FINM4100 Analytics in Accounting, Finance and Economics Report 2 Sample
Your Task
• Create a report on Blockchain in the context of Fintech and RegTech.
• This task is to be done individually.
• Submit your report as a Word file using Turnitin on Monday 23:55 AEST
Assessment Description
Learning Outcomes: LO2, LO4 and LO5
Background: Blockchain is an emerging technology of great importance in Finance, Economics and Accounting. It impacts the way we deal with and monitor financial transactions, trade, identify ourselves, and is having an impact on auditing and regulation.
You are a compliance manager in a financial institution. Your company wants to use blockchain for three purposes:
1. As a mechanism for secure digital transactions and smart contracts
2. As a way of managing digital identities
3. To offer clients the chance to invest in cryptocurrencies
However, the executive management team are not sure of all of the benefits of these applications or possible ethical, legal and privacy issues.
You have been requested to prepare a report for management that will address the three key purposes above and to address the concerns raised by the executive. Your report should explain what blockchain is, explain these uses (applications) and how it will benefit yourself and the company auditors in a report, as outlined below.
Assessment Instructions
Do your initial research from the workshops then find relevant articles on the internet to support your statements.
You are to write a report as follows:
• Introduce the idea of blockchain and its applications in general. [400 words]
• Briefly explain the applications that we are focussing on here (1,2 & 3 above). [200 words]
• Describe in detail how and why blockchain can be applied in these three ways. [400 words]
• Describe the benefits blockchain can offer auditors and compliance officers and subsequent positive impact on the organisation. [300 words]
• Assess possible ethical and privacy implications of the applications at the financial institution at which you are imagining that you work. The impact could be on staff, customers or other stakeholders. [400 words]
• Use at least ten (10) relevant references and the Harvard referencing style. References must
be relevant to what you are discussing in each paragraph.
• Take care with your report structure and written presentation. Remember, your audience for the report is the executive management team, so you should write appropriately for that audience.
Use of Generative AI (eg Chat GPT)
You may use generative AI to assist you in preparing your report. However, it is important to consider the following if using generative AI:
• The use of generative AI must be referenced accordingly
• The wording submitted must be your own – it cannot be simply a ‘cut & paste” from the generative AI tool
• If using generative AI, you must in addition to the above, include as part of your references a list of the prompts used in order to produce output from the generative AI tool.
Solution
Introduction
Blockchain's meteoric growth has signalling a sea change in several industries, but none more so than the financial services industry. Blockchain's decentralised and safe nature has attracted a lot of attention because of its potential to disrupt established systems, boost security, and alter relationships between parties. University Assignment Help, In this article, we explore the many ways in which using blockchain technology might improve the global financial system. Benefits such as safe online transactions, digital identities that can be confirmed, profitable cryptocurrency trading, and simplified auditing and compliance processes are discussed. This study also explores the moral and privacy issues that come up with implementing blockchain technologies in banking and finance. This research provides an in-depth look at how blockchain's revolutionary capabilities may change the roles and duties of financial institutions in our increasingly digital society by analysing the possible benefits and ethical concerns.
Benefits of Utilizing Blockchain Technology
Blockchain is a distributed ledger technology that allows for permanent records to be stored and digital transactions to be conducted in a safe and reliable manner. It's a decentralised system, so no governing body or middleman is needed to keep track of financial dealings. The fundamental advantage of this technology is that it enables users to conduct transactions in a safe and verifiable manner (Scharfman, 2021).
Blockchain technology, at its most fundamental, consists of a series of connected digital blocks, each of which stores a set of transactions that is cryptographically linked to the set of blocks that came before it. This series of 'blocks' is useful since it facilitates the validation and acceptance of transactions and smart contracts by the users.
Financial institutions are progressively adopting the use of blockchain technology, not only for smart contracts and secure digital transactions, but also for the management of digital identities and the provision of opportunities to invest in cryptocurrencies.
Blockchain technology has several applications, including digital security, smart contracts, and more. Since no third party is required to authorise or verify payments or transactions, they may be processed more quickly and at a lower cost. By making it more difficult for fraudsters to access data or hack systems, the technology also increases security and assures safety. Due to the immutability and security of the data recorded on the blockchain, this technology also shortens the time needed to finalise contracts and settle transactions.
When digital identities are managed with blockchain technology, privacy and security issues are resolved. Blockchain technology allows users to safely keep their identification information while only sharing the pertinent details with their business partners and service providers (McLaughlin, 2023). This safeguards individuals against fraud and other forms of identity theft.
