The vast majority of the population associates Blockchain with cryptocurrency Bitcoin; however, there are many other uses of blockchain; such as Litecoin, Ether, and other currencies. In this discussion, please describe at least two cryptocurrencies with applicable examples. Discuss some similarities and differences. Lastly, discuss if you have any experience using any cryptocurrencies.Be sure to use information from your readings and other sources from the UC Library in your initial thread. Use proper citations and references in your post.Then, respond to at least two of your classmates stating an opposing view to their post with proper justification and examples in your posts. Each response post should be at least one full paragraph.Please make your initial post and two response posts substantive. A substantive post will do at least TWO of the following:

• Ask an interesting, thoughtful question pertaining to the topic
• Answer a question (in detail) posted by another student or the instructor
• Provide extensive additional information on the topic
• Explain, define, or analyze the topic in detail
• Share an applicable personal experience
• Provide an outside source (for example, an article from the UC Library) that applies to the topic, along with additional information about the topic or the source (please cite properly in APA)
• Make an argument concerning the topic.

At least one scholarly source should be used in the initial discussion thread. Be sure to use information from your readings and other sources from the UC Library. Use proper citations and references in your post.
References: Please refer atto tachments and below links. 

• Stoyanovich, M., & Tanz, F. E. (2019). Coming to Grips with Blockchain. Benefits Magazine, 56(5), 20-25. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&AuthType=shib&db=f5h&AN=135900272&site=eds-live
• Waldo, J. (2019). A Hitchhiker’s Guide to the Blockchain Universe. Communications of the ACM, 62(3), 38–42. Retrieved from https://doi.org/10.1145/3303868
• Burns, S. (2019). Blockchain: Hype Vs Reality. Computer Weekly, 21-24. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&AuthType=shib&db=f5h&AN=138564674&site=eds-live

Stoyanovich, M., & Tanz, F. E. (2019). Coming to Grips with Blockchain. Benefits Magazine, 56(5), 20-25. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&AuthType=shib&db=f5h&AN=135900272&site=eds-live
Waldo, J. (2019). A Hitchhiker’s Guide to the Blockchain Universe. Communications of the ACM, 62(3), 38–42. Retrieved from https://doi.org/10.1145/3303868
Burns, S. (2019). Blockchain: Hype Vs Reality. Computer Weekly, 21-24. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&AuthType=shib&db=f5h&AN=138564674&site=eds-live

A BRIEF INTRODUCTION TO BLOCKCHAIN

“BLOCKCHAIN” HAS MANY MEANINGS

“To understand the power of blockchain systems, and the things they can do, it is
important to distinguish between three things that are commonly muddled up, namely
the bitcoin currency, the specific blockchain that underpins it and the idea of
blockchains in general.”

The Trust Machine, THE ECONOMIST, Oct. 31, 2015

“BLOCKCHAIN” HAS MANY MEANINGS

Phone

• The idea of a
phone network

• A specific phone
network (e.g.,
AT&T)

• A specific use of
the phone network
(e.g., fax)

Blockchain

• The idea of
blockchain

• The specific
blockchain that
underlies Bitcoin
or another coin
offering

• Bitcoin or an

other

cryptocurrency

WHAT IS BLOCKCHAIN?

A technology that:

permits transactions to be
gathered into blocks and recorded;

allows the resulting ledger to be
accessed by different servers.

cryptographically chains blocks
in chronological order; and

WHAT IS A DISTRIBUTED LEDGER?

Centralized Ledger

Bank

Client A

Client
C

Client D

Client
B

Distributed Ledger

Node A

Node B

Node CNode D

Node E

• There are multiple ledgers, but Bank holds the “golden record”
• Client B must reconcile its own ledger against that of Bank, and

must convince Bank of the “true state” of the Bank ledger if
discrepancies arise

• There is one ledger. All Nodes have some level of access to that
ledger.

• All Nodes agree to a protocol that determines the “true state” of
the ledger at any point in time. The application of this protocol is
sometimes called “achieving consensus.”

WHAT IS A DISTRIBUTED LEDGER?

Single Entity Multiple Entities

HOW MIGHT A DISTRIBUTED LEDGER WORK?

Users initiate
transactions

using their Digital
Signatures

Users Broadcast
their

transactions to
Nodes

One or more
Nodes begin

validating each
transaction

Nodes aggregate
validated

transactions into
Blocks

Nodes Broadcast
Blocks to each

other

Consensus
protocol used

Block reflecting
“true state” is

chained to prior
Block

WHERE MIGHT BLOCKCHAIN USE CRYPTOGRAPHY?

• Digital Signatures
• Private/Public Keys

Initiation and Broadcasting
of Transaction

• Proof of Work and certain alternativesValidation of Transaction

• Hash FunctionChaining Blocks

THE POWER OF DISTRIBUTED LEDGERS

BLOCKCHAIN

It can be used to allow
owners of assets to
exercise certain rights
associated with
ownership, and to
record the exercise of
those rights.
•Proxy Voting

It can be used to
record those
transfers of value or
ownership of

assets

•These records may be
very difficult to alter,
such that they are
sometimes called
effectively immutable

It can be used to
transfer value or the
ownership of assets
•A human being or a
Smart Contract can
initiate the transfer

It can be used to
create value or issue

assets

It can be used without a central
authority by individuals or

entities with no basis to trust
each other

The degree of trust between users determines the technological
configuration of a distributed ledger.

