Roman Beck, Christian Becker, Juho Lindman, Matti Rossi
This report documents the program and the outcomes of Dagstuhl Seminar 17132 "Opportunities and Risks of Blockchain Technologies". Blockchain-based applications such as Bitcoin or Ethereum are emerging technologies, but a dramatic increase in industrial and academic interest in the technology is evident. Start-Âups and large financial players are working intensely on blockchain-based applications, making this one of the most promising drivers of financial innovation. However, the design and implementation of blockchain-based systems requires deep technical know-how in various areas, as well as consideration of economic and societal issues. These opportunities and challenges provided the starting point for the Dagstuhl Seminar where we analyzed and synthesized the current body of knowledge on the emerging landscape of blockchain technologies. We linked cryptographic economic systems to already established research streams around trust-related issues in payment systems and digital currencies, and digital asset management.
Blockchain technology and its numerous applications have become a major catalyst of new ideas and solutions for the financial sector. A headline containing the word âblockchainâ attracts tons of attention from the media and new start-ups developing something in blockchain receive huge investments. But the theoretical framework for blockchain even for financial industry remains raw and empirical evidence is insufficient. In this study, we explore the theoretical framework for blockchain applications in accounting, identify the core benefits and downside, and discuss its implications for auditing and accounting in general and for credit risk management in particular. The research methodology of this study is designed to satisfy objectivist ontological position and positivist epistemological stance as the notion researched is considered to be primarily external to affected social actors, consequently the quantitative methods are used to establish the relationships between the variables, in turn the variables are produced by a deductive approach from general theories and ideas which exist in abundance in the area but lack empirical observations. A case study was consequently chosen as a research strategy to add a real-life touch to our statistical modelling. In the case study where we use financial data of Ericsson corporation to model theoretical effects of blockchain accounting on credit scores measures we add an empirical dimension to the research in a real-life context. Then we discuss the findings and try to draw general conclusions and identify consequences of the results for different affected parties. As it is always important to do when dealing with new technologies we discuss potential ethical advantages and issues resulting from the technologyâs implementation. The study aims to review the current theoretical framework for blockchain accounting in a coherent way as the current literature seems to be disjointed and multiple sources doesnât focus solely on accounting applications. The empirical study aims to identify a measurable material effect on a very specific problem of credit risk modelling under a broader blockchain accounting paradigm. There are two primarily findings of the research. Fist is the fact that the potential material effect of blockchain accounting on credit scores measures is confined within boundaries of actual volatility of quarterly credit scores and thus the technology will have larger implications for companies with high volatility of credit measures. The second finding is that the implications will be not solely positive in the form earlier identification of financial distress and quicker reaction to resolve the troubles but also may affect the company negatively by exacerbating the economic short-termism problem, the problem that hasnât been discussed in connection with blockchain accounting before.
Blockchain technology emerged in 2009 together with the introduction of Bitcoin, the first virtual currency which enabled nodes in a network, that do not necessarily trust each other, to exchange digital value without the use of trusted intermediaries. Since then, the idea of disintermediation and decentralization has gained traction in a large number of applications outside the world of finance and virtual currencies. This thesis is written in collaboration with Scania, an automotive industry manufacturer, with the purpose of gaining a better understanding of blockchain technology and how it can be used in the transportation industry. This thesis proposes five potential blockchain use cases that aim to either enhance Scaniaâs existing services or to create new services. Out of these five use cases, one is deemed inappropriate in regards to the use of blockchain technology while the other four have potentials benefits. The common denominator among these use cases is that they are decentralized in nature meaning that the use of intermediaries is mitigated. It is recognized that all use cases could be implemented using traditional, centralized databases and that the use of blockchain boils down to a technology choice with its own trade-offs relative to other potential choices. This thesis concludes that blockchain technology offers a new kind of database architecture, the main benefit of which is that it lets several non-trusting entities agree on a common set of facts, without having a trusted intermediary establishing these facts.
