Speaker: Blockchain Won't Save the World, But It May Save Your Business
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Steed also pointed to another major application for blockchain: cryptocurrencies such as bitcoin. Despite controversies such as high-profile thefts and frauds, he said that that cryptocurrencies were not going away any time soon. He said that their rise can actually present great benefits and opportunities to both the accounting community and the world at large. At the same time, however, he voiced some major concerns about how they are currently developing.
One is energy costs. Cryptocurrencies such as bitcoin require computing power to generate new tokens and authenticate current ones. The more of them there are, the more computing power this takes, which in turn requires more electricity. While before it was possible to profitably mine new bitcoins on a phone, today whether or not someone can profit depends on electricity costs in the area. There are many cases, he said, where the electric bill will cancel out any gains made from mining cryptocurrency.
"Bitcoin ... mining and electricity take up more power than the country of Slovenia. Soon it will eclipse Denmark. So we are all paying, the world is paying, for this stuff to happen," he said.
Which, in turn, brought him to the subject of fraud. He noted that blockchain, and by extension bitcoin, is often touted as being near impossible to tamper with, given its nature. Cryptocurrencies like bitcoin require a large network of nodes to agree with each other that a transaction is valid.
"In regular accounting right now, I could say you owe me 21 dollars, but you could record in your own accounting system that you owe me 15 dollar." he said. "In blockchain, because it is a shared ledger and we all have to agree, the transaction is not recorded unless you agree it's 21 and I agree it's 21. And more importantly, what we say means nothing. It's the outside auditors, if you will—they're called 'miners'—they approve the transaction."
Miners are the ones who generate new bitcoins through their use of computing power to validate transactions on the blockchain. While this is seen as a security measure, he said that it can also be an avenue for fraud. Since a transaction requires only a majority of miners to agree that it is valid, if somehow someone could get 51 percent of them to agree to a false number, then it will still be processed as true and added to the blockchain. This, in the cryptocurrency world, is called a "51 percent attack."
"Let's say we've got five miners out here. And we're all connected. Right now, the reason why the ledger is immutable is because no one can claim it's 21 dollars when it's really 15... But what happens when it's not one, it's two, and it's three that get together and collude and they say, 'no, it's really 15? You two guys out there are wrong.' They win," he said.
Keeping all this in mind, he pointed out that 80 percent of all bitcoin mining today is done by just four miners in China, and no one really knows anything about them. Maybe they're all separate entities taking advantage of subsidized electricity rates. Or they could be a single entity pulling off the greatest scam ever seen. There's no way to know, he said. With this in mind, Steed wanted his audience to remember that while blockchain is quite secure, nothing, not even that, is immune to fraud.
"I'd like to think we're smarter than some of the hype we're hearing," he said. "Look, folks, unfortunately some of the brightest minds in the world are not actually good people and they figure out ways to get around stuff. ... It could happen some way, somehow. It can and will happen."
One is energy costs. Cryptocurrencies such as bitcoin require computing power to generate new tokens and authenticate current ones. The more of them there are, the more computing power this takes, which in turn requires more electricity. While before it was possible to profitably mine new bitcoins on a phone, today whether or not someone can profit depends on electricity costs in the area. There are many cases, he said, where the electric bill will cancel out any gains made from mining cryptocurrency.
"Bitcoin ... mining and electricity take up more power than the country of Slovenia. Soon it will eclipse Denmark. So we are all paying, the world is paying, for this stuff to happen," he said.
Which, in turn, brought him to the subject of fraud. He noted that blockchain, and by extension bitcoin, is often touted as being near impossible to tamper with, given its nature. Cryptocurrencies like bitcoin require a large network of nodes to agree with each other that a transaction is valid.
"In regular accounting right now, I could say you owe me 21 dollars, but you could record in your own accounting system that you owe me 15 dollar." he said. "In blockchain, because it is a shared ledger and we all have to agree, the transaction is not recorded unless you agree it's 21 and I agree it's 21. And more importantly, what we say means nothing. It's the outside auditors, if you will—they're called 'miners'—they approve the transaction."
Miners are the ones who generate new bitcoins through their use of computing power to validate transactions on the blockchain. While this is seen as a security measure, he said that it can also be an avenue for fraud. Since a transaction requires only a majority of miners to agree that it is valid, if somehow someone could get 51 percent of them to agree to a false number, then it will still be processed as true and added to the blockchain. This, in the cryptocurrency world, is called a "51 percent attack."
"Let's say we've got five miners out here. And we're all connected. Right now, the reason why the ledger is immutable is because no one can claim it's 21 dollars when it's really 15... But what happens when it's not one, it's two, and it's three that get together and collude and they say, 'no, it's really 15? You two guys out there are wrong.' They win," he said.
Keeping all this in mind, he pointed out that 80 percent of all bitcoin mining today is done by just four miners in China, and no one really knows anything about them. Maybe they're all separate entities taking advantage of subsidized electricity rates. Or they could be a single entity pulling off the greatest scam ever seen. There's no way to know, he said. With this in mind, Steed wanted his audience to remember that while blockchain is quite secure, nothing, not even that, is immune to fraud.
"I'd like to think we're smarter than some of the hype we're hearing," he said. "Look, folks, unfortunately some of the brightest minds in the world are not actually good people and they figure out ways to get around stuff. ... It could happen some way, somehow. It can and will happen."