HOW MIGHT DISTRIBUTED LEDGER PROPOSALS DIFFER?

Participation Open Closed

Permission Permissionless Permissioned

Ledger Design One ledger One ledger or Segregated ledgers

Validation Methodology depends on degree of trust between nodes. Where there is no basis
for trust, may be achieved through proof of work, which requires the algorithmic
solving of a cryptographic hash.

Consensus Mechanism Mechanism depends on degree of trust between nodes. Where there is no
centralized authority, consensus may be determined algorithmically.

References

• Stoyanovich, M., & Tanz, F. E. (2019). Coming to Grips with Blockchain. Benefits Magazine,
56(5), 20-25. Retrieved from http://search.ebscohost.com/login.aspx?
direct=true&AuthType=shib&db=f5h&AN=135900272&site=eds-live
• Waldo, J. (2019). A Hitchhiker’s Guide to the Blockchain Universe. Communications of the
ACM, 62(3), 38–42. Retrieved from https://doi.org/10.1145/3303868
• Burns, S. (2019). Blockchain: Hype Vs Reality. Computer Weekly, 21-24. Retrieved from
http://search.ebscohost.com/login.aspx?
direct=true&AuthType=shib&db=f5h&AN=138564674&site=eds-live
• Tarzey, B. (2019). Inside Blockchain and Its Various Applications. Computer Weekly, 16-20.
Retrieved from http://search.ebscohost.com/login.aspx?
direct=true&AuthType=shib&db=f5h&AN=138681123&site=eds-live
• Carson, B., Romanelli, G., Walsh, P., & Zhumaev, A. (2018). Blockchain beyond the hype:
What is the strategic business value? McKinsey Quarterly, (4), 118–127. Retrieved from http://
search.ebscohost.com/login.aspx?
direct=true&AuthType=shib&db=buh&AN=133693412&site=eds-live

• A Brief Introduction to Blockchain
• “blockchain” Has many meanings
• “Blockchain” has many meanings
• What is Blockchain?
• What is a Distributed Ledger?
• What is a distributed ledger?
• How might a distributed ledger Work?
• Where might Blockchain use cryptography?
• The power of Distributed ledgers
• How might distributed ledger proposals differ?
• Questions?

benefitsmagazine may 201920

C OM ING T O GR IP S W I T H

BLOCKCHAIN
by | Michael Stoyanovich and Frank E. Tanz

may 2019 benefits magazine 21

Blockchain is more than just a buzzword, and benefits organizations should begin
familiarizing themselves with the concept. The authors explain the basics of this
much-hyped technology and describe its potential applications.

benefits magazine may 201922

N
o doubt you’ve heard or read
about

blockchain

technol-
ogy.1 There’s certainly been a
lot of hype. But you’re prob-

ably more than a little fuzzy on what
blockchain is and what, if anything, it
can do for your organization now. You
have a lot of questions, which we will
try to answer.

While it’s still too early for you to
worry about adopting blockchain in
your benefits-centric organization, it’s
not too soon to start learning what it is,
to educate yourself and to be prepared.
Remember where cloud computing
stood six or seven years ago? Everyone
was talking about it, but relatively few
organizations used it, let alone under-
stood it. That’s where blockchain is to-
day. Like the cloud, blockchain is more

than just a buzzword. It may have great
potential to transform your organiza-
tion. Just not yet.

What Is Blockchain?
Simply put, blockchain is a new

form of ledger. Remember that led-
gers are a collection of accounts, a list
of events and transactions. They used
to be books. Today they’re databases.
In the future, in many cases, they’ll be
blockchain.

A defining characteristic of block-
chain is that instead of storing and pro-
cessing data in a centralized database
(with a backup, of course), as we do to-
day, it uses distributed ledger technology.
This means that data is shared member
to member (more properly described as
peer to peer), across all the members of

a network (also known as nodes). See
Figure 1.

Any approved user can add or
change data in the blockchain and
instantly view transactions made by
other users. The data is replicated and
synchronized, all greatly minimizing
any chance of discrepancy or manipu-
lation.

Every piece of information a user
adds is mathematically encrypted.
Moreover, every time a user changes
a unit of data (a block) it automatically
re-encrypts all of the previous trans-
actions (the chain). As a result, the
blockchain data gets more secure every
time a user makes a change to the led-
ger. This significantly reduces the risk
of privacy breaches and unauthorized
data manipulation.

blockchain

FIGURE 1

This is how data is
processed and stored today.

This is how data is processed
and stored using blockchain.

Backup

Database

Node

Node
Node
Node
Node
Node
Node

may 2019 benefits magazine 23

Data cannot be manipulated without network consensus2
from most contributors to the blockchain. This ensures the
blockchain is transparent, consistent and almost completely
immutable3 without going through a centralized authority,
like a bank. See Figure 2.

