Karlo Krznaric

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Before you finish this article, you will have fallen in love with double entry accounting, mourn its failing and rejoice with us in saving the world up to $4 Trillion[1] in losses due to fraud.

 

The Notting Hill Carnival is one of London’s most colourful annual events with hundreds of dancers and many thousand spectators. It’s also a time of overboarding indulgence leading to 454 arrests for petty theft or public nuisance in 2016. But the biggest Carnival-related crime did not happen on the streets of Notting Hill. It was performed in the shadows of the organisers accounting books. Thirty-five-year-old Nadia Chase Ali, financial officer of the charity connected to the Carnival siphoned off £784,262.85 by creating a spectacular amount of 530 invoices and subsequent payments to her account. She was able to operate for three years before being detected. Considering that the charity has annual expenditures of only £1.7 Million she was able to steal a sixth of the overall business volume. Ali was caught and handed a six-year sentence but that is only one is about 25 fraud cases to be solved.

Scene from the carnival. Source: By David Sedlecký [CC BY-SA 4.0], from Wikimedia Commons

To understand how this could happen, remain undetected for so long and that we are one step away from the solution for this Trillion Dollar fraud industry, we have to go back in time. Way back.

Perhaps the most important book of humanity

“Difficulty, efficiency and originality are considered to be the three ingredients of intellectual beauty. Double entry bookkeeping is found to have all three,” Yuri Ihri[2].

In 1497 two real Renaissance men lived together in Milan: the painter and inventor Leonardo da Vinci and the mathematician and monk Luca Pacioli. Although only Leonardo remains in our collective memory, it is actually Pacioli’s work on which our society rests today. Shortly before sharing a flat in Milan, Pacioli published the bestseller “Everything About Arithmetic, Geometry and Proportions”. It contains 36 chapters on double entry bookkeeping, a practice that was quite new to Italian merchants and enabled them to manage their increasingly complex businesses.

Paciolis book about geometry. By Stockholms Universitetsbibliotek from Stockholm, Sweden [CC BY 2.0], via Wikimedia Commons

The time around 1500 is often viewed as a transition between the Middle Ages and the Modern Age. During this time, local, rural bartering was replaced by urban, money-driven trade in goods. Complex trade networks were established between Asia, Arabia and Europe and later the New World. The usual way of entering cash flows in simple lists was no longer viable.

“First there was single entry bookkeeping — just writing down what happened. Then came double entry — what happened has to be explained by reasoning by another account,” says accounting guru Yuji Ijiri[3]. This new form was developed in several regions of the world at different times with the same purpose. Instead of one ledger, the accountant keeps two. One lists incoming, another outgoing payments (credit and debit).

“… bookkeeping is not just about keeping books, or recording profits and losses. It’s about the business’s own narrative. That narrative maintains the integrity of the business itself and its connection to the world. “Dan Palanza, rogue scholar[4].

From the perspective of the merchant, this new form of bookkeeping is both reformation and enlightenment: “I know therefore I can plan.” Who owns what? Why is money missing? Which deal was a good one? Which debts have not yet been paid? Only this knowledge enables credit and banking so that investments can be made and future economies built.

This achievement is called double entry accounting and it is the most despised subject at every business school today. Even the somewhat shopworn accounting author Charles M. von Cleve was stunned in 1913: “Aside from the so-called occult sciences, there is nothing which so tends to bewilder the mind and to dull the faculty of reason as the study of double entry bookkeeping.”

However, accounting is wrongly accused of being boring. Without it there would be no industrial revolution, no science and no economic globalisation. “What advantages does he derive from the system of bookkeeping by double entry! It is among the finest inventions of the human mind,” said Johann Wolfgang Goethe[5]. The old romantic had to know it well.

Pacioli did not invent double entry bookkeeping, but he was the first to codify and publish it. It is no wonder that for almost 200 years his work was the only textbook in this field. It is amazing, however, that even today the exact same Pacioli method is used, whether by a family business or a multinational corporation.

