The evolution of Blockchain technology has brought with it some remarkable changes and innovations, and they have been the most transforming ones in recent years. With all these benefits, Blockchain has brought us many advantages, such as decentralization, openness, peer-to-peer interaction and more, one thing that needs to be discussed is about smart contracts. The latter has totally changed the way the organization works and deals are implemented. In this blog, we will concentrate on the application of smart contracts and their benefits.
What is a Smart Contract?
Let’s have a brief description of what the smart contract is before going to appreciate the meaning of the smart contract. Simply put, these are pre-programmed contracts that have a set of terms and conditions agreed by the two parties concerned. This contract runs on a Blockchain platform, and the payment is executed until the conditions are fulfilled.
In Solidity, smart contracts are essentially written and are seen as the creators of a new age of contract execution.
Smart Contract Working:
While many of us assume that a new entrant is a smart contract, the truth of the matter is that this idea was implemented in 1994. Yeah, you read it correctly; Nick Szabo first suggested the concept of smart contracts in 1994. He was a computer scientist who in 1998, also invested in Bit Gold virtual currency. Well there’s a story that Szabo is Satoshi Nakamoto, the guy behind the crypto-currency movement.
Szabo wanted to improve the functionality to make it more straightforward and fast for electronic transaction techniques such as POS.
Main components in smart contracts:
A smart contract is made up of various components:
Signatories- These are the parties who are interested in the smart contract signing process. They determine the conditions and then through digital signature, provide a final step forward with regard to the proposed terms.
Topic- The subject is confined to the contracts only.
Specific words- These are comprehensive mathematical terms and programming language applied that is consistent with the smart contract’s Blockchain. It is based on these unique circumstances that the contract is executed.
The use of smart contracts is not limited to only one field; in fields such as the supply chain, banking, real estate, education, and others a multitude of use cases are found. Blockchain developers who have experience in building smart contracts hold a promising future. Via opting for certification courses in the same domain, one can also learn about smart contract formation. The Blockchain Council provides those who want to have a career in this area with the right learning platform. You can interact with the Blockchain Council today for more information.
The road ahead
Blockchain and smart contracts are some of the latest innovations in technology that have the potential to change business operations fully. They can streamline procedures and by minimizing time, improve efficiency at the same time. Therefore by opting for a certification course in this area, any person who holds expertise in this profile can surely take up their career graph.
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The potential of blockchain
Blockchain is an accounting technology. It is concerned with the transfer of ownership of assets, and maintaining a ledger of accurate financial information. The accounting profession is broadly concerned with the measurement and communication of financial information, and the analysis of said information. Much of the profession is concerned with ascertaining or measuring rights and obligations over property, or planning how to best allocate financial resources. For accountants, using blockchain provides clarity over ownership of assets and existence of obligations, and could dramatically improve efficiency.
Blockchain has the potential to enhance the accounting profession by reducing the costs of maintaining and reconciling ledgers, and providing absolute certainty over the ownership and history of assets. Blockchain could help accountants gain clarity over the available resources and obligations of their organisations, and also free up resources to concentrate on planning and valuation, rather than recordkeeping.
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Alongside other automation trends such as machine learning, blockchain will lead to more and more transactional-level accounting being done – but not by accountants. Instead, successful accountants will be those that work on assessing the real economic interpretation of blockchain records, marrying the record to economic reality and valuation. For example, blockchain might make the existence of a debtor certain, but its recoverable value and economic worth are still debateable. And an asset’s ownership might be verifiable by blockchain records, but its condition, location and true worth will still need to be assured.
By eliminating reconciliations and providing certainty over transaction history, blockchain could also allow for increases in the scope of accounting, bringing more areas into consideration that are presently deemed too difficult or unreliable to measure, such as the value of the data that a company holds.
Blockchain is a replacement for bookkeeping and reconciliation work. This could threaten the work of accountants in those areas, while adding strength to those focused on providing value elsewhere. For example, in due diligence in mergers and acquisitions, distributed consensus over key figures allows more time to be spent on judgemental areas and advice, and an overall faster process.
Implications of blockchain for auditors
Blockchain has applications in external audit. Performing confirmations of a company’s financial status would be less necessary if some or all of the transactions that underlie that status are visible on blockchains. This proposal would mean a profound change in the way that audits work.
Ablockchain solution, when combined with appropriate data analytics, could help with the transactional level assertions involved in an audit, and the auditor’s skills would be better spent considering higher-level questions.