What Are the Advantages of Blockchain?
In addition to giving users access to up-to-date informa-

tion, blockchain creates trust by providing a verifiable, de-
centralized record of transactions. The four key benefits are:

1. Transparency. Any user can examine the entire trans-
action history of the blockchain.

2. Integrity. Users are required to rely on the network’s
shared protocol.

3. Efficiency. Eliminating third parties minimizes settle-
ment times and reduces payment and processing fees.

4. Security. Verified transactions can’t be modified.
Blockchain is particularly valuable in low-trust envi-

ronments where participants can’t transact business di-
rectly or lack a trusted intermediary. For example, the
United Nations Development Program (UNDP) used it in
Serbia alongside several nongovernmental organizations.
People were allowed to receive remittances from their
families through a UNDP portal. The funds were sent di-
rectly to individuals’ digital identity cards, which could be
used to buy groceries and electricity and pay bills. Block-

chain was used to keep record of how the funds were al-
located, and it enabled everyone to trade where money
was spent.

Can Anyone Join a Blockchain?
That all depends on whether the blockchain is public or

private.
A public blockchain (like the cryptocurrency Bitcoin) is

open to all participants, and network expansion is encour-
aged. Anyone can run a node on the network. The complete
transaction history is visible to all. Consensus is achieved
through decentralized methods, such as proof of work, which
requires some type of work from the participants or proof
of stake, in which the creator of a new block is chosen in a
predetermined method, based on the existing wealth of the
participant.

On the other hand, a private blockchain is open only to
allowed participants. These are typically business partners

learn more
Education
65th Annual Employee Benefits Conference
October 20-23, San Diego, California
Visit www.ifebp.org/usannual for more information.

blockchain

FIGURE 2

A Digital Ledger
It maintains a record
of all the transactions

on a peer-to-peer
network.

Immutable
All the data on
a blockchain is

encrypted, and every
change is recorded

so it can’t be changed.

Decentralized
There’s no
need for a

principal authority.

Versatile
Much more than
the platform for

cryptocurrencies,
blockchain can
be used to share

contracts, records
and other data.

Safe
Information is

encrypted so it can
be shared among

numerous members
in complete privacy.

benefits magazine may 201924

whose integrity is assumed. In a private blockchain, nodes can
have different levels of privileges and permissions. Consensus
can be achieved through a wider variety of methods (not nec-
essarily decentralized or computer-intensive methods).

Who Uses Blockchain?
Today, blockchain is being used most widely and aggres-

sively by many cryptocurrencies. However, it is being studied
for use in:

• Supply-chain management—to validate the sources
and quality of goods as they move from suppliers to
end users

• Financial services—to reduce the cost of real-time
transfers between bank accounts while mitigating
transactional risks

• Property rights—to register ownership by verifying
identity and preventing fraud and error

• Retail—to protect consumers who will not need to
provide personal information to make purchases.

Common examples of potential applications include:
• Smart contracts.4 Blockchain could expedite bicycle-

sharing systems 5 and automatically unlock the door to
rented lodgings.

• Cloud storage. Users could earn tokens (cryptocur-
rency) for storing other people’s data on their unused
hard drive space.

• Payroll. Cryptocurrencies make it easy to pay interna-
tional workers.

• Voting. Blockchain elections would be virtually un-
hackable.

• Business process management. Processes such as
claims adjustments could stretch across multiple orga-
nizations more fluidly and easily than today.

That said, aside from the cryptocurrencies, no major block-
chain initiatives have advanced beyond the research or beta
(limited testing) phase. There is no widespread market adop-
tion. Although there have been a slew of business press articles
purporting to describe how companies “use” blockchain, they
all describe planned initiatives, prototypes or limited imple-
mentations, not robust functioning environments.

Some of the possibilities for the use of blockchain in
health care, highlighted in a 2018 CB Insights6 report,
include:

• Managed-provider information management
• Drug supply-chain application
• Claims-management payments and prior authorization
• Patient health records and other patient-specific

applications.
While some of these initiatives may be available in the

near term, most are targeted as future endeavors.

Then Why All the Hype?
Blame it on the cryptocurrencies, which use blockchain,

especially bitcoin. In fact, blockchain and bitcoin are often
confused (See the sidebar “What’s the Difference Between
Blockchain and Bitcoin?”).

As of this writing, there were approximately 2,520 crypto-
currencies with market capitalization of $114.4 billion,7 but
the number and value of these cryptocurrences can fluctuate
drastically. The mostly positive coverage cryptocurrencies
have received has facilitated their rapid growth. This has led
to vast investments for blockchain startups, rising consumer
awareness and government support.

According to Bain & Company research, 80% of financial
executives think this new technology will be transformative.8
Moreover, 41% of respondents to a Deloitte global survey say
they expect their organizations will bring blockchain into
production within the next year, although 39% think the
technology is overhyped.9

Are There Any Drawbacks to Using Blockchain?
That depends on how you use it. When it comes to da-

tabases, blockchain’s advantages come with significant

takeaways
• Blockchain is a new form of ledger that shares mathematically

encrypted data across all members of a network. Data in the
ledger cannot be manipulated without network consensus from
most contributors to the blockchain.

• Key advantages of blockchain are transparency, integrity,
efficiency and security.

• Blockchain is used most widely by cryptocurrencies but is being
studied for business uses including supply-chain management,
financial services, property rights and retail.

• Traditional databases may perform better than blockchain in some
instances because they have faster processing times.