“It is difficult to decide, however, whether in double entry bookkeeping capitalism provided itself with a tool to make it more effective, or whether capitalism derives from the ‘spirit’ of double entry bookkeeping,” Werner Sombart[6]

Economy in crisis of trust

“Ubi non est ordo, ibi est confusio (Where there is no order, there is confusion),” Luca Pacioli

With a simple ledger, it’s easy for mistakes to sneak in. Even worse is that you cannot say whether it happens on purpose or by accident. The consequence ranges from tedious troubleshooting to mistrust. A simple cash book is only as trustworthy as the accountant behind it.

“The benefit of double entry accounting is that it’s easier to control than simple lists,” says David Hartley, digital accounting software pioneer. “If my invoice is included in my bookkeeping, then it must also be present in the accounting of the invoice recipient. If we examine this and there is no agreement, it is clear where the mistake was made.” Pacioli’s idea is that it records both where the money comes from and where it goes. It leaves verifiable trails.

“But now those systems are starting to show their age badly,” writes author Daniel Jeffries. “Take a company like Enron. They did all kinds of things to cook the books. They managed to hide billions in debt.”[7]

Enron is the case that dwarfs the Notting Hill fraud to a blip. It is the benchmark on which all fraud can be measured. The company was able to hide Billions in debt due to institutionalised, systematic and creatively planned accounting fraud.

The mansion of evil — Enron complex in Houston, Texas. Source: By Alex [CC BY 2.0], via Wikimedia Commons

There is one thing Notting Hill Carnival and Enron have in common: they exploit the design shortcomings of our current accounting system. “All systems have an arms race between those who defend it and those who exploit it. That race is rigged.” explains David Hartley. “Fraudsters had 500 years of honing their skills while double entry accounting has not been improved in kind. Until now.”

If this was a game it’d be Fraudsters 1. Society 0. But it doesn’t have to be like this. But let’s summarise the pitfalls of double entry:

While accounting is done more or less in real time, auditing is done after the fact. This gives ample time to manipulate. Although accounting records should be immutable in fact they are not. That accounting is done completely in secret keeps the power of knowledge at the company or its defrauding employees and handicaps internal or external auditors. Any improved accounting system must solve that inequality.

“It’s tough to lie when everybody is watching”

Ian Grigg. Source: Ian Grigg.

This almost mythical phrase comes from Ian Grigg, who found a logical solution to the crisis of confidence in 2005[8]: Accounting should no longer be completely private. He developed the idea of a self-auditing accounting, which is best explained in this simple graphic[9]:

A third public ledger. Hence triple entry accounting. Source: Author

Bob writes Alice an invoice for rendered services, but we never learn what they were. In conventional double entry accounting, the bill exists in both books — Bob’s credit, Alice’s debit. Griggs idea introduces a third, public ledger. Bob writes his invoice and puts it in the public ledger. Alice accepts the invoice. Although Bob could still try to conceal it, at the latest when filing the tax return a comparison with the public book will bring the “error” to light.

The Notting Hill Carnival’s financial officer Nadia Chase Ali wrote false invoices from real companies and sent the money to her private account. The cursory glances on the financial statements did not reveal the blunder for three years. This could not have happened with a public self-auditing ledger because the invoices need the acceptance of the other party.

But how do you implement such a public book technically?

Wouldn’t it be great if there was a possibility of a public database that is encrypted, trustless (as in no trusted third party required), decentralised and immutable? And which is not controlled by any state or single entity? You, dear readers, of course guessed the answer: Blockchain.

“This self-auditing accounting ledger is probably the most conclusive application for Blockchain after Bitcoin,” David Hartley is sure. In the in-crowd, this first revision of Pacioli’s principles is unsurprisingly called triple entry accounting. Hartley has built a company called Pacio to accompany this idea. The proximity to Pacioli is quite deliberate.

“There are a number of projects that are trying triple entry accounting,” explains Hartley. “They all face fundamentally the same hurdles: scaling and network effects.” On the one hand, decentralisation and the many distributed copies of a blockchain limit the number of transactions per second. A single company hardly reaches this performance limit. But the self-auditing ledgers only develop their potential if they are used by many or even all companies.