For example, auditing is not just checking the detail of whom a transaction was between and the monetary amount, but also how it is recorded and classified. If a transaction credits cash, is this outflow due to cost of sales or expenses, or is it paying a creditor, or creating an asset?
These judgemental elements often require context that is not available to the general public, but instead require knowledge of the business, and with blockchain in place, the auditor will have more time to focus on these questions.
How the profession can lead with blockchain
The move to a financial system with a significant blockchain element offers many opportunities for the accountancy profession. Accountants are seen as experts in record keeping, application of complex rules, business logic and standards setting. They have the opportunity to guide and influence how blockchain is embedded and used in the future, and to develop blockchain-led solutions and services.
To become truly an integral part of the financial system, blockchain must be developed, standardised and optimised. This process is likely to take many years – it has already been nine years since bitcoin began operating and there is much work still to be done. There are many blockchain applications and start-ups in this field, but there are very few that are beyond the proof of concept or pilot study stage. Accountants are already participating in the research, but there is more for the profession to do. Crafting regulation and standards to cover blockchain will be no small challenge, and leading accountancy firms and bodies can bring their expertise to that work. Learn more from blockchain course
Accountants can also work as advisers to companies considering joining blockchains themselves, providing advice on weighing the costs and advantages of the new system. Accountants’ mix of business and financial nous will position them as key advisers to companies approaching these new technologies looking for opportunity.
Skills for the future
The parts of accounting concerned with transactional assurance and carrying out transfer of property rights will be transformed by blockchain and smart contract approaches.
The reduction in the need for reconciliation and dispute management, combined with the increased certainty around rights and obligations, will allow greater focus on how to account for and consider the transactions, and enable an expansion in what areas can be accounted for. Many current-day accounting department processes can be optimised through blockchain and other modern technologies, such as data analytics or machine learning; this will increase the efficiency and value of the accounting function.
As a result of the above, the spectrum of skills represented in accounting will change. Some work such as reconciliations and provenance assurance will be reduced or eliminated, while other areas such as technology, advisory, and other value-adding activities will expand.To properly audit a company with significant blockchain-based transactions, the focus of the auditor will shift. There is little need to confirm the accuracy or existence of blockchain transactions with external sources, but there is still plenty of attention to pay to how those transactions are recorded and recognised in the financial statements, and how judgemental elements such as valuations are decided. In the long term, more and more records could move onto blockchains, and auditors and regulators with access would be able to check transactions in real time and with certainty over the provenance of those transactions.
Accountants will not need to be engineers with detailed knowledge of how blockchain works. But they will need to know how to advise on blockchain adoption and consider the impact of blockchain on their businesses and clients. They also need to be able to act as the bridge, having informed conversations with both technologists and business stakeholders. Accountants’ skills will need to expand to include an understanding of the principle features and functions of blockchain – for example, blockchain already appears on the syllabus for ICAEW’s ACA qualification.
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Did you know that blockchain and Bitcoin aren’t the same thing? If you’ve been using the terms interchangeably, you’re not alone; plenty of people do the same thing, probably because blockchain and Bitcoin are so closely related.
What is the Difference Between Blockchain And Bitcoin?
If you’ve ever scratched your head wondering what on earth is the difference between the two, this article is for you.
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What is blockchain?
In super-simple terms, a blockchain is a computer file for storing data. Or, to put it in more technical jargon, it’s an open, distributed ledger (database), which means the data contained within the blockchain is distributed (duplicated) across many computers and is therefore decentralised.
This decentralisation is one of the things that makes blockchain so transformative. Unlike in a traditional, centralised database – where records are processed by one central administrator (say, a company or government) – the entire blockchain is transparent and data is verified by user consensus. Yet, despite this transparency, blockchains are incredibly secure. That’s because there’s no one central point of attack for hackers to target.
Decentralised. Distributed. This sounds a bit like Bitcoin…
You’re spot on! Blockchain is the technology that underpins Bitcoin and it was developed specifically for Bitcoin. So, Bitcoin was the first example of blockchain in action and without blockchain, there would be no Bitcoin. That’s why the two names are so often used interchangeably.
**But that doesn’t mean that blockchain and Bitcoin are the same thing. **
Bitcoin is a decentralised digital currency, or peer-to-peer electronic payment system, where users can anonymously transfer bitcoins without the interference of a third-party authority (like a bank or government). Bitcoin is just one example of a cryptocurrency, though; other cryptocurrency networks are also powered by blockchain technology. So although Bitcoin uses blockchain technology to trade digital currency, blockchain is more than just Bitcoin. Learn more from blockchain online course
Looking at the wider applications of blockchain
Because blockchain and Bitcoin are so inextricably linked, it took people a long time to realise that blockchain actually has much wider applications beyond cryptocurrency networks. In fact, blockchain’s potential is so great that many people (myself included) believe the technology will revolutionise the way we do business, just like the internet did before it.