• Because the market for blockchain is not mature outside of
cryptocurrency, the technology will not make its way into benefits
for some time.

blockchain

may 2019 benefits magazine 25

trade-offs. In some instances, traditional databases may
perform better than blockchain. This is because traditional
databases are usually centralized, which makes processing
time exponentially faster. This is an extremely important
consideration, especially if a transaction has to be com-
pleted quickly. For example, blockchain is not well-suited
for booking reservations or purchasing goods and servic-
es that are needed right away since the amount of time it
would take for consensus to be realized may be unaccept-
able.

In addition, like any database model, blockchain is not
100% immutable. System security depends on the adjacent
applications, which can be attacked and breached.

So What’s the Bottom Line About Blockchain?
While blockchain has real promise, much of its value has

yet to be realized. Pure potential is great for discussion but
poor for production.

To unlock the value of blockchain, you will need to un-
derstand how and if it aligns with your organization. For
example, blockchain works to solve trust problems by pro-
viding a verifiable, decentralized record of transactions and
allowing network members to post transactions directly to
other peers without having to go through an intermediary.
If you don’t require that kind of functionality, you may not
need blockchain.

When organizations determine they can benefit from
blockchain, it is important to beware of blockchain vapor-
ware (products that are marketed and either not delivered
or fail to even minimally meet expectations). As always,
buy only from vendors that present real solutions to real

problems rather than offering the latest “blockchain secret
sauce.”

For now, however, it is enough to know the technology.
Don’t feel pressured to adopt it yet. The market is not mature
outside of cryptocurrency, and it will take a while for viable
blockchain solutions to make their way into employee ben-
efits design and administration.

Endnotes
1. Blockchain technology will be referred to as blockchain throughout
the article.
2. Consensus is a mechanism in which participants on the blockchain
reach agreement on the validity of the ledger. It is a critical feature of a
blockchain.
3. Immutable means not capable or susceptible to change.
4. Smart contracts are self-executed protocols that are activated when
predetermined conditions are met. They add significant value to blockchain
by allowing transactions to take place automatically without human inter-
ference.
5. A bicycle-sharing system is a service in which bicycles are made avail-
able for shared use to individuals on a short-term basis. They are in use in
many major metropolitan areas.
6. “How Blockchain Technology Could Disrupt Healthcare,” CB insights,
Research Report, accessed March 4, 2019. Available at www.cbinsights.com
/research/report/blockchain-technology-healthcare-disruption/.
7. Investing.com, accessed Februar y 1, 2019, www.investing.com
/crypto/currencies.
8. Thomas Olsen, Frank Ford, John Ott and Jennifer Zeng, “Blockchain
in Financial Markets: How to Gain an Edge,” Bain & Company Brief, Febru-
ary 9, 2017.
9. Linda Pawczuk, Rob Massey, David Schatsky, Breaking blockchain
open—Deloitte’s 2018 global blockchain survey, January 2018.

Michael Stoyanovich is a vice
president and senior consultant with
the administrative and technology
consulting practice at Segal Consult-
ing. He has more than 20 years of

experience in the technology and benefits indus-
try, including extensive expertise in technology
and working with multiemployer plans. He can be
reached at mstoyanovich@segalco.com.

Frank E. Tanz is a vice president and
senior consultant with Segal
Consulting. He has more than 20
years of experience in the Taft-
Hartley multiemployer industry

and is an expert in multiple disciplines, including
software engineering, database administration,
networking and system administration. He can
be reached at fetanz@segalco.com.

b

io
s

What’s the Difference Between Blockchain
and Bitcoin?
Blockchain is best known as the driving force behind the dominant
cryptocurrency Bitcoin. But it’s not the same thing.

The confusion began in 2008 when a single white paper introduced
both Bitcoin and blockchain. The first Bitcoin transaction took place
the next year.

The proliferation of Bitcoin and the resulting media attention led to
the incorrect assumption that Bitcoin and blockchain are synony-
mous. Although blockchain powers Bitcoin, cryptocurrency is but
one application of the technology. It has many other applications.

blockchain

Copyright of Benefits Magazine is the property of International Foundation of Employee
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without the copyright holder’s express written permission. However, users may print,
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computerweekly.com 10-16 September 2019 21

Industry experts believe blockchain is a technology that has the potential to affect the business of most IT profession-als in the next five years. Analyst Gartner has forecast that by 2023, blockchain will support the global movement and
tracking of $2tn of goods and services.

It is regarded by many industry watchers as a disrupting force
in the financial world. A PwC global financial technology (fintech)
survey found that 56% of respondents recognise the importance
of blockchain. At the same time, however, 57% admit to being
unsure about or unlikely to respond to this trend.

Start witH tHe HaSH
Blockchain is effectively a shared ledger between a group of
people – for example, a group of companies that work together
to produce a service or product. What makes blockchain differ-
ent is the fact that the history of the changes – past transactions,
for example – are immutable.

E

ssentially, the historical entries become read-only and
unchangeable. This is due to the fact that each blockchain
entry relies on the hash – a computed value including part of a
previous block as part of its hashing calculation for the current
block. This means that if a previous block is somehow modi-
fied or corrupted, its hash value will change and therefore the
values after that point become broken, making the tampering
evident for all to see.