“It’s the same problem as the first telephone,” explains David Hartley. “It only makes sense if there are enough others.” Pacio wants to solve the problem of scaling networks like this:

• Global digital identity, allowing companies to participate in a triple entry accounting solution.

• A semantic standard to describe data. This allows entities from any region of the world to link with the accounting solution.

• An application platform in which many software developers offer their apps based on the Pacio standard and thus provide a network effect.

• An advanced blockchain framework with realistic scaling based on the Cosmos Blockchain.

Follow the money or “it’s triple entry accounting, stupid!”

The benefits are obvious to Pacio. “Especially multinational companies will save a lot of time and money when creating audit documents. The audit itself is also accelerated,” explains David Hartley. “Last but not least, with triple entry accounting, for the very first time, we can seamlessly follow the world’s money.”

It certainly would make the schemes of the Chase Ali’s of this world a lot more difficult.

Triple Entry Accounting Projects

Request Network * PayPie * Fizcal * Balanc3 * BBiller * Ledgerium

Footnotes

[1] https://s3-us-west-2.amazonaws.com/acfepublic/2018-report-to-the-nations.pdf Page 8. This estimate only covers insider fraud. Thank you for this insightful report, Bruce Dorris!

[2] Quoted by Doc Searles: https://blogs.harvard.edu/vrm/tag/economics/

[3] https://www.youtube.com/watch?v=7YE8lWl3tAA

[4] Zitiert nach Doc Searles: https://blogs.harvard.edu/vrm/tag/economics/

[5] Ibid

[6] Zitiert nach Doc Searles: https://blogs.harvard.edu/vrm/tag/economics/

[7] https://hackernoon.com/why-everyone-missed-the-most-important-invention-in-the-last-500-years-c90b0151c169

[8] http://iang.org/papers/triple_entry.html

[9] https://steemit.com/introduceyourself/@iang/i-am-iang


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An interview with David Hartley of Pacio.

What makes David Hartley an expert on triple entry accounting?I became interested in digital accounting in the mid 1970s and had the pleasure of being founder of one of the first companies developing and supplying software for professional accountants. We dominated that vertical market for years. After companies in 8 countries and agents in more, the last company was sold to Sage in the UK in 1999. Their prime professional accounting market software is still based on my company’s system.I have been pondering and working towards a standardised semantic approach to business data since then. With blockchain I had my private Eureka moment. Its attributes of a trusted system without a middleman allows accounting to enter a new era.What’s different from double to triple? Triple entry accounting (TEA) adds a public ledger to the existing private double entry (debit/credit) ledgers. One party puts the invoice in the public ledger, and the other party acknowledges it. Thanks to the immutability of a blockchain, it audits itself. It’s the first time in history that we can follow the money around the globe. Internal processes become more efficient, opportunities for fraud are greatly reduced.

Double entry accounting has been around for over 500 years. Why will triple entry be implemented now?

We all agree that currently practiced accounting is no moat against fraud. Companies including SMEs suffer billions in losses to fraud annually. KPMG has estimated the figure to be £193 billion in 2016 in the UK alone, with only a mere 0.5% of that, or £1.1 billion, ending up in court.
Much of this fraud remains hidden until a company fails.

Even audited companies are not safe. The Association of Certified Fraud Examiners has estimated that auditors picked up only 4% of occupational fraud in 2017.
Triple entry accounting will not fix conman or ponzi scheme type frauds, but it can drastically reduce many inter entity frauds, while simplifying and reducing the cost of audits.

This change has been a long time coming. Now thanks to blockchain technology we can have a public yet secure audit trail.

And all that is without even considering the viewpoint of OECD Governments re tax fraud as they see it, or tax minimisation as business people see it!

What technical elements will triple entry accounting need?

A scalable blockchain ecosystem, a new universal data standard for the storage and processing of accounting data, a blockchain solution dedicated to triple entry accounting, a universal identity solution and a good implementation strategy.

Let’s break it down: the blockchain ecosystem?