Here are just a few examples of the wider applications of blockchain beyond Bitcoin and other cryptocurrencies:
Executing smart contracts. Thanks to Bitcoin, we already know that blockchain is great for facilitating digital transactions, but it can also be used for formalising digital relationships through smart contracts. With a smart contract, automated payments can be released once the contract terms have been fulfilled, which promises to save time and help to reduce discrepancies or solve disputes.
Maintaining a shared, transparent system of record. Blockchain is the ideal solution for maintaining a long-term, secure and transparent record of assets (land rights would be a good example) that all parties can access securely.
Auditing the supply chain. Blockchain allows users to trace the records of ownership for goods all the way back to the source. As an example of this, Diamond company De Beers has started to use blockchain to trace diamonds from the mine to the end customer. Anyone who wants to verify that their diamonds are free from conflict will have a transparent and complete record.
Providing proof of insurance. Nationwide insurance company is planning to use blockchain to provide proof-of-insurance information. The tool would help police officers, insurers and customers verify insurance coverage instantly, which should help to speed up the claims process.
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As we all know that in today’s world, technology changes rapidly. From black white television to LED screens, from transferring money via cheque to do a quick transfer via a mobile app. But this is not the end. There are a lot of technology innovations happening day by day to automate the transactions and make our lives easier. The blockchain is one of such technology evolutions which has an enormous potential to grow. Let us try to understand what the future of Blockchain technology is and what are its applications for people like us.
What is Blockchain Technology?
Blockchain is a decentralized digital ledger that provides a secure way of making and recording the transactions like of Bitcoins, agreements and contracts – anything that needs to be recorded and verified as having taken place on Blockchain network. In accounting, there are Ledgers but for Crypto transactions there is Blockchain.
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All transactions happening in Blockchain are secure due to its decentralized, distributed network property. Blocks created in blockchain are immutable and Time stamped. There are almost zero chances of manipulating transactions in Blockchain network because all nodes in the network have to approve the change before it takes place.
Let’s understand a little bit about Initial Coin Offerings (ICO) which is the important aspect in Blockchain and Cryptocurrency world. ICO is the controversial means of Crowdfunding of Cryptocurrency which can be a source of Capital for a small or startup company. ICO is similar to IPO. It is often used as the fund for the development of new Cryptocurrencies.
Knowing the massive potential of what this futuristic technology can do, here I would like to share some of the important Applications of Blockchain Technology.
One example of Cryptocurrency which is the most popular currency termed as Bitcoin. Bitcoin is a first decentralized digital currency which was invented in 2009 by a great developer named Satoshi Nakamoto. After Bitcoin, there are many such Cryptocurrencies out there in the market incl.
What is a Cryptocurrency Wallet App?
Cryptocurrency wallet is similar to a normal bank account or nowadays like your mobile wallet, making it possible to send and receive the digital currencies like Bitcoin with complete security. Forexamples, we use PayPal for payment transactions in fiat currencies, similarly there are Crypto Wallet Apps to make Cryptocurrency transactions possible.
There are different types of Crypto wallets available which includes Desktop wallet, Web wallet, Mobile wallet and Hardware wallet. Each of these works on same concept of digital currency transfer but have different utilities and accessibility.
Why Are Cryptocurrency Wallet Apps Beneficial For Us?
Wallet apps are made as they carry many advantages. Similarly, Crypto Wallet Apps also have many benefits, some of which are mentioned below:
Transferring Cryptocurrencies are much cheaper and faster
With traditional way of money transfer, you need to wait for a certain period to send/receive money and also the bank charges a significant transaction fees per transaction. In the case of Crypto transactions, the process of sending/receiving the currencyis very fast and even with no to minimal transaction fees most of the times as there is not central party i.e. financial institution is involved. This is the main advantage of not having any third party in the transactions.
User-generated and User-owned
If a person holds any Cryptocurrency, only he/she has a control of the account and it is not owned by any other third party. It means that nobody can take away your digital money and it is completely secure in your Crypto Wallet.Get more skills from Blockchain training
Bitcoin, for example, can be purchased by anyone who has an internet connection and a fiat currency to trade for the digital coins. In many countries where the fiat currency is notoriously unstable, people are more inclined to use alt coins as an alternative.