One example where blockchain technology can be used is
where several companies come together to provide or consume

Blockchain:
hype vs reality
Regarded by many as a
disruptive force in finance
and beyond, blockchain
technology presents a number
of complex challenges that
must be overcome before
it can truly deliver on its
promises. Stuart Burns reports

BUYER’S GUIDE

TO BLOCKCHAIN TECHNOLOGY | PART 1 OF 3

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computerweekly.com 10-16 September 2019 22

Home

News

HMRC under fire
over ‘scaremongering’
IR35 letters targeting
GSK contractors

Ransomware has
evolved into a serious
enterprise threat

How Defra has
been preparing its
IT systems for any
Brexit eventuality

Editor’s comment

Buyer’s guide
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Chasing down
hackers through
security analytics

How councils are using
technology to support
adult social care

Downtime

services, usually under long-term contracts. It can be complex
and cumbersome to manage contracts involving several individu-
als, when multiple documents are involved and everyone needs
to agree on the same contract versions and details. Over time,
changes will occur that also need to be managed and agreed on.

Managing contracts in blockchain, however, means that rather
than physical bits of paper being passed around, it becomes possi-
ble to mathematically guarantee the
contract documents are as intended
and the appropriate (digital) sign-
off is a part of the chain. That chain
can be verified by any of the parties
as required. This is a key part of the
whole blockchain concept.

an early trial
In 2016, Barclays and Wave com-
pleted what they described as a
“world first” by using blockchain
technology to handle the docu-
mentation to approve a fund trans-
action, which was made through the Society for Worldwide
Interbank Financial Telecommunication (Swift). The letter of
credit transaction between Ornua (formerly the Irish Dairy
Board) and Seychelles Trading Company used distributed ledger
technology via the Wave platform to enable all parties involved
to see the documents they needed and transmit them where
required on a decentralised network. This removed some of

the inefficiencies of traditional international trade and brought
completion timescales down from weeks to a few hours. It is
not hard to see how the use of blockchain could be extended to
include many different types of information, eventually encom-
passing the general public.

For instance, an article by McKinsey estimates that using block-
chain to sign up new retail banking customers has the potential to

create up to $1bn of savings in oper-
ating costs globally and reduce reg-
ulatory fines by between $2bn and
$3bn. “In addition, we expect block-
chain solutions to reduce annual
losses from fraud by $7bn to $9bn,”
McKinsey stated.

management cHallengeS
However, setting up and managing
blockchain is a complex process
that requires skilled design. As
Gartner notes, a distributed ledger
requires the recording and replicat-

ing of data in a secure manner. This is a complex mechanism
with significant computational load (called mining). As such,
blockchain has rather large scalability issues. Verification of
blocks can take several minutes, which makes blockchain inap-
propriate for real-time transactions.

Each blockchain consumer may need to verify an entire trans-
action history, which is very inefficient and requires a high

A distributed ledger requires
the recording And replicAting

of dAtA in A secure mAnner. this
is A complex mechAnism with

significAnt computAtionAl loAd.
As such, blockchAin hAs rAther

lArge scAlAbility issues

BUYER’S GUIDE

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https://www.computerweekly.com/news/450303841/Barclays-uses-blockchain-for-trade-finance-transactions

https://www.computerweekly.com/news/450422267/Lloyds-Bank-joins-Swift-blockchain-proof-of-concept-project

https://www.computerweekly.com/news/252451581/UK-government-cryptoassets-taskforce-commits-to-distributed-ledger-technologies

https://www.computerweekly.com/news/252451581/UK-government-cryptoassets-taskforce-commits-to-distributed-ledger-technologies

https://www.mckinsey.com/industries/financial-services/our-insights/blockchain-and-retail-banking-making-the-connection

https://searchdatamanagement.techtarget.com/feature/Dont-let-blockchain-complexity-bog-down-business-applications

https://searchdatamanagement.techtarget.com/feature/Dont-let-blockchain-complexity-bog-down-business-applications

https://www.computerweekly.com/news/252464948/Gartner-Blockchain-lacks-functionality-needed-by-enterprise

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computerweekly.com 10-16 September 2019 23

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News
HMRC under fire
over ‘scaremongering’
IR35 letters targeting
GSK contractors
Ransomware has
evolved into a serious
enterprise threat
How Defra has
been preparing its
IT systems for any
Brexit eventuality
Editor’s comment
Buyer’s guide
to blockchain
Chasing down
hackers through
security analytics
How councils are using
technology to support
adult social care
Downtime

computational workload. New platforms are being developed
that explore alternative approaches to verifying the integrity of
blockchain transactions. These include massively diverse public
ledgers for verifying historic transactions.

Other ideas include having a random pool of machines that vali-
date the blockchain and publicly announce the results of the vali-
dation, saving everyone repeating the same compute-intensive
functions. The very nature of these random machines and

frequency with which they are rotated means that discovering and
trying to attack verification hosts should be extremely difficult.

