Technology and regulatory compliance can often seem unconnected to some. However, in a world where cryptocurrency continues to establish deeper roots in the mainstream, they are becoming more connected.
PassFort recently discussed the combination, providing definitions of both blockchain and compliance and how they gel together.
Blockchain is a type of programmable, encrypted and distributed ledger technology that logs transactions that take place using cryptocurrencies. As PassFort stated, the concept of a blockchain was introduced in the 1990s, but the widespread application of it began in 2008, spearheaded by the people behind Bitcoin.
PassFort said, “Almost all cryptocurrencies are now secured via a blockchain network. Blockchain makes it possible for cryptocurrencies to operate without the need for an intermediary like a bank or credit card company. Therefore, payments are likely to be more secure than ordinary debit and credit card transactions.”
Blockchains are highly difficult to alter or hack, due to the fact that a fraudster would have to change every single block in the chain across all of its distributed versions. It can also be used for bonds, stocks and other crypto assets for which records need to be stored digitally and which have traditionally relied on a trusted third party to provide verification.
How does blockchain support compliance? PassFort remarked, “As the technology that underpins cryptocurrency, blockchain has become increasingly useful as a tool in audit and therefore compliance. It’s able to contain a range of information – as well as transactions – such as legal contracts, ID, or product inventories.
“Blockchain entries are secure, traceable, and verifiable, which means they can provide a robust audit trail that includes records of procedures, tasks, and shared documents. Blockchain data is resistant to modification and this makes it reliable in any review or due diligence process.”
In addition, the firm claimed that good audit and risk management necessitates understanding, assessing, tracking, aligning, and resolving compliance issues. In this area – automation has become crucial.
PassFort continued, “The process automation enabled by blockchain technology results in opportunities for regulators because it provides clean, accessible, real-time data. Different institutions can rely on this data as a record of transactions that have undeniably taken place.”
Auditors can also benefit from being able to almost instantly verify transactions on publicly available blockchain records without a third-party intermediary. Blockchain can also block problematic transactions from taking place unless certain conditions are met.
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