1. Read the following two articles first2. Summarize each article, and every summary needs include at least 150 words.
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What is blockchain?
Heres a primer on the potentially transformative digital ledger technology.
Blockchain is one of the most popular-and controversial-topics of conversation among
technology leaders in finance today. So what do CPAs need to know about blockchain?
Let’s begin with the basics.
First, blockchain is a digital ledger of economic transactions that is fully public,
continually updated by countless users, and considered by many impossible to corrupt. It
is a list of continuous records in blocks.
A blockchain database contains two types of records: transactions and blocks. Blocks
hold batches of transactions. The blocks are time-stamped and link to a previous block.
The transactions cannot be altered retroactively.
It is also possible to program the blockchain to record transactions automatically. The
monetary value of those transactions is usually measured not in U.S. dollars, or any other
standard centralized currency, but in cryptocurrencies-that is, digital currencies that are
not controlled by a central bank. Think of blockchain as the rails that bitcoin and other
cryptocurrencies ride on.
WHY SHOULD YOU CARE?
Here are four reasons finance executives and other CPAs should care about blockchain
and its potential:
* Blockchain is much more than bitcoin. While many people in finance departments
might mistake the mysterious and often volatile bitcoin for blockchain, they are two very
different things. While invented to help transact in bitcoin, blockchain is the digital
global ledger that not only records cryptocurrency transactions, but also provides a home
for documents of all sorts. “Everything from property deeds, to birth records, to money
such as bitcoin and various alt-coins resides on a blockchain backbone,” said John
Callahan, Ph.D., chief technology officer with Veridium, a company that specializes in
advanced security technology. In fact, he described blockchain as “part of the iceberg
* Blockchain could reshape the business of recordkeeping, and business itself. Learning
all you can about blockchain “is a worthwhile investment of time for finance
professionals,” said Jon Raphael, CPA, chief innovation officer at Deloitte. “As scalable
applications are deployed- and if they live up to their potential-blockchain will
profoundly change how records are kept and transactions are processed.”Those
applications could yield a wealth of structured data from new sources, meaning “the
impact of how the ledger will be compiled is potentially immense.”
* Many finance executives are lagging behind their peers. A 2017 survey by Deloitte
found that about 60% of big company executives said they were knowledgeable about
blockchain. Raphael said that the time has come for finance leaders to step up, as
“blockchain awareness is increasing due to publicity about the amount of investment,
interest in financial technology innovation, and predictions of the impact blockchain will
* Blockchain is becoming a powerful way to do business. Because blockchain allows for
the transacting and securing of digital data, it is beginning to realize its potential to aid in
a wide range of areas, from compliance to data management. “It will bring enormous
efficiency in business transactions besides making them military-grade secure,” said Nitin
Narkhede, vice president and head of blockchain and innovation at Mphasis, a digital IT
services company. “Hence, there is massive interest in experimenting with the technology
and applying it in every business process.”
Editor’s note: A version of this article, “Why Finance Executives Should Care About
Blockchain, “previously appeared in CPA Insider, May 8,2017.
Lou Carlozo is a freelance vniter based in Chicago. To comment on this article or to
suggest an idea for another article, contact Chris Baysden, senior manager of newsletters,
at Chris.Baysden@aicpa-cima.com or 919-402-4077.
Keeping up with the future 55%
Portion of senior executives with knowledge of blockchain technology who said that a
failure to adopt it will put them at a competitive disadvantage.
Source: Deloitte blockchain survey 2017. which polled 308 U.S. senior executives at
companies with $500 million or more In annual revenue.
A summary and/or evaluation: (150-200words)
What Blockchain Is and What It Can Do; Digital Assets CEO Blythe Masters on
how the technology works in transactions
Blockchain is the financial technology underpinning the bitcoin digital currency. But it
also has the potential to change the way companies make and verify transactions.
Kimberly Johnson, the editor of CFO Journal at The Wall Street Journal, sat down with
Blythe Masters, chief executive of Digital Asset Holdings, to discuss this technology and
what it can do.
Here are edited excerpts.
MS. JOHNSON: Could you start us off by explaining what blockchain is?
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MS. MASTERS: To start, suspend everything that you’ve heard or read on the subject of
cryptocurrencies and bitcoins. By this stage, everyone has had enough exposure to those
topics to have been at least partially confused, and a lot has gotten lost in translation. The
simplest way to think about what this technology is all about is actually very unexciting.
