CIMA E1 Syllabus B. Technology In A Digital World - Blockchain - Notes ^{9 / 12}

This is a technology that eliminates the need for data to be stored and managed centrally.

It allows an accurate, up-to-date, single, trusted and transparent record to be shared between numerous organisations.

EXAMPLE

Bitcoins are created by individuals or organisations processing data and solving problems (known as mining).

Once mined, Bitcoins become the property of the miner and can be traded or transferred.

Every transaction is recorded on a Blockchain.

The Blockchain stores the transaction history of all Bitcoins, enabling the assurance that only legitimate owners of Bitcoins can spend or transfer them.

For Accountants and Auditors

Distributed ledgers and Blockchains allow for increased clarity and transparency in the recording of business transactions.

This is because transactions can also be posted to a public ledger on a Blockchain.

This extra information means that there are more resources available for business planning and valuation, especially in regards to measuring the value of assets

Distributed ledgers also reduce the need for auditors to audit transactions and verify the ownership of assets because they have a source of information about the assets that they can trust.

Advantages of blockchain

• Anything of value can be transferred

• No need for an intermediary

• Blockchains can be very useful to verify ownership of assets like land, where historically landowners have had their land taken from them by the state or others.

Disadvantages of blockchain

• Everyone does not understand it

• Not easy for management to override because blockchain technology makes it more difficult to interfere with transactions

• Scalability can be a problem if blockchain is developed into the mass market because the volume of transactions will slow down the system.

Alternative uses of blockchain

• Cross border payments - these payments remain complex, expensive and slow. 

  Blockchain driven solutions for cross border payments are growing in number and use.

• Smart contracts

  These are self executing contracts that use blockchain technology. 

  Using these, theoretically, money, property or any asset can be exchanged in a transparent manner.

  Crypto currency payments can be built into the smart contract. 

  It can recognise digital signatures.

• Security and traceability - the distributed ledger means all network participants involved in a blockchain hold a  copy of the full ledger, therefore any attempt to amend a single block will become invalid and the whole network will become immediately aware.