Blockchain - an introduction

IntroductionTHE IT FACULTY

Exists to provide ICAEW members

and the wider profession with

guidance and tools for understanding

and making the most of IT and

technology

DAVID LYFORD-SMITH ACA

Technical Manager, IT Faculty

Areas of focus:

• Thought leadership in technology

• Excel Community

Prior to joining ICAEW, David was the

Senior Excel Practitioner at BDO, and

has experience in reviewing

spreadsheet risk environments and in

spreadsheet training. Prior to that

role David spent 2½ years in Audit

and 2½ in Global Outsourcing.

Blockchain – A potted history

• Created as part of the technology suite that supports bitcoin, the virtual

currency, by Satoshi Nakamoto

• Now researched as a technology in its own right – separately from just

running bitcoin

• Blockchain is one particular implementation of what more generally are called

distributed ledgers

Blockchain: What makes it special• Distributed and decentralised

Nobody controls a blockchain. All participants have their own copy and can

enter transactions without a central clearing authority (and without the costs of

one). No reconciliations are necessary between parties. No single point of

failure exists.

Blockchain: What makes it special

Blockchain: What makes it special

Blockchain: What makes it special

Blockchain: What makes it special• Distributed and decentralised

Banks are researching a shared blockchain-style ledger to replace inter-bank

reconciliations. Currently substantial cost and effort are made in reconciling

between each bank’s copy of the interbank ledger. A high-capacity blockchain

could eliminate the need for reconciliations.

Blockchain: What makes it special• Distributed and decentralised

• Indelible and secure

Data entered into a blockchain is a permanent part of the record in that

blockchain, and can never be removed or altered. Transactions can be verified

absolutely and the source of all changes identified.

Blockchain: What makes it special

Blockchain: What makes it special• Distributed and decentralised

• Indelible and secure

Estonia is using a blockchain to store access records for citizens’ medical

records. Any request to edit or access records is stored permanently and

cannot be changed, so citizens can know who has asked for their records and

what changes have been made. The actual records are kept off of the

blockchain.

Blockchain: What makes it special• Distributed and decentralised

• Indelible and secure

• Level of access can be controlled

Blockchain: What makes it special

• Open: Anybody can see the history of transactions, and can post more (e.g.

bitcoin)

• Permissioned: Only certain users can post transactions, but the chain is

publicly visible (e.g. Ripple)

• Private: A ledger where visibility and posting of transactions are both

constrained to certain users (e.g. inter-bank clearing, supply chain)

Blockchain: What makes it special• Distributed and decentralised

• Indelible and secure

• Level of access can be controlled

• Can be turned to many purposes

Blockchain: What makes it special• Inter-bank reconciliation

• Provenance tracking

• Land registry

• Supply chain integration

• Smart contracts

• Benefit distribution

• Securities and markets

• Cryptocurrencies

• Aid spending

• Medical records access

• Tax collection

• Corporate governance

Smart contracts

Smart contracts

Blockchain: Challenges to be solved

• Technical challenges – scalability, speed, capacity

• Security challenges – forking, user error

• Legal questions – enforceability, recourse

• Philosophical questions – openness, permanence