All current blockchain systems have some limitations in terms
of scaling. So, such techniques may not scale to the level needed
for blockchain to be a viable replacement to existing payment
processing networks. However, there is now growing interest in
new distributed processor workload platforms, such as Golam,
and the use of hardware-based acceleration, application-specific

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All current blockchAin
systems hAve some
limitAtions in terms of scAling

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https://golem.network/

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HMRC under fire
over ‘scaremongering’
IR35 letters targeting
GSK contractors
Ransomware has
evolved into a serious
enterprise threat
How Defra has
been preparing its
IT systems for any
Brexit eventuality
Editor’s comment
Buyer’s guide
to blockchain
Chasing down
hackers through
security analytics
How councils are using
technology to support
adult social care
Downtime

integrated circuits (Asics) and graphics processing units (GPUs),
all of which aim to accelerate processing for blockchain.

Beyond BuSineSS contractS
There are many uses for blockchain technology in finance and
beyond, but currently most of these technologies, with the
exception of cryptocurrencies, are aimed squarely at the busi-
ness to business market (B2B).

For blockchain to move beyond
small-scale trials and experimenta-
tion, the whole software and hard-
ware infrastructure stack needs to
scale to support larger and larger
volumes of transactions.

In 2018, a KPMG paper looking
at uses for blockchain described
the challenges of integrating
blockchain into existing, legacy
processes. The paper warned that
organisations need to be aware
that their legacy systems may not
be designed to interact with block-
chain systems or capitalise on the advantages they offer.

“Comprehensive examination of interoperability and integra-
tion is essential,” the KPMG paper stated. “Given the immuta-
bility of transactions, it is essential that the proper mechanisms
are in place to prevent incorrect data from being written onto
the blockchain.”

Another area of concern is the privacy of financial transactions.
According to PwC, the business benefits for many players, or
even the industry, will not materialise if the “trust issue” is not
addressed effectively. For PwC, the hurdles that lie ahead include
understanding whether or not the public ledger can be hacked.

From a privacy perspective, if several different organisations
are involved in a transaction that uses blockchain, not all group

members should have access to
the data held within the blockchain.
However, they still need to verify the
blockchain’s integrity. Such secrecy
flies in the face of the classic block-
chain ethos.

Any transactions that go through
Bitcoin or other cryptocurrencies
are recorded as part of the block-
chain process. Information such as
wallet transactions, IP address and
other details are collected. Being
able to trace all wallet transactions
could allow any interested parties
to infer not only spending patterns,

but also socio-economic status and similar. It may not give away
exactly what is being purchased, but this information can help
build an overall picture of someone’s online spending habits.

Today, it is very much an exploration of what is possible. As with
any technology, over time blockchain will become more refined and
mature, and no doubt privacy capable and expandable as needed. n

BUYER’S GUIDE

the business benefits
of blockchAin will not

mAteriAlise if the trust issue
is not Addressed effectively.

hurdles include understAnding
whether or not the public

ledger cAn be hAcked

http://www.computerweekly.com

https://www.computerweekly.com/ezine/Computer-Weekly/Blockchain-expands-reach-beyond-finance

https://www.computerweekly.com/ezine/Computer-Weekly/Blockchain-expands-reach-beyond-finance

https://www.computerweekly.com/news/252464948/Gartner-Blockchain-lacks-functionality-needed-by-enterprise

https://www.computerweekly.com/news/252464948/Gartner-Blockchain-lacks-functionality-needed-by-enterprise

https://home.kpmg/content/dam/kpmg/co/pdf/2018/09/kpmg-realizing-blockchains-potential

https://home.kpmg/content/dam/kpmg/co/pdf/2018/09/kpmg-realizing-blockchains-potential

https://searchsecurity.techtarget.com/news/252443993/McAfee-details-rise-in-blockchain-threats-cryptocurrency-attacks

Copyright of Computer Weekly is the property of TechTarget, Inc. and its content may not be
copied or emailed to multiple sites or posted to a listserv without the copyright holder’s
express written permission. However, users may print, download, or email articles for
individual use.

Impact of Blockchain on IT Audit

Blockchain Technology Overview
Three Levels of Blockchain, Tokens
Alliances and Industry Adoption
Smart Contracts
Identity Management
Criticism and Challenges
Impact on the IT Audit Function
Learning and Engagement

Agenda

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Blockchain technology is a digital innovation that is poised to significantly alter financial markets within the next few years, within a cryptographic ecosystem that has the potential to also significantly impact trusted computing activities and therefore cybersecurity concerns as a whole.
Blockchain Overview

.
*

How many of you:
Have heard of bitcoins?
Own cryptocurrency?
Feel you understand the underlying blockchain technology?
Feel you can summarize for us the benefits of the “trust economy”?
Are involved in projects that involve blockchain technology implementation or related activities?
Student Exposure

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Where It All Started
Blockchain technology was first introduced in a whitepaper entitled: “Bitcoin: A Peer-to-Peer Electronic Cash System,” by Satoshi Nakamoto in 2008.
No reliance on trust
Digital signatures
Peer-to-peer network
Proof-of-work
Public history of transactions
Honest, independent nodes control majority of CPU computing power
Nodes vote with CPU computing power
Rules and incentives enforced through consensus mechanism
https://bitcoin.org/bitcoin

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Cryptocurrency Summarized
Bitcoin was the first digital, i.e., cryptocurrency
A maximum of 21 million Bitcoins can be generated
Just as with real world mining, energy must be invested to solve complex mathematical problems by which systems earn Bitcoins

https://www.cryptocoincharts.info/coins/info claims to be indexing 4,220 cryptocurrencies
Most circulated: Bitcoin, Ethereum, Litecoin

