Beyond Bitcoin: The Utility of Blockchain Technology

Beyond Bitcoin: The Utility of Blockchain Technology

One of the most exciting technological innovations to emerge from the development of cryptocurrencies is blockchain — or distributed ledger — technology. Blockchain is essentially a decentralized ledger or database maintained across a network of computers. Anyone with access to the network can view the database, which is updated across all connected devices, rather than being maintained at a central location.

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Cryptocurrency in 2018: Cautiously Embracing the Future

Cryptocurrency in 2018: Cautiously Embracing the Future

2017 was a year of unprecedented progress for cryptocurrencies. From the Japanese government’s decision to recognize Bitcoin as legal tender to the overall cryptocurrency market cap exceeding $500 billion, it is a safe bet to argue that this revolutionary digital asset class is here to stay. With cryptocurrencies quickly becoming both a speculative investment and payment method, certain names in the space are gaining credibility.

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The Security and Utility of Blockchain Technology


Zach Capers, CFE
Contributing Author, Association of Certified Fraud Examiners        

The technology underlying the virtual currency bitcoin has the potential to disrupt several industries while significantly reducing fraud. Known as blockchain, the technology was created to ensure the legitimacy of every bitcoin transaction by tracking them in a distributed public ledger. Bitcoin has endured a divisive reputation due to its volatile value fluctuations and use in illicit transactions on the Deep Web; however, the security and utility offered by its blockchain is anything but controversial.

Any addition to bitcoin’s chain of information represents a new block that must be validated by every copy of the ledger spread across a worldwide computer network. Because the ledger is permanent, public and decentralized, it is incredibly difficult to defraud. These characteristics have resulted in an influx of investment and research aimed at adapting the blockchain concept to a diverse array of new applications.

Illuminating Supply Chains
The information in a blockchain can consist of anything that can be represented digitally. As such, blockchain technology can be used to ensure the authenticity and source of any number of products from organic produce to jewelry. For example, a start-up named Everledger is betting that a diamond’s myriad attributes can be recorded and tracked using an inscribed serial number and a digital blockchain to ensure that the stone being purchased is authentic.

This idea can be applied to a host of high-end goods that have typically relied on paperwork and certificates of authenticity that can be faked far more easily than a blockchain can be manipulated. Furthermore, stolen goods that are recovered can be re-authenticated to regain their value, which is important to former owners and insurance companies that have paid claims on stolen goods. 

The Rise of Smart Contracts
One of the most heralded potential uses of blockchain technology is its ability to facilitate smart contracts. Rather than a standard legal contract that must be litigated or otherwise disputed if breached, a smart contract can enforce itself through digital means when preset terms are met, and revoke the contract automatically if the terms are breached.

Ethereum, a crowd-funded smart contract platform, might foretell the future of smart contracts. The network allows users to input virtually any stipulations (e.g., if this, then that) into the smart contract's blockchain and exchange value using virtual currency. For example, if one were to purchase an item from an online seller, a smart contract could be employed to hold the payment in escrow until a tracking system confirms that the item has been delivered.

Another example of a smart contract platform applies to the streaming music industry. Renowned English singer-songwriter Imogen Heap recently released a new single on Ujo Music, a company that allows artists to register and track their creations on a blockchain using associated smart contracts that allow the listener to stream the song only after specified conditions (e.g., payment, terms of use) have been satisfied. The idea is to foster an equitable method of music distribution that provides artists with more control over how their music is shared and for how much it is sold.

Impact on Financial Institutions
A key advantage of blockchain is its ability to allow two entities that do not necessarily trust one another to trust one another. Because a blockchain can only be updated when there is consensus among the participants, the need for a third party to mediate a transaction is lessened or removed. This can alleviate many factors that complicate financial transactions (e.g., need for collateral, time required for settlements) and automate many banking processes currently requiring human interactions that add time, costs, and opportunities to commit fraud.