At long last, several banks are giving their customers the option to invest in cryptocurrency. Due to their extreme volatility, investments of this sort are not without danger. Because it is created with the same security characteristics as conventional financial institutions, blockchain technology greatly mitigates the dangers of investing in cryptocurrencies. This makes it more difficult to undo or reverse a transaction, keeping money safe even if the system has problems.
Blockchain technology has several potential applications, including the facilitation of trustless online financial transactions and smart contracts, the administration of digital identities, and the provision of cryptocurrency investment opportunities to customers. It's a safe and secure method for users to keep their identification information protected and accessible. Companies that use blockchain will reap the benefits of its greater security, reduced costs, and accelerated settlements.
The Benefits of Blockchain Technology
In this paper, we will discuss how blockchain technology may be used for three specific purposes: safe online transactions, verified online identities, and cryptocurrency trading.
Blockchain technology allows for two parties to conduct a financially transparent and safe digital transaction. All transactions are recorded and verified by consensus on a public distributed ledger called the blockchain. Smart contracts, which are digital contracts protected by blockchain technology, may be used to transact monetary or asset transfers digitally.
Storing personally identifiable information (PII) on the blockchain provides an additional layer of security for digital identities (Alnemari, 2019). Personal information such as names, addresses, and government ID numbers (such those found on Social Security cards and driver's licences) may fall under this category.
Investing in cryptocurrencies entails trading digital assets for and against them. Individuals employ blockchain technology in this use case to keep their digital wallets safe and make instantaneous monetary transfers. Because of this innovation, investing in cryptocurrencies is now faster, easier, and cheaper than ever before.
These blockchain-based solutions have the potential to provide us and the company's auditors with a wide range of advantages (Mogensen, 2020). Digital identities protect information from unauthorised access, and secure digital transactions simplify the execution and verification of various financial transactions. Our business might benefit from cryptocurrency investments, and our customers could have access to new investment alternatives.
The Potential of Blockchain Technology in Financial Institutions
Blockchain is a distributed ledger that stores data in an immutable, distributed, and verifiable way that can be accessed and shared by users. Blockchain is a cutting-edge innovation with many potential uses, such as in financial transactions, digital identification, and cryptocurrency trading.
Blockchain might completely change the way online financial transactions and contracts are handled. Smart contracts can be used to record and execute the conditions of an agreement between two or more parties without the need for a trusted third party to verify or validate the transaction. Using smart contracts on a blockchain, transactions may be finalised quickly, reliably, and without a middleman (Cardenas & Kim, 2018).
The use of blockchain technology in digital identity management is another area where it shows promise. The term "digital identity" refers to the user's digital record of personal data that is stored and monitored. These digital archives ensure the maximum level of privacy for its users by storing information that cannot be modified. Furthermore, digital identities may allow for more efficient authentication and identity management.
Investing in Cryptocurrencies: Blockchain Technology Makes It Possible. Financial institutions may provide a safer, more cost-effective, and more efficient method of investing in cryptocurrencies through the usage of cryptocurrency investments. Financial institutions might gain an edge in the marketplace by providing their clients with a straightforward method of investing in cryptocurrencies (Luo, 2021).
As a result of its versatility, blockchain technology may be used to enable digital transactions, maintain digital identities, and invest in cryptocurrencies in a safe, trustworthy, and transparent manner for financial institutions. Furthermore, it may give privacy and security for individuals and enterprises, while also cutting down on expenses for clients.
The Benefits of Implementing Blockchain Technology for Auditors and Compliance Officers
Auditor and compliance officer efficiency may be greatly increased by adopting blockchain technology. Compliance officers can give near real-time visibility into system transactions by implementing blockchain-based technologies to track digital transactions (Akhtar & Feng, 2022). Because of this openness, data can be analysed rapidly and cheaply, improving the effectiveness and precision of audits.
In addition, blockchain technology allows an unalterable audit trail. The possibility of fraud or tampering by unapproved users is much diminished with this degree of security in place. Most crucially, it enables third-party auditing of all financial dealings, making it possible to keep closer tabs on once elusive occurrences.
Many of the laborious processes needed to be in compliance with regulations may be automated with the aid of blockchain technology. As a result, compliance officers' workloads are lightened, and they are freed up to focus on other important responsibilities. Furthermore, the danger of regulatory violations is reduced by simplifying compliance laws, which in turn reduces the time the company needs to spend responding to regulatory enquiries (Fatz, 2019).
Because blockchain functions without a middleman, businesses save time formerly spent keeping tabs on and getting back to their counterparties. This helps to streamline the process and cut down on the costs and delays often involved with resolving a dispute.
