some research, inflation can be a key factor in Bitcoin prices in 2023 (Haar and Money, 2021).

Pros and Cons of Cryptocurrency

Cryptocurrency is the fastest and cheapest mode to transfer money through a decentralized system that does not collapse at any point in time. Cryptocurrency uses blockchain technology, an infrastructure that inherently secures all transactions. It is not possible for any hacker to hack the entire transaction in a single chance, so cryptocurrency is much more secure (Al Mashhour and Abd Aziz, 2019).

Whereas investing in cryptocurrency is quite a difficult task as one must acquire knowledge of cryptocurrency, which takes time and effort an individual. Cryptocurrency fully works upon digital natives, an individual who might not understand the concept of cryptocurrency.


Benefits to Auditors

Blockchain is the buzzword of the decade. Every individual, irrespective of their age, is curious about what this meta byproduct is and how they can utilize the same in their lives and in their businesses to reap its benefits and minimize manual work. This has led to a sharp uprise in the use of blockchain technology and has resultantly increased the work of auditors and regulators. But it is not without benefits to them, some of which are stated below:

1. Blockchain technology is available to only those users and entities that have been granted specific access to the network. This ensures that no one meddles with the data stored in the blockchain (Smith and Castongua, 2020).

2. Analytics deployed in the blockchain is robust and foolproof. The data that the blockchain system consists of is stored systematically and consistently in a structured manner. This enables the complex procedures and analysis to be performed can be done reliably across the network, and dashboards are updated as soon as possible.

3. Blockchain-enabled solutions solve a crucial auditing limitation relating to testing checking or sampling (Bonyuet, 2020). Auditors, because of the shared ledger technology of blockchains, can now check 100% of the items in a population and not resort to sampling. The shared ledger technology, which includes several counterparties, can be audited in real-time, and any fraudulent activities can be inquired into simultaneously as they are taking place. For instance, the internal audit department of big audit firms has the option to maintain a read-only node on the blockchain environment. As per Deloitte US, auditors do so that "they can monitor and flag transactions in real-time and they can potentially use analytics to automate auditing of routine transactions."

Benefits to Compliance officers

Besides being of immense benefit to the auditor, blockchain technology also makes the work of compliance officers easy because it supports smart contracts, which makes the contract risk compliance more automated, allowing compliance officers to shift from manually testing CRC to more automated testing of its functions and performance, which is a higher value role (Okazaki, 2018).

E. Ethical and Privacy Implications

Privacy Implications

Data is the biggest asset that this generation is going to use. Since all companies across the globe, big or small, are heavily reliant on data and store massive amounts of it on various networks, the question of safety of the same is bound to arise. Data privacy, also called information privacy, provides a suitable protocol for collecting, processing and storing data to ensure that it is properly managed.

With blockchain, the growing implication of privacy of personal information is increasing by the day. A lot of personal data tends to be protected with the General Data Protection Regulation, and for the rest, it is forbidden unless one has the basis, legally, to move ahead with its usage (Salmon and Myers, 2019). Some growing trends that hamper the confidentiality motives in data privacy have been noticed like -

a. Growing misinformation- Most people resort to the internet to get any information about anything they want, and this provides a fertile ground for the users to fall into fraudulent traps and lose their money even- if they are irresponsible.

b. Monitoring employee performance- Since the culture of bringing your own device (BYOD) is on the rise, employers find it increasingly difficult to monitor the activities of employees and the expenses that are being incurred on them. This saw a rise also during the pandemic wherein employees worked from home, and the world ended up on zoom calls instead of physical meets.

Ethical Implications

Blockchain technology has turned out to be a disruptive technology that has the potential to bring about major positive implications to the lives of people on the internet (Sharif and Ghodoosi, 2022). However, as is the case with any upcoming techno-giant, the ethical considerations are to be considered and discussed so that we humans still manage to have some degree of control over the negative side effects (Tang et al., 2019). Some ethical considerations are-

a. Environmental Impacts - Public blockchain networks such as bitcoin engage with unverified networks, and unreliable participants and so have to use networks like proof of work which involves mining. Mining, in turn, requires massive amounts of hardware that requires massive amounts of electricity. This, of course, is harmful to the environment and poses ethical threats. Going forward, an alternative needs to be developed to make this system sustainable.

b. Problem of anonymity- Ransomware can be enabled by public networks like bitcoin. A software system can be easily attacked, data stolen, and the hacker can demand payment in bitcoin, which one will have to make without any knowledge of the attacker or the loss suffered. Also, since such blockchain networks are not regulated centrally or legally, no actions can be taken.


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