Auditing an Auditing Technology

I apologize for not blogging recently (I didn’t realize until recently that people even read these things). In short, we were in the middle of going through an audit — more on this later.

It’s interesting to recursively think about being audited in a business where the blockchain itself is an auditing technology. The blockchain for Bitcoin is essentially a custodian of 100 billion US dollars of value that allows irrefutable proof of control for a huge number of balances. If the Bitcoin blockchain were a bank, it would be roughly one of the top 10 banks in terms of assets under management.

But with one critical difference — the balances are open for all to see. Bitcoin is an example of a technology that provides an unusually good balance between unprecedented transparency with an appropriate level of privacy.

In the 4 years that LedgerX has been around, we have seen or heard of crypto transactions that institutions have been negotiating and completing. Most of them are above board, but inevitably, we’ve seen situations that turn out to be outright scams. Luckily, the blockchain infrastructure allows an easy way to prove control over balances, and these potential thefts are almost always stopped very quickly in their tracks, saving institutions millions of dollars in fraudulent transactions. This is auditing at its best.

That said, it’s important that companies which custody both fiat and cryptocurrencies are audited independently by reputable firms. There are close to zero US based exchanges who have done a comprehensive audit by a top 10 firm.

So we’re pleased to announce that Grant Thornton LLP expressed an unqualified opinion that our financial statements were presented fairly, in all material respects, in accordance with accounting principles generally accepted in the US. An unqualified opinion represents a clean bill of health with respect to LedgerX operations, internal controls, regulatory compliance, and transaction integrity. This is a long process to go through but an essential one regardless.

Similar to our regulator, the Commodity Futures Trading Commission, the LedgerX team was floored by how sophisticated and detailed the understanding of our auditors is with regards to our Bitcoin infrastructure and balance management. We have Grant Thornton to thank for that, and it was a pleasure to work with these professionals.

Special thanks to Jennifer Liu, our Chief Financial Officer who ran point on this process to work with our partners at GT. Despite our strong belief in the decentralized transparency of Bitcoin and its blockchain, we recognize that prudence requires that an auditor still audits the auditing technology.

Paul