Blockchain is the Future of Finance and Audit Performance

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Category: BlockChain
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Blockchain is a digital phenomenon that has revolutionized how records are kept online.
Starting out as humble public ledger for the bitcoin in 2008, the ever-growing method of
recording information has grown exponentially since its inception. The best feature of the
technology stems from its secure design.

A single block in the chain cannot be altered retrospectively. This means that once a block
has passed authentication and verification, no one is allowed to alter that block without the
consensus of the network majority it operates in. Changes made within a block are reflected
across the entire system. Furthermore, these blocks are secured through cryptography as
well. This decentralized way of authenticating and the added cryptography has made the
system very secure and safe from hacking.

 

How secure is blockchain?


Truth be told, security is never at 100%. People will always find means and ways to
undermine an established system. But given the record of blockchain security, it does pretty
well against others. With most of the technology’s failures often attributed to
mismanagement and human error instead of conceptual flaws, it is lauded as one of the
most secure ways to handle financial transactions.

The technology uses a hash that it encodes on a single block. Usually, in cryptocurrencies
like bitcoin, these are earned and generated through time. It contains a timestamp of when
the transaction was made and it records it on the block. When this block is given to
someone else, it is verified through a system that checks its authenticity—it looks at the
hash and ensures that the sender or the source has “ownership” of that block before it
assigns a new hash containing another set of new information for the new owner. The
entire system of blocks is then updated with this new information.

These hashes also serve as the existing link between all blocks as it contains the hash
information of the previous block. As the chain grows, each new block would contain the
hash of the previous blocks forming a link between the two. This is what makes the system
so hard to tamper with as the entire chain should be manipulated to ensure that the block
being added would be accommodated in the chain— however, this is not the easiest to do
as blocks are always added to the chain on a regular basis and its “end” or length is not easy
to calculate from outside the system.

The creation of the hash for a new block often takes time. By the time the new hash has
been created for the fake block, the official chain might have updated and the fake block
would be rejected outright.

Cryptography makes it harder to create and decode the hashes as well. It adds an extra
protection over the hash and creates two “passwords” through complex mathematical
algorithms. One password allows only those who are authorized to access the information
are privy too and the other allows others to send those within the system new blocks or
bitcoins. This effectively hides the hash from would be attackers while opens up
opportunities for trade within users in the system.

This system is often decentralized and offers a single version of the truth as it is often
described. Updating one block updates the entire system. In this process, everyone is made
aware of the changes in the entire chain. Fraudsters who wish to illegally manipulate the
system can often be detected as the validation process requires that blocks containing the
same information in their hashes coupled with historical data from each transaction made
agree that the added chain can be linked back to a source. All blocks are updated with this
information and often requires the verification of the entire network before a new block is
incorporated into it.

While it seems like an impenetrable defence, it is only as effective as the infrastructure it is
on. Security vulnerabilities in the platform where it is deployed has been known to cause
issues within the entire system. To ensure that these issues do not arise, preventive
measures must be put into place. These include preventing anyone from accessing sensitive
information. This means that even network administrators and root users will not have
access to sensitive data. Employing security mechanisms that detect illicit attempts to
compromise the platform also ensure that the blockchain cannot be dismantled from within
the platform. Lastly, protecting encryption keys using the highest security standards is the
best defence against hackers who wish to use these keys to steal information from the
chains.

Blockchain in Finance and Audit Performance


With the success of Bitcoin, it is no surprise that many have turned their attention towards
the technology that has made it relevant. In particular, those working in the financial sector
have now started introducing it into their own companies and businesses.

For many, the value of Bitcoin as a legal currency in many countries was the best outcome
of the use of this technology. This often overshadows the ledger concept that works behind
it. In the world of finance though, it is this very system that makes it sound so appealing.
With the widespread use of the internet, companies are racing to find the best solutions to
improve online transactions. Blockchain is very efficient at quick verification and
authentication. In traditional means of authentication, a centralised system with all relevant
information is accessed. Through the chain, it does this by effectively scanning all the blocks
and checking the time stamps contained in the hash and the information contained within
the block. Verification is done through the number of blocks that have identical information.
A consensus must be reached within the system.

If illegal alterations are made on a block, the inconsistency would be shown as a mismatch
within the public record. Unless this is resolved, it would remain an inconsistency and the
verification for that block would fail and it will be rejected.

In finance, the ability to record information in secure blocks and settling transactions
through fast verification techniques can improve efficiency. Banks currently take up to a
week for account settlements. With blockchain, the need for middle work is reduced as
transactions made are almost instantaneous. Blockchain also enables the reduction of
counterparty risks where other parties cannot comply with the necessary requirements to
complete the transaction and settle pending accounts.

As a digital ledger, blockchain makes it easier for businesses to record all these transactions
into one big database. Because blocks are not easily alterable, it provides companies with a
record of the transaction that is free from tampering. The technology can also provide
instantaneous data on current trends and allow CFOs to make decisions based on the latest
information.

This is a really interesting avenue for opportunities as it provides CFOs the necessary data to
curb the effects of change or even lessen the threat of potential risks through planning.
Interventions can be put in place to avoid risks.

For auditors, blockchain makes the auditing process more efficient. With the wealth of
information and through the use of analytics and other tools, auditors can now use a larger
set of data to make a more comprehensive report about the performance of the company
whether it be through its products, services, and other resources. Not only does it provide
opportunities for growth, but it also makes individuals or departments accountable of their
contributions towards the organization.

Its place in FinTech


Blockchain can be seen as a tool that would greatly benefit the financial sector as it brings
many opportunities for innovation. The use of the technology to improve services and
increase efficiency through audits also ensure that businesses stay relevant. While there are
still some wrinkles to iron out and some important questions that need to be answered, the
chances for the technology to be incorporated into the fabric of many businesses remain
high.