Stock exchanges around the world have begun to experiment with blockchains. The Japan Exchange Group announced a collaboration with IBM to test securities trading in a blockchain environment. The Australian Stock Exchange has partnered with Digital Asset Holdings, a blockchain start-up founded by well-known former JP Morgan executive Blythe Masters, to increase efficiencies related to post-trade settlements. To keep pace, the Toronto Stock Exchange hired the co-founder of aforementioned smart contract platform Ethereum to serve as the organization's first chief digital officer.

While blockchain technology is still in its infancy, it is not too early to see bitcoin as the first use case of a versatile and potentially revolutionary concept. From proving an asset’s origin to the streamlining of high finance, various new uses for blockchain continue to emerge. And while applications might vary greatly, what they all have in common are enhanced audit trails, increased efficiency and improved transparency — each of which is a known foe of fraud.

*For background on bitcoin, I recommend listening to this Fraud Talk podcast by Jacob Parks , J.D., CFE.

**This article was originally published in the ACFE's members-only monthly newsletter, The Fraud Examiner in April of 2016.

Bitcoin and the Future of Bribery


Dennis Lawrence, CFE, CAMS

Lawrence is a Denver-based risk consultant.

Bitcoin’s value in the criminal underworld continues to rise. Although well known as the preferred payment method on the Deep Web for illegal goods and services, the digital currency has attracted the attention of increasingly shadowy figures seeking to anonymously transfer funds. ISIS advocates its use for terrorist financing, and kidnappers seeking ransom payments have even begun demanding bitcoins instead of cash. Given its popularity amongst wrongdoers, discussions surrounding the role of digital currency in the multi-billion dollar business of bribery are curiously absent. Silence on the issue is perhaps all too ironic since the threat has never been greater for bribes to be both covertly delivered and hidden indefinitely from the eyes of investigators, forensic accountants and financial institutions.

In principle, Bitcoin transactions are far from untraceable. All transfers of currency are recorded in a public ledger called a blockchain, but only randomly generated Bitcoin addresses comprised of numbers and letters are logged… not names or identities. Many wallets containing Bitcoin addresses which are used for receiving, storing, and sending bitcoins also record IP addresses and require the uploading of personal identification documents. However, these security measures can be easily sidestepped by any determined individual with enough imagination. A few wallets purposely refrain from collecting any identifying information at all in order to appeal to specific audiences.

In order for a transaction to be traced to a person, investigators must figure out a way to tie an individual to a Bitcoin address. At present, users are able to transfer money without revealing their identities so long as they understand how to effectively operate the anonymous web browser Tor, certain wallets and exchanges, Bitcoin ATMs, and web applications such as Bitcoin Fog or Dark Wallet. These tools collectively subvert the digital currency’s traceability by disguising the true origin and destination of Bitcoin transactions. Paranoid users can even resort to private in-person meetings with local traders who exchange cash for bitcoins at a small fee with no questions asked.

So how can Bitcoin be leveraged in the payment of a bribe? Read the scenario below.

A construction company agrees to bribe a city official in exchange for facilitating the award of a lucrative public works contract. Given the high stakes involved, the bureaucrat wants no incriminating evidence that could potentially be uncovered in an investigation. After careful discussion, the parties arrive at a mutually agreeable solution.

In light of the construction industry’s common practice of paying certain workers in cash, a weekly purchase order request begins to be submitted at the company which describes compensation for day laborers. At the direction of executives, a trusted manager pays cash for a used laptop that he connects to a downtown coffee shop’s public Wi-Fi network during his lunch break in order to set up several Bitcoin wallets. He decides on an anonymous wallet or perhaps a Chinese wallet since they are the most unlikely to cooperate with Western authorities in the event of a subpoena. Shortly thereafter, the manager starts making weekly deposits of $5,000 into his wallet via anonymous Bitcoin ATMs . Using Bitcoin Fog on the Deep Web, the manager transfers $20,000 in cash per month to the city official who keeps the money hidden online in his wallet. Once a quarter, the bureaucrat travels abroad to cash out his small fortune using local Bitcoin traders and Bitcoin ATMs, partaking in luxury vacations and spending sprees. After the entirety of the $250,000 bribe has been paid to the city official, the construction manager physically destroys the laptop and never accesses the Bitcoin wallets again.