It starts with the blockchain – the public ledger. First we need the equivalent of an operating system or platform on which companies can build accounting apps.  There are hundreds of different systems out there and they all battle with the problem of scale. Today none of the major blockchains can process the number of transactions per second needed for universal triple entry accounting, but that is changing with new so called 3rdgeneration blockchains arriving on the block. There are at least twenty five 3rdgeneration blockchain in development around the world (Ælf, Æternity, Aion, AlphaPoint, Apla, Blockstack, Cardano, Cosmos, Credits, Devcash, EOS, Genaro, Hyperledger, Icon, Komodo, Metaverse, Multichain, Multiversum, NEO, Red Belly, SophiaTX, Tezos, Universa, Wanchain, and Zilliqa), with some beginningto enter service eg EOS which launched in June 2018. I personally favour Cosmos because of its flexibility, its ability scale, its inter operability with other blockchains, security (via the Tendermint Byzantine Fault Tolerance system), and its good governance system. Governance is key in trustless systems.

Then the data standard. Don’t we already have one?

Well, there is XBRL (eXtensible Business Reporting Language) which is in use around the world for financial reporting – a great feat considering it has developed from the work of a single person. Plus it has a reporting not a storage focus so does not actually define how the raw or original accounting data should be stored to make it comparable across entities let alone jurisdictions and accounting standards. XBRL’s very extensibiliy has allowed entities and organisations to invent their own definitions, resulting in incompatibility.

Nor does XBRL cater for triple entry accounting.

There are other contenders eg  UBL or International Standard ISO/IEC 19845 which specifies the OASIS Universal Business Language (UBL), Open EDI, RDF or Resource Description Framework, and Ocean which is a Decentralised Data Exchange Protocol.

However in our view none of these “standards’ or the proprietary formats of current accounting suppliers, fully meet the bill for the new blockchain era with triple entry accounting.

We need a new standard that makes accounting between Albania and Zimbabwe compatible, which can cope with all storage and reporting needs.

The current lack of such a system is very expensive – an IFAC reportsays that International regulatory divergence costs $780 Billion annually – more than the GDP of Switzerland.

That’s where our company Pacio comes in. We are currently working on a standardised semantic data standard called SSIM which fixes all of the issues described above, while maintaining backwards compatibility.

Then the dedicated public ledger and the identity solution?

This can be built within the best blockchain ecosystem. It should follow a universal data standard, preferably SSIM. Logically it consists of the invoice, its meta data and both the issuer and recipient. Here we come to the identity solution. We have to make sure that the parties are known to the system and can be verified to be who they claim they are. There are several projects in the blockchain world that already tackle the identity issue, for businesses as well as people, using the same attributes that make triple entry accounting possible.

How to implement it globally?

It comes down to incentives, the benefits, the network effect, and ultimately a bit of gentle or not so gentle (for the stragglers) coercion. Pacio’s plan is to make it easy for app developers to incorporate SSIM and TEA in their apps.

Take off will come as major commercial software developers and uses such as Amazon, Alibaba, Apple or Google jump on board. Such companies will require their suppliers to use the system, just as they currently force them to use EDI or similar standards. At some point, national tax authorities will make triple entry accounting mandatory, and in time SSIM too, we trust, as a better option than XBRL.

Who are the players and who will win the triple entry accounting race?

Ecosystem: I see Cosmos, EOS, Zilliqa as front runners. I don’t see Ethereum there because they can’t scaleyet, though many developers are working on trying to scale Ethereum.

I am fully aware that I am being immodest, but we will propose that Pacio’s SSIM become the universal data standard. As for the public ledger, there are a few contenders. Ledgerium is one, but they plan to operate on Ethereum. I don’t see that working in the short run. Pacio will certainly throw its hat into the ring for triple entry accounting, via its Cosmos based Pacio Blockchain plus decentralised data storage. Likewise with a global identity solution, although as mentioned there are a few very good projects already, among them uport.

When will we have the accounting of the 21stcentury?