*

The Technology Behind Bitcoin
Think of Bitcoin as an electronic asset (as well as a digital currency)
A network of computers keeps track of Bitcoin payments, and adds them to an ever-growing list of all the Bitcoin payments that have been made, called “The Bitcoin Blockchain”
The file that contains data about all the Bitcoin transactions is often called a “ledger”
Bitcoin value is created through transaction processing, referred to as “mining,” which is performed by distributed processors called “nodes” of the peer-to-peer network
A Gentle Introduction to Bitcoin by Antony Lewis, https://bravenewcoin.com/assets/Reference-Papers/A-Gentle-Introduction/A-Gentle-Introduction-To-Bitcoin-WEB

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Mining Evolution
Mining is the process whereby value is created through transaction processing that occurs on nodes of the network.
In 2009, one could mine 200 Bitcoins with a personal, home computer. In 2015, it would take about 98 years to mine just 1 Bitcoin.
Today there is almost no money to be made through traditional home mining.
ASIC (Application Specific Integrated Circuit) has been designed strictly for mining Bitcoins.
Groups of miners have formed mining pools, with each being paid their relative share for their contribution to the work performed.
My Dirty Little Bitcoin Secrets by Ofir Beigel, www.99bitcoins.com

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Storage for digital records
Exchanging digital assets (called tokens)
Executing smart contracts
Ground rules – Terms & conditions recorded in code
Distributed network executes contract & monitors compliance
Outcomes are automatically validated without third party

Tech Trends 2017, The Kenetic Enterprise, “Blockchain: Trust economy”, Deloitte University Press, 2017
Three “Levels” of Blockchain

*

A broader use is supported by the digital infrastructure introduced through Bitcoin, as represented by “tokens”.
A “token” can be defined as a “scarce digital asset based on underlying technology inspired by Bitcoin.”
Tokens may use similar codebases but different blockchain databases.
Ethereum was Bitcoin-inspired but has its own blockchain and is engineered to be more programmable. Tokens can be issued on top of the Ethereum blockchain.
Token buyers are buying private keys, which are similar to API keys, but can be transferred to other parties without consent.
“Thoughts on Tokens”, Balaji S. Srinivasan and Naval Ravikant
A General Discussion about Tokens

*

Tokens have a value and therefore a price.
Tokens are a new model for technology and can be an alternative to equity-based financing.
Tokens do not dilute capital. They introduce a huge increase to buyer base and time-to-liquidity.
Token launches differ from equity sales; however, they can be issued as a way to share profits.
Tokens can be sold internationally over the internet and are always open for business.
Tokens decentralize the process of funding technology.
Thoughts on Tokens, Balaji S. Srinivasan and Naval Ravikant
Tokens, continued

*

Tokens enable a better-than-free new business model.
Tokens will introduce the rise of the “tech savvy senior executive.”
Tokens accommodate immediate custody without an intermediary.
Tokens can be extended to hardware, as part of the internet of things.

Thoughts on Tokens, Balaji S. Srinivasan and Naval Ravikant
Tokens, continued

*

Smart Contracts
Consensus protocols are key to determining the sequence of actions resulting from the contract’s code. This enables
peer-to-peer trading of everything from renewable energy to automated hotel room bookings.

“Contracts Get Smarter with Blockchain”, CIO Journal, The Wall Street Journal, World Trade Organization, International Trade Statistics 2015, 2015, p. 41.
Current paper-based systems drive $18 trillion in transactions per year.

*

Hyperledger is an open source collaborative effort created to advance cross-industry blockchain technologies. It is a global collaboration, hosted by The Linux Foundation, including leaders in finance, banking, IoT, supply chain, manufacturing, and technology.
Business Blockchain Frameworks are hosted with Hyperledger.
Hyperledger addresses important features for a cross-industry open standard for distributed ledgers. The Linux Foundation hosts Hyperledger as a Collaborative Project under the foundation. 
To learn more, visit: https://www.hyperledger.org
/.

www.hyperledger.org
Hyperledger

*

Hyperledger Projects
A few of the Hyperledger Projects include:
Hyperledger Burrow – Permissible smart contract machine with a modular blockchain client, built in part to the specification of the Ethereum Virtual Machine (EVM)
Hyperledger Fabric – Foundation for developing plug-n-play solutions within a modular architecture
Hyperledger Iroha – Simple and easy blockchain framework designed to be incorporated into infrastructure projects requiring distributed ledger technology
Hyperledger Sawtooth – A modular platform for building, deploying, and running distributed ledgers

*

Ethereum is a decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud, or third party interference.
The Ethereum project was bootstrapped via an ether pre-sale during August 2014 by fans all around the world. It is developed by the Ethereum Foundation, a Swiss nonprofit, with contributions from individuals and organizations across the globe.
www.ethereum.org
Ethereum Alliance

*

Several Ethereum offerings include:
The  Ethereum Wallet, which is a gateway to decentralized applications on the Ethereum blockchain, allowing users to hold and secure ether and other crypto-assets built on Ethereum, as well as write, deploy and use smart contracts
Design and issue your own cryptocurrency/traceable token
Kickstart a project with Crowdsale
www.ethereum.org
Ethereum Tools

*

Ether is the crypto-fuel for the Ethereum network.
Ether is a necessary element – a fuel – for operating the distributed application platform Ethereum. It is a form of payment made by the clients of the platform to the machines executing the requested operations, functioning as the incentive that ensures that developers will write quality applications, and that the network remains healthy.
The total supply of ether and its rate of issuance was decided by the donations gathered on the 2014 presale.
Developers who intend to build apps that will use the Ethereum blockchain need ether.
Users who want to access and interact with smart contracts on the Ethereum blockchain also need ether.
www.ethereum.org
What is Ether?