No centralized regulations
Cryptocurrencies are decentralized so not under the control of government, any other countries or any third party which eliminates a lot of hurdles during currency exchange.
Cryptocurrency wallets store your public and private keys and integrate with blockchain for carrying out the required transactions. The transaction is successful only when the public and private keys match.
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The digital revolution has changed the game for the banking and financial sectors. This industry started to undergo total digital transformation to make services more customer friendly and secure. When the banking and financial transactions became more digital there were new challenges in the form of cyber-attacks, which cost businesses customers and revenue. Here is where Blockchain ensures a full stack of security in financial digital transactions.
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What Blockchain Means to the Banking and Financial Sector
Blockchain technology is bringing in a new phase in executing tasks with ease and decreasing chances of vulnerability to risk. With digital transactions being driven by the mobile revolution, paper currencies have become less common. A step further into digital-based transactions are today’s most talked about: cryptocurrency, an alternative form of digital currency.
Unlike typical digital currency that uses a centralized banking system, cryptocurrencies work on ‘decentralized’ control that uses a distributed ledger technology called ‘blockchain’. The blockchain is fast-emerging as a public financial transaction database for the secured next-Gen digital transaction involving cryptocurrency. This is the reason why blockchain technology is so popular.
How BlockChain is Transforming the Financial Sector
Banking is one key area of the financial sector that is more sensitive and vulnerable to cyber threats because of huge reserves they hold in their databases. In recent years, various banks around the globe have reported serious cyber threats that involved a direct attack on centralized databases causing the loss of billions of dollars.
This eventually resulted in governments issuing strict directives and now, large banks have started looking at ways to adopt advanced decentralized asset solutions like blockchain.
Surveys show top managers of global banks are starting to use blockchain in the financial sector owing to the technology’s ability to decrease costs and add security.
Blockchain offers a high level of security when receiving and transmitting data. It ensures an open and transparent network infrastructure while permitting a decentralized and low-cost operation approach. This is what makes blockchain an attractive solution for businesses in the financial sector. Learn more from Blockchain online course
Current-day transactions involve mediators to facilitate transactions, which makes the end-user banking services cost more. Whereas, blockchain holds a special advantage here by avoiding the need for an additional medium to perform transactions and provides the services at a lower cost.
Some of the key advantages blockchain offers over traditional systems include:
Faster bank-to-bank and international transactions at a lower cost
Provides a single client identification system that stores user details in a single instance
Shares client information with other banks in a safe and secure way
Blockchain can replace SWIFT transfers
Global banking institutions that have already tested and implemented blockchain report they are able to meet legal requirements and compliance with data protection regulations while using blockchain solutions.
Blockchain is also considered by many as an effective means of data processing and storage along with credibly performing authorized transactions. With more optimized payments facilitation, the distributed ledger system of blockchain reportedly accelerated transaction speeds while also saving costs associated with processing transactions. Many global securities exchanges that see continuous and huge trillions-worth transactions have also reportedly launched blockchain-based solutions.
Many firms have also reaped the benefits of utilizing blockchain for many other financial market utility services involving clearance, settlement and other intermediary functions.
Blockchain comes as a safe and effective means of dealing with digital transactions, maintaining ease in processing transactions of any size in a shorter time-frame and enhanced cost-savings. This ultimately results in enhanced quality of end-user services with efficiency, security, speed and cost-savings in place
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Blockchain technology is the underlying structure of most cryptocurrency systems and is what prevents this kind of digital money from being duplicated or destroyed.
The use of blockchain technology is also being explored in other contexts where data immutability and security are highly valuable. A few examples include the act of recording and tracking charity donations, medical databases, and supply chain management.
However, blockchain security is far from being a simple subject. Therefore, it is important to understand the basic concepts and mechanisms that grant robust protection to these innovative systems.
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The concepts of immutability and consensus
Although many features play into the security associated with blockchain, two of the most important are the concepts of consensus and immutability. Consensus refers to the ability of the nodes within a distributed blockchain network to agree on the true state of the network and on the validity of transactions. Typically, the process of achieving consensus is dependent on the so-called consensus algorithms.
Immutability, on the other hand, refers to the ability of blockchains to prevent alteration of transactions that have already been confirmed. Although these transactions are often relating to the transfer of cryptocurrencies, they may also refer to the record of other non-monetary forms of digital data.