Given how long we have had double entry accounting, I’d rather speak of the accounting of the third millennium. It’s important to realize that it won’t necessarily be the first solution that wins but the first one to solve the major issues. The one that will make onboarding easy and that can create the necessary network effect.

Where are the Quickbooks, Sages, and Xeros of the world in all of this?  

In the beginning for sure they will have their place as triple accounting will more or less support the single company´s ledger system that they supply now, but in the long run we will probably see a new and changed accounting and auditing world built on blockchain technology. But we have just started to explore the possibilities of the new technology.

Triple entry accounting should greatly reduce auditing efforts. So are the Big Four Accounting/Auditing/Consulting firms friend or foe?
For sure the trust mechanism of Blockchain technology and triple entry accounting will change the role of external auditing. The third party verification (debtors/creditors) steps will be eliminated for all TEA using entities, and that has been a large part of traditional auditing.

However, the Big Four are already far more consultants than accountants or auditors, with something of the order of 75% of their profits coming from their consulting activities. Blockchain triple entry accounting will just continue the evolution of the Big 4 and other accounting firms. That will be good for them, and the businesses they serve = friend, not foe.

 


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How a simple accounting principle in combination with the blockchain could solve the global tax-evasion crisis

Pacio is creating a decentralised semantic data application platform and will produce the first Semantic Business Web on the blockchain.


 

“A deal is only a good deal when you convince the Internal Revenue Service that it wasn’t a good deal.” I don’t know who said that but I put it in quotes so it wasn’t me, dear tax authorities. But seriously, this quote contains a lesson. To know if you made a good deal, you need to keep a book. And if you want to evade taxes you need a second book, cooked beyond recognition.

This is no theoretical thought. According to estimates, governments lose USD 3.1 trillion[1]annually due to tax fraud. That money could finance healthcare, education, culture, and security. Technology is here to save us. Here is how:

Did you also watch your mum keep a ledger with the household expenses, written in neat columns? Including the most important column, the one with your pocket money? In doing so, your mum followed a tradition that goes back 5,000 years, passing by the Romans, the Egyptians well down to the Sumerians. The method that ledger used is called single entry accounting: one line for every expense.

As it kept our household afloat, it also kept empires in balance. A feat that became very difficult with increasingly complex economies. There is a problem with using single lines. While you know where the money went, you don’t know where it came from. It could be a bank transaction, a cash deposit, a PayPal or even a Bitcoin account. With single entry accounting, you can’t follow the money.

That became possible with the invention of double entry accounting. The kind of bookkeeping we still use today was established all the way back in the 14th century. Nations came and went, languages changed but our economy still runs on the same principles.

A double entry ledger adds a line that specifies where the money is coming from. It looks like this:

USD 15,000 from customer 1 to a bank account

USD 5,000 from bank account to a tax attorney

It thus gives us the information that the bank account now holds USD 10,000 and the tax attorney holds 5,000. We can now look at the bank account and compare it with the ledger. If the numbers are different, then we have a problem with the book.

Double entry bookkeeping gave us banking, accounting, credits, and lending. It led to the Fugger banking empire, the East India Trading Company and modern global corporations like General Motors and Apple. The credit system financed inventions like artificial fertilizers, the steam machine, the computer and the Internet. Let’s say it together: Thank you, double entry accounting!

Thank you and goodbye. We had a great time but yours is over. Cooking the books has become an art of illusion. The best corporations make profits do a David Copperfield and vanish in front of the authorities.

Show me the money!

Take double entry accounting and put the record on the blockchain. Voila, you’ve got yourself triple entry accounting (TEA). We mutter the blockchain mantra: immutable, incorruptible. Why is it so easy to manipulate your own accounting? Because it is neither linked with the corresponding invoices of your customers nor with those of your supplier. Blimey, you still can’t follow the money.

Put a transaction between two entities on the blockchain and you can. The money you get from your customer is on the blockchain. You pass the money on to your supplier for the next order of materials. The supplier passes the money on to his contractors. Those pay the rent for their office with it. When we store every record on the blockchain, we get perfect traceability – the money is connected by links in a chain.

