A Private and Efficient Triple-Entry Accounting Protocol on Bitcoin

Author:

Pan Liuxuan1,Vaughan Owen1,Wright Craig Steven1

Affiliation:

1. nChain Ltd., 30 Market Place, London W1W 8AP, UK

Abstract

The ‘Big Four’ accountancy firms dominate the auditing market, auditing almost all the Financial Times Stock Exchange (FTSE) 100 companies. This leads to people having to accept auditing results even if they may be poor quality and/or for inadequate purposes. In addition, accountants may provide different auditing results with the same financial data. These issues are hard for regulators such as the Financial Reporting Council to identify because of insufficient resources or inconsistent compliance. In this paper, we proposed a triple-entry accounting protocol to allow users to report Bitcoin transactions to a third-party auditor to comply with regulations such as the travel rule. It allows the auditor to easily detect anomalies and identify the non-compliant parties, whilst the blockchain itself provides a transparent and immutable record of these anomalies. Despite building on a public ledger, our solution preserves privacy and offers an interoperability layer for information exchange. Merkle proofs were used to record non-compliant transactions whilst allowing compliant transactions to be pruned from an auditor’s active database.

Publisher

MDPI AG

Subject

Finance,Economics and Econometrics,Accounting,Business, Management and Accounting (miscellaneous)

Reference22 articles.

1. Blockchain in Accounting: Challenges and Future Prospects;Baba;International Journal of Blockchains and Cryptocurrencies,2021

2. European Union (2023, June 26). Official Journal L 150/2023. Available online: https://eur-lex.europa.eu/legal-content/EN/TXT/HTML/?uri=OJ:L:2023:150:FULL.

3. Accounting and Blockchain Technology: From Double-Entry to Triple-Entry;Faccia;The Business and Management Review,2019

4. Financial Action Task Force (2023, June 27). Virtual Assets and Virtual Asset Service Providers. Available online: www.fatf-gafi.org.

5. Financial Reporting Council (2023, June 27). Competition in the Audit Market—A Policy Paper. Available online: https://www.frc.org.uk/getattachment/83bb5ce5-891f-46b1-af84-799fd3d5ee39/Competition-in-the-audit-market-_-2022.pdf.

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