Even though Blockchain technology underlies the structure of cryptocurrencies, it is widely used in other fields such as smart contracts for business, securing critical data, record management of assets, online transaction management, and others.
Delivering so much responsibility to a blockchain ledger, it is worth taking care of data and operations management security. For example, bugs in blockchain codes can threaten private information and crypto-assets. Blockchain audit deals with detecting bugs, revealing code vulnerabilities, and further code review. In addition, blockchain auditors dive deep into the structure and composition of the project for a better risk assessment and possible bug-caused outcome.
Is crypto audit essential?
The essence of audit is threat modeling for testing system capacity to resist attacks and vulnerabilities. For example, crypto assets stored on blockchains are tuned to be hackers’ targets more often than any other fields applying distributed ledgers.
Crypto investors are interested in protecting virtual currency and crypto transactions and any explorations of blockchain vulnerabilities in the interests of malicious hackers. So, it is a must-have mechanism in providing security for digital money.
How blockchain technology influences audit
Blockchains are considered reliable and resistant to fraudulent changes in technologies. All the information about virtual currency transactions is recorded in blocks that cannot be changed. Moreover, the history of transactions is in public assessment. Traditional It can be used as a verification source of transactions. So, auditors may use blockchain ledger for verifications rather than asking third parties about official transaction confirmation.
In contrast to traditional transactions, where clarifications concerning financial transactions can last for months, blockchain transaction verification takes approximately one hour.
Moreover, internal control and auditing functions can be embedded in each crypto transaction. For example, based on previous transactions, an internal audit may be performed in real-time by monitoring and examining digital funds’ movement.
Internal Revenue Service (IRS) is responsible for taxes collection in the USA equates crypto to any other assets. A law requires reporting to the IRS for transferring more than $10.000. Since Bitcoin, Ethereum, and many other digital assets are taxable, the IRS can use data from blockchains.
Using blockchains for internal controls and financial reporting is rather promising and reliable as it eliminates any frauds and elements of corruption.
What blockchain challenges do auditors face?
Although using blockchain technologies for digital currency exchanges, storage, and transactions is considered reliable, there are still some security-based risks. As a result, auditors may encounter some difficulties.
One of the problems is connected with the accidental sending of bitcoins to unauthorized recipients. The nature of bitcoin does not presume transaction cancellation, so automated control of transaction validation is under the question for auditors in such a case.
What if the private key was lost? The crypto asset can not be withdrawn or sold without a key. Access to digital currency in the wallet will be impossible. Backups and restoration procedures may help solve and prevent such situations, but these loss mitigation actions will have to be audited.
In cases of phishing attacks, there are no fraud detection departments responsible for their detection because blockchain is a decentralized system. So auditors will have to deal with internal controls efficiency.
So, in addition to traditional audit and reporting, auditors dealing with a crypto audit will meet some challenges that could hardly be predictable. Dealing with more complex services and technologies, the task of auditors gets more complicated and intricate.
A Blockchain audit aims to gather data about a project and understand its architecture, using automated bugs to reveal vulnerabilities and code revision. There are no risks for a tested project, while vulnerabilities exploration and detection are worth mentioning.
The chief advantage of audit is finding bugs and fixing them by professionals without damaging the system before malicious actors use them in their favor. Moreover, companies that pass crypto audits are considered more reliable and attract more clients.