The advantage? It is so much harder to manipulate when your transactions are a link in a long chain. If you break the link it becomes visible. If you can’t break the link, then the tax money is going into the authorities’ coffers instead of an account in Switzerland, Cyprus or the Caimans.

In a next article, we will discuss how to make sense of business data that comes in 5,000 languages.

 

[1]https://www.nytimes.com/2011/11/26/business/global/26iht-tax26.html

 


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This story was originally published by the Australian Computer Association and written by Graeme Philipso

David Hartley, Bill Gates and the one that got away.

There is one early Australian software entrepreneur who really stands out. He did a lot, but he could have done so much more. It is a little known tale of what might have been.

David Hartley (not to be confused with the British computer scientist of the same name) started his working life in 1966 as a civil engineer with Brisbane City Council. His work later took him to Namibia in southern Africa, where he was introduced to computing while conducting mathematical modelling of rainfall in the vast Okavango river basin, using FORTRAN on an ICT 1500.

When he returned to Australia he decided that computing was more interesting than civil engineering. He started Hartley Computer in Brisbane in 1974 to develop software for the accounting profession, on the rationale that accounting could be easily computerised but that many in the profession did not realise that.

His first effort was to write a program in BASIC called AANCS (Australian Accountants Number Crunching System) to run on a Hewlett Packard cassette based desktop calculator. But the HP machine had only a one line display, and Hartley was approached by Wang to rewrite the program to run on a Wang 2200, the company’s newly popular small minicomputer, which had a full display screen, and ran off floppy disks. He called the Wang program HAPAS (HArtley Professional Accountants’ System).

The new software was very successful – it was the only software in Australia designed specifically for small accounting practices. Hartley also designed SHEILA (System by Hartley for Entirely Integrated Ledger Accounting) for larger organisations. The venture included building hardware (the Hartley 3900 – see Chapter 22) and an operating system. Both the hardware and the software were very innovative. In Hartley’s words:

“The operating system was called RT86, a ‘true pre-emptive multi-user multi-tasking operating system for the 8086 chip. It was launched in 1980, 15 years before Windows PCs had that capability.

“Hartley Computer was one of the first mini/PC computer vertical market successes in the world, with ultimately 250 staff and 3,000 sites in seven countries. In the process I became known as ‘the father of computer client accounting’, and we won several awards. The success was killed by hubris and a messy divorce. Big lessons, only partly learned at the time.”

The company sold thousands of copies of HAPAS in Australia in the 1970s and early 1980s. With the improvements in price performance of imported minicomputers Hartley moved out of hardware manufacturing and concentrated on software. At one stage Hartley was the largest global customer for Wang minicomputers.

How history could have been very different

In 1979, Hartley expanded the business to the US, setting up in Denver Colorado. The US business was run by Roger Brownlee, who built the operation there to over 100 customers. But financial problems developed as Hartley diverted more and more funding into the development of his hardware platform.

The US business was closed, much to Hartley’s regret. He believes that had it continued the entire history of the microcomputer industry could have been very different:

“When IBM launched the IBM PC it decided to use the Intel 8088 (an 8-bit external bus sister chip of the full 16 bit 8086 we had chosen). IBM asked Intel for an introduction to someone who could supply an operating system. Intel knew of our work in Australia, but did not make the introduction because we were not in the USA.

“Instead they introduced IBM to Bill Gates, who did not even have any Intel chip based software at the time. Bill was smart enough to rush out and buy what became MS-DOS for $50,000 [see Chapter 24]. And so MS-DOS was inflicted upon the world – a huge cost compared to what could have been with our far superior RT86, and Microsoft was on its way.”

In 1982, Hartley Computer was put into receivership by the Queensland Government. Hartley says this was under a technicality via a loan guarantee, “even though there was no commercial reason or need as business was booming with just some cash flow issues during financial year end, exacerbated by a cargo handlers strike in Sydney, which the bank understood.”