And that is, a new, clever form of database architecture.
You all know what databases are, you use them in your different businesses extensively.
The thing about databases is they’re siloed and they’re generally centralized, and they’re
owned and managed by someone who has unilateral editorial rights.
So when multiple parties to a common transaction interact, they are inclined to keep their
own separate records of their respective piece of a joint transaction, and that leads to
tremendous inefficiencies. An enormous amount of time, particularly but not limited to
financial services, is spent reconciling the differences between records kept in distinct
databases that ultimately refer to the same transaction between two parties.
Blockchain technology, or distributed ledger technology, is just a way of using the
modern sciences of encryption to enable entities to share a common infrastructure for
MS. JOHNSON: So how is your company working in this burgeoning field?
MS. MASTERS: Our area of focus is wholesale financial-services technology, so our
customers are the big financial firms: banks, exchanges, market-infrastructure providers,
those types of entities. And we’re very focused on helping those entities essentially
develop distributed, encrypted, straight-through processing tools that allow them
essentially to share common database infrastructure. That means that they are able to cut
a significant amount of cost out of the process of post-trade financial manufacturing and
actually reduce risk because it reduces the time it takes to complete a financial transaction
once it has been agreed in the marketplace.
MS. JOHNSON: You’ve said previously that this is one of the biggest financial
technology challenges of our time.
MS. MASTERS: Well, it’s one of the great opportunities for the financial-services sector.
But I don’t want to leave folks with the impression that there’s no application of this
technology in the nonfinancial world. If you think about any multiparty process where
shared information is necessary to the completion of transactions, and the coordination of
activity and the exchange of value, that’s where blockchain technology can be put to good
use. In terms of the audience in this room, probably something that many if not all of you
have in common is the challenge of supply-chain management or dispute resolution in
various business contexts.
Those are the types of contexts in which blockchain technology has the greatest potential
upside. It’s a cost-saving device, it’s an error-reducing device. In financial services the
reason why there is such tremendous opportunity is that the post-trade processing of
financial services really hasn’t been revolutionized in any meaningful sense in decades.
The major market-infrastructure providers, the exchanges and the like, they’re operating
on infrastructures that were designed and built 20 to 30 years ago.
But the incentive to change them is very significant. We’re talking about billions of
dollars in annual savings for the banking industry, and percentage points on capital ratios
to be freed up.
Encryption is vital
MS. JOHNSON: Say I’m the CFO of Wal-Mart and you come along and tell me that I
should consider using blockchain or a distributed ledger technology within my supplychain system. Why would I want to share internal information with distributors who
might actually be doing business with my competitors?
MS. MASTERS: There’s a distinction between sharing infrastructure and sharing the
information that you keep on that infrastructure. That’s a common area of
misunderstanding in this space.
In supply-chain coordination what you’re doing is managing movement of money in
return for the provision of goods and services in a highly coordinated fashion across
multiple different entities. And the most efficient process that you can devise to do that is
the one where there’s no disagreement between those parties around the timing of when
cash should flow, money should be exchanged and/or goods are needed and need to be
supplied or manufactured as you work your way back in the manufacturing process. And
the ability to coordinate that information in a centralized place, but in a fashion where
only the entities with the need and right to know their respective piece of the information
can access it, is where this benefit comes from. So the tools of encryption are very vital
parts of this infrastructure.
MS. JOHNSON: What about the cost of implementing the technology and the return on
MS. MASTERS: What the technology allows you to do is to essentially share and
replicate information in a secure or encrypted environment between different nodes or
different points on a network. So inherently this is software design and development
rather than a major capital-intensive technology rollout.
In the financial-services sector, the benefits significantly outweigh the costs. Take
settlement and clearing in securities processing. The fact that it takes trade date plus two
or three days or more essentially is two or three days’ worth of carry and two or three
days’ worth of consumption of a balance sheet, which is increasingly an expensive and
rare commodity in the post-regulatory-reform world.
That delay between the start and completion of a transaction has a cost both in terms of
capital and risk allocation. So the way to analyze return on investment is to take into
account the elimination of those delays, the freeing-up of capital, the elimination of the
need for very low-value-added processes being done largely manually by operations and
back-office support staff that are essentially ticking and tying two different records or
more of the same information.
A summary and/or evaluation: (150-200words)
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