Combined, consensus and immutability provide the framework for data security in blockchain networks. While consensus algorithms ensure that the rules of the system are being followed and that all parties involved agree on the current state of the network - immutability guarantees the integrity of data and transaction records after each new block of data is confirmed to be valid.
The role of cryptography in blockchain security
Blockchains rely heavily on cryptography to achieve their data security. In this context, the so-called cryptographic hashing functions are of fundamental importance. Hashing is a process whereby an algorithm (hash function) receives an input of data of any size and returns an output (hash) that contains a predictable and fixed size (or length).
Regardless of the input size, the output will always present the same length. But if the input changes, the output will be completely different. However, if the input doesn’t change, the resulting hash will always be the same - no matter how many times you run the hash function.
Within blockchains, these output values, known as hashes, are used as unique identifiers for data blocks. The hash of each block is generated in relation to the hash of the previous block, and that is what creates a chain of linked blocks. The block hash is dependent on the data contained within that block, meaning that any change made to the data would require a change to the block hash.
Therefore, the hash of each block is generated based on both the data contained within that block and the hash of the previous block. These hash identifiers play a major role in ensuring blockchain security and immutability.
Hashing is also leveraged in the consensus algorithms used to validate transactions. On the Bitcoin blockchain, for example, the Proof of Work (PoW) algorithm utilizes a hash function called SHA-256. As the name implies, SHA-256 takes data input and returns a hash that is 256 bits or 64 characters long.Learn more from blockchain online course
In addition to providing protection for transaction records on ledgers, cryptography also plays a role in ensuring the security of the wallets used to store units of cryptocurrency. The paired public and private keys that respectively allow users to receive and send payments are created through the use of asymmetric or public-key cryptography. Private keys are used to generate digital signatures for transactions, making it possible to authenticate ownership of the coins that are being sent.
Though the specifics are beyond the scope of this article, the nature of asymmetric cryptography prevents anyone but the private key holder from accessing funds stored in a cryptocurrency wallet, thus keeping those funds safe until the owner decides to spend them (as long as the private key is not shared or compromised).
In addition to cryptography, a relatively new concept known as cryptoeconomics also plays a role in maintaining the security of blockchain networks. It is related to a field of study known as game theory, which mathematically models decision-making by rational actors in situations with predefined rules and rewards. While traditional game theory can be broadly applied to a range of cases, cryptoeconomics specifically models and describes the behavior of nodes on distributed blockchain systems.
In short, cryptoeconomics is the study of the economics within blockchain protocols and the possible outcomes that their design may present based on its participants’ behavior. Security through cryptoeconomics is based on the notion that blockchain systems provide greater incentives for nodes to act honestly than to adopt malicious or faulty behaviors. Once again, the Proof of Work consensus algorithm used in Bitcoin mining offers a good example of this incentive structure.
When Satoshi Nakamoto created the framework for Bitcoin mining, it was intentionally designed to be a costly and resource-intensive process. Owing to its complexity and computational demands, PoW mining involves a considerable investment of money and time - regardless of where and who the mining node is. Therefore, such a structure provides a strong disincentive for malicious activity and significant incentives for honest mining activity. Dishonest or inefficient nodes will be quickly expelled from the blockchain network, while the honest and efficient miners have the potential of getting substantial block rewards.
Similarly, this balance of risks and rewards also grants protection against potential attacks that could undermine consensus by placing the majority hash rate of a blockchain network into the hands of a single group or entity. Such attacks, known as 51 percent attacks, could be extremely damaging if successfully executed. Due to the competitiveness of Proof of Work mining and the magnitude of the Bitcoin network, the likelihood of a malicious actor gaining control of a majority of nodes is extremely minimal.
Furthermore, the cost in computing power needed to attain 51 percent control of a huge blockchain network would be astronomical, providing an immediate disincentive to make such a large investment for a relatively small potential reward. This fact contributes to a characteristic of blockchains known as Byzantine Fault Tolerance (BFT), which is essentially the ability of a distributed system to continue to work normally even if some nodes become compromised or act maliciously.
As long as the cost of establishing a majority of malicious nodes remains prohibitive and better incentives exist for honest activity, the system will be able to thrive without significant disruption. It is worth noting, however, that small blockchain networks are certainly susceptible to majority attack because the total hash rate devoted to those systems is considerably lower than the one of Bitcoin.
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Through the combined use of game theory and cryptography, blockchains are able to attain high levels of security as distributed systems. As with nearly all systems, however, it is critical that these two fields of knowledge are properly applied. A careful balance between decentralization and security is vital to building a reliable and effective cryptocurrency network.
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