David Hartley believes that he was being punished for not having donated to the Joh Bjelke-Petersen Foundation, a kickback vehicle for the corrupt Queensland Government. Embittered by the experience, Hartley moved to Hong Kong in 1985 and founded Banksia Information Technology (BIT), which designed and manufactured IT gear, including PCs, modems, and an early voice-activated fax/phone switch, called PHAXswitch.

He later returned to Australia and developed HAPAS Mark II. In 1993, he went to the United Kingdom and with some colleagues set up Hartley Computer UK, which gained over 1000 accounting practice clients ranging from sole practitioners to PricewaterhouseCoopers. In 1999, the company was sold to British accounting software vendor Sage, and Hartley moved to the Caribbean. He still lives there today, where he is a self-described ‘Caribbean Blockchain Evangelist’, pursuing initiatives using the new blockchain technology, including work on accounting systems for what he believes to be the new age of blockchain business.

Hartley was admitted to the Pearcey Hall of Fame in its first year in 2003 for ‘distinguished lifetime achievement and contribution to the development and growth of the information technology profession, research and industry’.

Veteran ICT journalist Graeme Philipson is researching and writing the Heritage Project book, which is due for release on the 50th anniversary of the formal incorporation of the ACS.

About ACS

The Australian Computer Society (ACS) was formed 50 years ago, when the various state computer societies joined forces.

To mark the occasion, the ACS has initiated a heritage project to honour the many individuals who have contributed to the growth of the ICT profession in Australia.

At the heart of the project is a history of computing in Australia. It is not just a history of the ACS, but the history of a profession.

Australia has the longest computing history of any country, excepting the US and the UK, and CSIRAC in the Museum of Victoria is the oldest computer still in existence.

 


 

Pacio has published this article with the kind permission of the ACS.


 

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Pacio delivers a Semantic blockchain with a focus on management data. A key component is the target average rate index (TARI®). Here is a brief overview of the method to improve the bottom line of companies.

 

By Keith N. Cleland

“I can see that I am really in the business of selling time, and product happens to be the output,” exclaimed one proprietor following a pricing review of his product range. He was right. The review showed that although he paid for 20,000 hours of potential activity, only 10,000 hours could be traced to output. Quite clearly, the leakage was seriously impacting the bottom line.

Following several years of applied research across the spectrum of industry and commerce, I found that despite the latest available accounting-oriented software technology, very few businesses were positioned to seamlessly compare output with input.

In conjunction with computer guru Trevor Watters, a software tool was developed known as TARI® (target average rate index), making it possible for businesses to target and track input vs. output at any point in time, with results that speak for themselves. Businesses experiencing difficulties and winning only 1 in 16 quotes find they are now winning 1 in 4 quotes.

Businesses putting 25% on their jobs to cover profit seldom ending with more than 5%, find they are achieving profits they could never have imagined. Not just manufacturing and service sectors, distributors and retailers also share in a new way of looking at their businesses seeing change for the better in a matter of weeks.

Until now, TARI® has been a great stand-alone tool for corporations. The advance of blockchain will bring TARI® to the next level: TARI®-based accounting will be immutable, incorruptible and immediately audit-ready. This is especially important for entities with increased accountability needs such as non-profit organizations.

As professor and head of financial management at the IBR School of Executive Management, Steinbeis University Berlin, it has been possible to ensure TARI® is a key subject requiring on-the job- application within the IBR Global MBA program, with direct benefit for student and business alike.

In conjunction with Pacio’s Semantic blockchain (SSIM), we aim to achieve a global connection of entities and for the first time be positioned to follow money over the complete value chain. Pacioli’s invention of double-entry accounting in the 14th century can only go so far. Pacio with SSIM and TARI® will be the foundation of a globalized, interlinked and seamless data exchange. This will decrease fraud, friction, and loss of valuable information. It is about time.


Pacio is creating a decentralised semantic data application platform and will produce the first Semantic Business Web on blockchain.


 


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The Semantic Web is an ideal in which every piece of content comes with a meta description about what it is. But even 25 years after the invention of the WWW, the Semantic Web is still far away. The blockchain opens a new chance to implement the dream of Tim Berners-Lee, the inventor of the Web.