In conclusion, blockchain technology may significantly alter the duties of compliance and auditing officers. Blockchain technology may have a beneficial and far-reaching influence on the company by increasing transparency over all digital transactions, offering a tamper-proof audit trail, automating compliance procedures, and decreasing the need for human tracking and dispute resolution.
Ethical and Privacy Implications of Blockchain Applications in a Financial Institution
Many considerations must be taken into account in order to assess the potential ethical and privacy consequences of blockchain applications in a financial institution. Before using blockchain technology, it's crucial to think about the moral implications. Data security and immutability in blockchain technology rely on the reliability of the underlying cryptographic protocols. Due to the severity of the potential consequences, the risk of a breach due to hackers or malicious actors is of utmost importance (R. Pereira & Garcia, 2023).
Furthermore, banks should think about the moral implications of their data storage and management practises, especially with regards to client identity and authentication. This must be done in a way that complies with consumer privacy rules, which may need for encrypted data storage and transfer or even user approval. Customers must be given transparent and accurate information about the consequences and dangers connected with the data they supply in order to increase security and maintain ethical and regulatory standards.
Protecting users' anonymity is crucial while developing blockchain apps. Blockchain technology prevents tampering and hacking since it is distributed (Rani & Sharma, 2019). It also protects user anonymity with many levels of encryption. When protecting consumer data and financial transactions using encryption, banks must ensure that these methods are secure and hacker-proof.
Furthermore, financial institutions' possible duties to their consumers in regard to blockchain applications should be taken into account. Customers should be made aware of the potential drawbacks of blockchain technology, such as the unpredictability of cryptocurrency prices, the potential for transaction delays, and the absence of insurance in some cases. Financial institutions also need to be ready to react to client complaints in a fast and satisfactory way, providing customers with information about their rights and the circumstances surrounding their complaint.
To sum up, financial institutions have a responsibility to check that the blockchain applications they employ are legal, safe, and up to code. They need to assess the level of danger present and take precautions to protect customers' personal information, deal with complaints in a timely manner, and disclose relevant information to those who need it. To further guarantee that client data and transactions are secure and in accordance with the relevant requirements, financial institutions should implement measures to monitor the efficacy of blockchain applications.
References
Akhtar, M. and Feng, T. 2022 ‘Using blockchain to ensure the integrity of digital forensic evidence in an IOT environment’, EAI Endorsed Transactions on Creative Technologies, p. 174089. doi:10.4108/eai.3-6-2022.174089.
Alnemari, A. 2019 ‘Protecting personally identifiable information (PII) in critical infrastructure data using Differential Privacy’, 2019 IEEE International Symposium on Technologies for Homeland Security (HST) [Preprint]. doi:10.1109/hst47167.2019.9032942.
Cardenas, I.S. and Kim, J.H. 2018 ‘Robot-human agreements and financial transactions enabled by a blockchain and smart contracts’, Companion of the 2018 ACM/IEEE International Conference on Human-Robot Interaction [Preprint]. doi:10.1145/3173386.3177818.
Fatz, F., Hake, P. and Fettke, P. 2019 ‘Towards tax compliance by design: A decentralized validation of tax processes using blockchain technology’, 2019 IEEE 21st Conference on Business Informatics (CBI) [Preprint]. doi:10.1109/cbi.2019.00071.
Luo, D. 2021 ‘Investing during a fintech revolution: Ambiguity and return risk in cryptocurrencies’, Journal of International Financial Markets, Institutions and Money, 73, p. 101362. doi:10.1016/j.intfin.2021.101362.
McLaughlin, P. 2023 ‘Interoperability and information blocking: How to enable Data Sharing and keep HHS happy’, Advanced Health Technology, pp. 313–320. doi:10.4324/9781003348603-19.
Mogensen, K. 2020 ‘Advantages of a large, company-wide PVT database - with focus on gas-based EOR application’, First EAGE Online Workshop on EOR in Latin America: Research, Planning, Implementation and Surveillance [Preprint]. doi:10.3997/2214-4609.202082014.
R. Pereira, J. and Garcia, G. 2023 ‘Daos: Governance in the blockchain era’, Blockchain Applications - Transforming Industries, Enhancing Security, and Addressing Ethical Considerations [Preprint]. doi:10.5772/intechopen.109040.
Rani, K. and Sharma, C. 2019 ‘Tampering detection of distributed databases using Blockchain Technology’, 2019 Twelfth International Conference on Contemporary Computing (IC3) [Preprint]. doi:10.1109/ic3.2019.8844938.
Scharfman, J. 2021 ‘Additional topics in Blockchain and distributed Ledger Technology’, Cryptocurrency Compliance and Operations, pp. 137–153. doi:10.1007/978-3-030-88000-2_7.
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