Blockchain technology has received a disproportionate share of technology news reporting in recent years. As the database technology that solves the double-transaction problem for cryptocurrencies, blockchain has conventionalised digital ledger technology thinking and is envisaged to represent the future of financial platforms. Smart contract technology, the blockchain containers for processes and rules, is positioned to expedite automation in the post-trade infrastructure of financial systems. \nFintech disruptors discern blockchainĂs potential as a mechanism for disintermediation of the insurance value chain as an opportunity for innovation. Industry counter-measures to this threat include coalitions of financial institutions to evaluate potentially disruptive technologies. The fundamental questions facing the insurance industry are the end-consumerĂs trusting beliefs and propensity to use these emerging technologies in policy servicing systems. \nWe harness technology adoption theories, trust in technology research and the task-technology fit model to measure policyholder perceptions of blockchain among consumers in the life insurance industry. Responses from a sample of life insurance policyholders (n = 199) were used to measure concepts from three IS adoption theories. Our research finds evidence of policyholder trust in the reliability of blockchain technology, an understanding of the benefits of the technology and a willingness for it to be used in policy servicing.
Blockchain, the technology behind Bitcoin, promises to be nothing less than Internet 2.0. The financial services industry, in particular, is preparing for the disruption blockchain/distributed ledger technology promises to cause. In the current business environment, the majority of startups and small businesses have to look for alternative sources of funding given that âgoing publicâ is increasingly expensive. The crowdfunding space has seen tremendous growth as an alternative way to raise capital by businesses. However, these crowdfunded shares cannot be traded for 7-10 years on average on any given platform in the U.S. currently. To build a trading platform on the blockchain which is completely P2P, immutable, fully transparent and low cost presents some key design issues. In particular, the issue of liquidity - and price discovery - on the blockchain continues to be a puzzle. At the same time, the proposition of removing middlemen from equities trading is a very attractive one, streamlining the process of capital formation with higher market efficiency. The current paper addresses the following key questions: How can a DLT trading platform ensure adequate liquidity? What would be the process of price discovery? While some recent studies hail blockchain technology as a boom for market liquidity, it is not immediately clear what the impact of P2P trading would be on the prices of various stocks. There are no âsolutionsâ just yet. At the same time, the lack of regulation around trading on the blockchain creates an environment of uncertainty for all players. In particular, the implementation of such a platform can revolutionize capital formation and build robust markets in both developing and developed countries where crowdfunding has proven to be a successful model. While my research is targeted at solving a very specific pain point for both researchers and companies working on distributed ledger technology, ultimately, it would be a significant step forward towards onboarding underserved communities across the world who donât have access to financial services.
Taneli Hukkinen, Juri Mattila, Juuso Ilomäki, Timo Seppälä
Abstract This report documents a blockchain application developed for the energy sector that enables distributed market coordination for decentralized energy systems. As its core element, it utilizes Ethereum-based smart contracts to facilitate market matching between individual producers and consumers of electricity. The motive for this application was to understand the process of developing blockchain applications with industrial partners. Moreover, the purpose of this exercise was to examine whether Ethereum-based smart contracts could be effectively utilized for similar applications in industry and society at large. The application and the discussions during its development indicate that similar horizontal market structures may spring up in value chains in which the dynamicity of the market is growing and in which the roles of the market actors are shifting from fixed roles towards switch-role markets.
Felipe de Oliveira Simoyama, Ian Grigg, Ricardo Luiz Pereira Bueno, Ludmila Cavarzere De Oliveira
Legislation generally requires public agencies to account for their activity to the public. Among the many duties imposed by legislatures around the world are requirements for transparency in procurement of services, budgeting and presentation of accounts. However, agencies in countries with high corruption problems have trouble complying with the legislation, especially in smaller agencies. Moreover, it is typically infeasible for national auditors to audit all the accounts rendered, and instead, they select a small sample for audit based on their level of risk. Another problem is that the presentation of accounts occurs once a year for all agencies, leading to a seasonal demand with significant lag time between auditing and accounting period. In this study, we present a non-technical framework based on the emerging technology of blockchain that could be a solution to all these concerns. We apply it within the context of Brazilian legislation and the Federal Court of Accounts of Brazil (TCU), although the proposal is applicable across a wide range of countries facing severe corruption.