As illustrated, bribery using Bitcoin offers numerous advantages and few methods of detection. Even if a whistleblower were to come forward to disclose general details of the scandal, investigators would almost certainly hit a dead end. And in the unlikely event that authorities knew Bitcoin was somehow involved, where would they even start? It would be nearly impossible to establish a trail of evidence that could adequately serve as a basis for criminal prosecution or civil action. At worst, the construction company would receive a slap on the wrist for paying day laborers in cash.

The reason why we haven’t heard more about the involvement of Bitcoin in bribery schemes might be due to fraudsters not yet realizing the full potential of digital currency. Or perhaps, it’s because many investigators remain unaware of the extent to which it has already been used as a tool for bribery worldwide.

Top Fraud Predictions for 2015: Technology will shape the fight


Scott Patterson, CFE
ACFE Senior Media Relations Specialist

Technology will give fraudsters an edge in 2015, but it will also provide new tools for organizations and investigators. Three of our experts weighed in on digital currencies, information security and other issues that will help shape the effort to prevent and detect fraud in the new year:

  • Technology will increase the sophistication of fraud schemes. This is an existing trend that will accelerate in 2015, according to ACFE Regent Gerard Zack, CFE, Managing Director – Global Forensics for BDO Consulting. “More and more we are reacting to reports of fraud with, ‘how did they do that?’” Zack said. “It’s a reflection of schemes becoming more complex and capitalizing on technology, including some of the new technology deployed by companies in the interest of improving efficiency. While simple frauds still exist, we are seeing a distinct proliferation of more complex fraud schemes.”
  • But technology (like data analytics) will also help catch tomorrow’s frauds. Zack is quick to note that for fraudsters, technology is a double-edged sword – as it will also be leveraged by the professionals trying to catch them. “There will be more breakthroughs in the use of technology to detect fraud – particularly in the use of visual analytics and also in the use of tools to mine unstructured data.”
  • Improving information security will be a major priority. More massive data breaches, like the ones that have stricken Home Depot, Target Corp. and other large retailers over the past two years, are likely to occur in 2015, according to ACFE Vice President and Program Director Bruce Dorris, J.D., CFE. “These breaches have exposed widespread vulnerabilities among organizations that store and maintain personal information, putting millions of individuals at risk,” Dorris said. “Considering that storage of data continues to grow at an exponential pace, more trouble lay ahead – and there is an increasing need for information security and protecting against data breaches.”
  • Digital currencies will shake up fraud risks for retailers and consumers. An increased acceptance of bitcoin and other digital currencies among merchants will signal a shift in fraud risk, according to Jacob Parks, J.D., CFE, Associate General Counsel at the ACFE. “Vendors/sellers face reduced fraud risks from ‘friendly fraud,’ where customers fraudulently cancel credit card or bank payments after receiving an item,” Parks said. “Digital currency transactions are generally permanent, which makes this scheme untenable. However, consumers face an increased risk of fraud by dishonest sellers, since the transaction is often not insured or protected by an agreement with a financial institution. Additionally, consumers using digital currencies have a reduced identity theft risk because the transactional data stored by the seller cannot be used by malicious parties to charge the customer (this also means vendors have a reduced risk of data breaches involving these customers).”
  • With protections for whistleblowers increasing, more people will step forward to report fraud. Dorris said that a decade ago, few countries had whistleblower protections. However, increased awareness about the harm caused by major frauds at organizations has led to legislators looking to whistleblowers to prevent or mitigate such crimes. “France, South Africa, South Korea, Australia and other countries have all taken substantial reforms to protect whistleblowers, particularly those who identify crimes in the public sector,” Dorris said. “U.S. policy has moved beyond simply protecting whistleblowers; it now has several programs that financially incentivize whistleblowing regarding bribery, tax evasion and corporate accounting fraud. The programs are largely still in the beginning stages, but have already had major payouts.”

With a new year also comes new threats. But, as many anti-fraud professionals know, just as the fraudsters think of new techniques to wreak havoc, the fraud fighters standing on the other side are armed and ready to prevent and detect it. 

Want more? Visit to find two more fraud predictions for 2015.