*

Cross-Industry Adoption
Sectors leading the way in blockchain implementation:
Consumer products
Manufacturing
Technology
Media
Telecommunications
Health care
Life sciences
Thirty-nine percent of the senior executives at large U.S. companies initially surveyed indicate they have little or no knowledge about blockchain technology. Many deemed it to be crucial for their companies and industries. Forty-two percent believe it will disrupt their industries.
“Blockchain Adoption Varies by Industry”, CIO Journal, The Wall Street Journal

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Financial Services Industry
As noted by A. Michael Smith in “Creating Assurance in Blockchain,” trust and efficiency are the main value drivers for any use case. The finance world is driven by technology.
Tracking risk and monitoring compliance with laws and regulations within an increasingly complex cybersecurity environment requires considerable time and resources.
The financial services industry immediately saw opportunities in blockchain and has been investing heavily in its usage, primarily as a part of private implementations.

Creating Assurance in Blockchain, Volume 2, 2017, by A. Michael Smith
Banking on change: How to respond to new expectations for audit committees by PWC Internal Audit Foundation, Douglas Anderson, CIA, CRMA, Cassian Joe, and Klaas J. Westerling

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Identity Management
The IT audit is broadly concerned with identity management concerns.
Protecting access to data, and the systems that are in place to process, store, and report on that data, requires ongoing resource dedication.
Multiple solutions are available, all of which require configuring and managing multiple identifiers for an individual’s various identities.
Identity management is an area that will certainly be impacted by widespread use of private keys to secure transactions.

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Distributed Access Management
Creating an identity on blockchain can give individuals greater control over who has their personal information and how they access it
Areas impacted include passports, e-residency, birth certificates, wedding certificates, IDs, online account logins, etc
Digital ID’s can provide digital watermarks that can be assigned to every online transaction of any asset
“21 Companies Leveraging Blockchain for Identity Management and Authentication” by Elena Mesropyan, https://letstalkpayments.com/22-companies-leveraging-blockchain-for-identity-management-and-authentication/

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Protecting Private Keys
Within the blockchain, trust relies on the safekeeping of private keys, in support of a truly distributed identity management
Ultimately, that safekeeping resides with the actions taken by individuals to secure their private key
For cryptocurrency traders, one frequently sees the recommendation to write one’s private key down on a piece of paper and put it up for safekeeping in, for example, a safe deposit box

*

Digital ID Solutions
May 24, 2017, saw the release of a Digitial ID solution by Netki, a California blockchain startup
Released at Consensus 2017, this is a highly-anticipated Digital ID smartphone app that uses Hyperledger blockchain to provide decentralized, open-source identity management
Approved by governments, fully Anti-Money Laundering (AML) and Know Your Customer (KYC) inclusive

https
://bravenewcoin.com/news/netki-launches-digital-id-solution-which-bitt-is-using-with-central-banks-in-the-caribbean/

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Criticism and Challenges
Critics have cited the following blockchain challenges:
Nascent technology
Uncertain regulatory status
Large energy consumption
Control, security and privacy
Integration concerns
Cultural adoption
Cost
Challenges associated with audit, taxes, and compliance
Creating Assurance in Blockchain, Volume 2, 2017, by A. Michael Smith
Deloitte’s Blockchain technology: 9 benefits & 7 challenges,
https://www2.deloitte.com/nl/nl/pages/innovatie/artikelen/blockchain-technology-9-benefits-and-7-challenges.html

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An area of heavy criticism has to do with the vast amounts of energy necessary to process and store transactions, especially as the use of blockchain technology increases
The Bitcoin blockchain network’s miners are attempting 450 thousand trillion solutions per second in efforts to validate transactions, using substantial amounts of computer power
Note that there are also opportunities to decentralize the energy grid
Wasted resources: Mining Bitcoin wastes huge amounts of energy ($15million/day)
Deloitte’s Blockchain technology: 9 benefits & 7 challenges,
https://
www2.deloitte.com/nl/nl/pages/innovatie/artikelen/blockchain-technology-9-benefits-and-7-challenges.html
Blockchain in the Energy Sector: Institutional Disruption? By Marius Buchmann
http://www.theenergycollective.com/enerquire/2402120/blockchain-energy-sector-institutional-disruption
Energy Consumption

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Summary
Although the technology is still in its infancy, boundless usage opportunities exist
The identity management landscape is likely to shift dramatically
There is sure to be evolution within IT audit as various use cases unfold
Features that create trust could drive unachievable overhead costs
Compliance burden should eventually be eased as the technology is adopted, but this requires regulatory updates, which could take a while

Tech Trends 2017, The Kenetic Enterprise, “Blockchain: Trust economy”, Deloitte University Press, 2017

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