Virtual and digital crypto-currencies, specifically Bitcoin, were developed by an anonymous pseudonym âSatoshi Nakamotoâ in 2009 and have become a developing form of payment system used by businesses and consumers. Unlike traditional payment systems, Bitcoin is a peer-to-peer network with unique characteristics. Bitcoin is a private, anonymous and decentralised network that is intended to work independently from a government or banking authority. Bitcoin is therefore a network dependent upon mathematical algorithms between two users and managed through a process called âminingâ, which is then stored within a userâs private âwalletâ. This innovative technology offers numerous opportunities as a payment system; however, the legal challenges and risks it creates can be detrimental to consumers and businesses that use Bitcoin as an alternative payment system. The legal challenges of Bitcoin cause uncertainty for governments, businesses and consumers on the treatment of Bitcoin as an acceptable means of payment in Australia. Therefore, the purpose of this thesis is to determine whether Bitcoin is a form of âmoneyâ and as such ought to be accepted as legal tender by the Australian Government under specific legislative instruments. Furthermore, this thesis will examine how Bitcoin is used to facilitate money laundering activities. Moreover, this thesis considers the treatment of tax within Bitcoin transactions and how unregulated Bitcoin transactions can be used to avoid tax. In addressing these legal issues and concerns, consideration is given to the possible regulation of virtual and digital currencies like Bitcoin in Australia. This thesis considers Australian banking, money laundering and taxation legislation and examines whether these regulatory frameworks are suitable to include Bitcoin as a payment system in order to limit money laundering and tax evasion activities within Bitcoin payment systems. Additionally, this thesis examines regulatory approaches to virtual and digital currencies in foreign jurisdictions, namely the United States, Canada and the European Union in order to gain some insight into how other countries are regulating Bitcoin as a payment system. This thesis arrives at a number of conclusions relevant to the possible regulation of Bitcoin in Australia. Firstly, it identifies Bitcoin as money and a form of payment system, but not legal tender and therefore not an accepted legal currency in Australia, which considers self-regulation of Bitcoin as a payment system a possibility. Secondly, it recognises that existing money laundering legislation can be amended to include Bitcoin as a payment system through which money laundering can take place and where Bitcoin exchange platforms are required to implement a âknow-your-customerâ policy or âknow-your-userâ policy. Thirdly, this thesis identifies that Bitcoin is recognised as a commodity for tax purposes and that suitable guidelines can be introduced on how to deal with tax activities and tax evasion within Bitcoin payments. Lastly, it is also recommended that international organisations such the Financial Action Task Force and International Monetary Fund could provide clarity on the treatment of virtual and digital currencies, specifically Bitcoin, as a payment system and legal currency, given that Bitcoin in global and borderless. Therefore, this research contributes towards how the Bitcoin network operates, its legal challenges and regulation in order to further research in this area of law.
This Note examines the disruptive effects that distributed ledger technology will have on payment systems and the financial services industry. It discusses how financial technology companies and banks will need to adapt to ensure that American consumers and banks, as well as the American economy at large, remain secure and efficient within an increasingly online and global financial system. This Note argues that the disjointed digital currency licensing regimes and complex landscape of state-by-state money transmission licensing directly threaten to stifle innovation, capital formation, consumer protection, and national cybersecurity. To ensure the U.S. remains competitive in the global financial revolution, and to ensure consumer protection, this Note advocates for the U.S. to adopt a principles-based approach to regulating innovative payments and financial technology (âFinTechâ). It concludes that a limited purpose national FinTech charter should be implemented in the U.S. and discusses how it would correspond with the joint proposed rule by the Office of the Comptroller, Department of Treasury and Federal Deposit Insurance Corporation for cybersecurity standards.