Do you remember how hard it was to get meaningful information in the time before the Internet? You had to order a book, usually not knowing if what arrived days later had the answer to your question. Or you visited a library – for millennials: that’s a public building with many books that you can borrow. The books you wanted usually weren’t available.What a relief the invention of the Internet was. Or was it? Let’s say you want to find out how to launch a successful crowdfunding (an ICO) for a new cryptocurrency. You ask the almighty oracle Google: “How to make an ICO”.A lot of what you get is:
  • Opinion
  • Multiple slightly different worded copies of the initial opinion
  • Advertising disguised as an opinion disguised as information
  • Misleading opinions
  • Answers to questions you didn’t ask
  • Aged or ageless information in an ever-changing environment
  • Disinformation

What you don’t learn is how to make an ICO. You might find all the raw data but you are starting with a huge handicap:

You don’t know the right questions. So you won’t find the right answers.

It’s a long and steep learning curve to identify which questions to ask. You will also have a hard time qualifying the findings.

We still have the half-knowledge we had until the 1990s, but this time we have the illusion of knowledge.

 

We could all be smart

“A new form of web content that is meaningful to computers will unleash a revolution of new possibilities”. Thus spoke Tim Berners-Lee in 2001. He should know since he invented the Web. But why would we want computers to find content meaningful?

“On the internet, nobody knows that I am a dog”, says a famous cartoon from the stone age of web-based communication. When we enter the term “ACME running shoes” into Google, what do we get? Is it the ACME shop or Amazon, or an infomercial about the shoe? Is it runner’s blog or is it even an article on the bad conditions of workers in the ACME factory? Google can guess, but without some sort of metadata, it can’t know.

Metadata is data about data, like the information in your passport describing your name, features, and nationality. People can be classified and so can every piece of data in the world. Google should know what a particular piece of content is, and we humanoids should have a language to ask for what we want.

But it ain’t that easy. If you want to receive the critical journalistic article on the ACME shoe factory you have to make a lucky guess for the words such an article might use. Google offers you a button “Feeling lucky?” that gives you a random result. Very often, our searches feel random.

What is behind the term “Semantic Web” is the solution to the randomness: all content is classified. Users (as well as computers) have access to the taxonomy and know how to search. Looking for the critical article:

“Who: ACME running shoe company;

 type of content: journalistic article;

sentiment: critical;

topic: labour laws”.

 

Then you can feel lucky because you get what you were looking for. But we don’t search this way. So we can deduct, that 25 years after the invention of the WWW and 17 years after Berners-Lee’s statement, the Semantic Web has not come around yet. A holy grail of efficient data management. King Arthur is still out looking.

 

Metacrap

Author Cory Doctorow has an explanation for why we still search in the dark. “Why would I create truthful metadata if it doesn’t benefit me?” Lying is cheaper than telling the truth. Everybody has the highest incentive to look good on the Internet. For this we pretend, exaggerate, lie, steal, embezzle. Or we work the machine.

As Cory Doctorow writes: “Observational metadata is far more reliable than the stuff that human beings create for the purposes of having their documents found. It cuts through the marketing bullshit, the self-delusion, and the vocabulary collisions.”

Have you ever wondered why the Internet is a cradle of mediocrity? The reason is search engine optimization. It is a technique to predict the keywords people might use to find something and create a text that is keyword-friendly more than it is useful.

If a system demands everybody to play ball and be nice, that system will have a hard time.

The truth and nothing but the truth

Semantic data forces content to be truthful about itself. If it lies, it can be penalized. Mind you, it doesn’t prevent the author from lying in the text. But with semantic data at least you know what you are getting. Exiting times have come in the decades-long fight for a smart web: machine learning can help to auto-classify content. Combined with the immutability and incorruptibility of the blockchain you can create a new standard for global data exchange.

We at Pacio are doing this in the field of management data. But more about that in a different post.

 

 


 

Pacio is creating a decentralised semantic data application platform and will produce the first Semantic Business Web on the blockchain.

 



Also published on Medium.

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