Bitcoins original idea proposed a trustless monetary system, without the need of \nintermediaries. In recent years, these very intermediaries it originally tried to circumvent, have \ngained an increased interest in Bitcoinâs underlying technology, the Blockchain. It presents a \ndecentralized database technology, suitable for exchanging value in an untrusted environment. \nConsequently, it introduces an innovation in both economics and information technology. \nIn this explorative study, we aim to investigate how Bitcoin and Blockchain technology may \nimpact the monetary and financial system. By conducting 20 in-depth interviews from a broad \nrange of stakeholders and a literature review in this new topic of interest, we have identified \ntwo main themes introduced with this new technology. First, we seek to understand how the \nfuture of money could unfold with Cryptocurrencies and Central Bank issued Digital Currency \n(CBDC). The former is recognized to have a series of specialized architectures, spanning from \nsimple monetary transactions to complex platforms enabling a decentralized economy to \nevolve. CBDC is not necessarily reliant on blockchain technology, but the of digitally issued \ncurrencies and blockchains introduces new fiscal and monetary policy toolkits. There are \nhowever a series of intricate questions that needs to be addressed before CBDC could act as a \ncomplement or replacement for physical currency. Lastly, we explore how the future of \nfinance will be affected by blockchain technology and the cryptoeconomy. Banks may be \nfacing increased competition from new entrants, where blockchain technology may facilitate \nreduced costs in terms of regulatory compliance, efficiency in transactions and settlement, and \nreconciliation. Moreover, new financial services are introduced by financial technology \ninnovation. This might change the business model of banks and other financial institutions \ndrastically. Furthermore, cryptocurrencies introduce new funding possibilities and enables \norganizations to evolve with no governing body. This might facilitate a new economic system, \ncalled the cryptoeconomy. \nDevelopment in blockchain technology is mentioned to be at the same maturity stage as the \nInternet by the early 1990s. There are several uncertainties regarding its future applications. \nHowever, smart contracts seems to be an interesting application, facilitating automation in a \nrange of applications.
Over the past 15 years, NASDAQ, the worldââŹâ˘s first all-electronic stock exchange, has actively engaged in efforts to serve the global digital economy by expanding its reach beyond its original domestic U.S. market. They have attempted to create a global 24/7 trading platform, to serve customers in the U.S., Japan, and Europe. These efforts have met with varying degrees of success. More recently, the renamed NASDAQ OMX Group has been experimenting with the disruptive fintech (financial technology) Bitcoin and its underlying technology blockchain to develop robust trading solutions, which drastically reduce transaction and record keeping costs. In this paper we analyze the various approaches taken by NASDAQ in its expansion ventures. We describe the similarities and differences in these undertakings, in order to identify successful strategies for firms who desire to increase the quality of their products while increasing efficiency and reducing the costs of their services. Drawing upon the strategy literature, we also develop theoretical models on how markets operate, and derive a series of propositions about the interplay between technology and markets.
In every nation, democratic elections are a momentous and weighty occurrence, and the voting system that is now in place requires the use of ballots or electronic voting machines (EVM). Transparency, poor turnout, vote manipulation, distrust of electoral organizations, fabrication of unique IDs (voting party IDs), and delays in posting results are some of the issues that arise as a result of these procedures. The matter of safety is of the utmost importance. When considering the installation of a computerized voting system, voter confidentiality has always been one of the most important concerns. There is no question regarding the system's capability to secure itself in contrast to prospective assaults and safeguard data in the face of such big choices. Utilization of blockchain technology is one approach that might be taken to resolve security concerns. The blockchain technology has an endless number of different uses that might be implemented. The technology known as blockchain is a distributed ledger that makes it possible for peer-to-peer networks all over the world to handle digital assets. In this context, distributed ledger technology represents an intriguing development. A grouping of all transactions is referred to as a block. Immutability, decentralisation, security, transparency, and anonymity are some of the outstanding properties offered by blockchain technology. The combination of blockchain technology with smart contracts has shown promise as a viable option for the development of trustworthy and open-source electronic voting systems. In this article, we demonstrate how to use blockchain technology with the help of a wallet and the Solidity programming language to build an electronic voting application. The programme was designed as a smart contract for the Ethereum network. In order to avoid having the same person vote twice, the user's wallet will only hold a certain number of tokens (gas), which will be depleted each time the user casts a vote. This article talks about the pros and cons of using blockchain technology. It also shows a practical solution in the form of a web app for voting and analyses its limits.