HodlX Guest Post  Submit Your Post
ÂWith the widespread adoption of software as a service(SaaS) and cloud applications, the need for third-party assurance for such systems and outsourced functions has increased. Even though blockchain technology offers inherent security, there are many instances where applications of this technology also require third-party assurance by means of blockchain SoC2 compliance services.
What are blockchain SoC2 auditing services?
The full form of SoC is System and Organized Controls. There are two main types of SoC audit reports SoC1, which has got to do with money and SoC2, which deals with security. Strict attestation criteria issued by the government regulate all types of SOC reports. Only accredited public accounting firms may issue them, and they may only be distributed to a small collection of intended users. Here in this article, we are going to talk about the second kind of SoC auditing particularly applied to blockchain technology.
When it comes to the distributed ledgers of blockchain technology and cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH), not being regulated by the government or any central body for that matter, they are susceptible to trust issues for the common public. There are several ways blockchain takes care of the trustworthiness –by the security of the protocol itself, the hashed anonymity of users, the underlying cryptographic algorithms, etc. However, the trustless peer-to-peer crypto economy still requires trusted advisors, trusted mediators, and guarantees from third parties.
The circumstances that certainly call for blockchain SoC2 compliance services
On many occasions, SoC auditing, especially SoC2 audit and compliance, is certainly essential.
Crypto funds
The fund’s subscribers may request confirmation regarding the business process and IT general controls in place for the digital assets of the company to ensure that investor contributions are properly controlled and segregated, accounts are regularly reconciled, investor reporting is finished and correct, and the IT environment adequately addresses risks raised by inappropriate logical access, physical access, change management, etc. A blockchain SoC2 auditing services report taken periodically convinces the subscribers that the said matters are safe, and therefore, their investments in the company are secure.
Asset-backed tokens
Asset-backed tokens is an umbrella term that encompasses various stablecoins and related creations of cryptocurrency. Most common among them are fiat-backed stablecoins, which are tokens issued (“minted”) on a given public blockchain or supported 1:1 by a fiat currency such as the US dollar, British pound, or Japanese yen. Tokens pegged to another currency (digital or fiat), pegged to a basket of securities, pegged to other assets, or collateralized by debt obligations or other financial instruments are the more complicated cryptographic creations.
So, there are a variety of places where trusted intermediaries, fiduciaries, estimators and auditors may play a key role in this often complex and fascinating field. There are many situations where this becomes an issue. Collateralized tokens provide a good example. Buyers and holders of these collateralized tokens would need third-party confirmation on collateral efficiency, underlying revenue streams, collateral risk profiles and many such things. Hence, it is possible that they might request a blockchain SoC2 compliance services document.
Crypto accounting solutions
Since all existing crypto accounting software offerings are provided as SaaS, the key considerations for user entities will be an assurance of the protection and functionality of the platform, as well as the controls over the confidential data therein. SoC reports are considered as a valid representation of the client trust. For crypto accounting solutions, however, there are also a variety of special considerations. Most of these deals have third-party exchange integrations and custodial and non-custodial wallets, so the main concern for consumers would be how they can depend on the technology and automated controls that allow the translation and use of blockchain data for the application. Another factor is what (if any) controls certify that complete and reliable information is given efficiently through integrations to third-party exchange data. So in the situation when you are offering a crypto accounting solution, a blockchain SoC2 compliance services report is outright essential.
Permissioned blockchain platforms and associations
Permissioned or “private” blockchains have a powerful ability to solve many business problems by improving the productivity of supply chains, offering transparency of the origin of products used in manufacturing and providing trusted identity – among other things. As a matter of fact, blockchain technologies have been experimented with by some of the world’s biggest corporations like the American multinational investment bank Goldman Sachs, and there are several successful applications already.
A coalition of firms, not just a single entity, is featured in a variety of current implementations. The need for third-party verification in a blockchain consortium is reasonably clear. SoC1 and SoC2 reports prove quite effective for additional confidence and assurance among a consortium of private participants in the network. Nevertheless, some adaptation of the existing standard, or at least a novel approach by the auditor, may be needed to use SoC reporting to deliver such assurance.
Specifically, the requirements of SoC1 and SoC2 depend on a clear demarcation between service organizations and user entities where an outsourced role for the user agency has been taken over by the service organization. Contrast that with a blockchain consortium, where participants did not outsource their cohorts to a function, but rather altered the way they trusted, transacted and reported transactions among the members.
There is one dominant member (for example, the Walmart supply chain consortium) in several enterprise blockchain consortiums. In a more even footing, some have participants. In the case of a leading or dominant participant, entry, consensus, change management and other elements of the blockchain ecosystem would likely be controlled by the dominant participant. The problems of regulating the ecosystem are likely to be more nuanced in more equitable blockchain consortia and will likely need trusted intermediaries and auditors.
Examples of trustworthy intermediaries for auditors and consultants, likely through SoC reporting, include confirmation of the presence and valuation of real-world assets represented on approved blockchains, consensus checking mechanisms, correction of incorrect ledger entries, and settlement controls for private blockchains that use monitoring or payment tokens.
In the end, even the permissioned block is in need of blockchain SoC2 auditing services. There are several possible SoC implementations and comparable audit reviews for the required assurance of permissioned blockchain consortiums and their members.
Exchanges and custodial wallet providers
In custodial environments, third-party assurance is critical. Some larger exchanges have recently announced that their SoC audits have been completed, and others will shortly follow suit. For all centralized exchanges, this will soon be the standard practice.
Large financial institutions are also beginning “institutional custody solutions,” providing the highest possible protection over their digital assets to institutional Bitcoin investors.
All these only mean that if there is a custodial wallet feature on the virtual currency exchange or custodial solution you are using, then a blockchain SoC2 compliance services report on it is absolutely essential. “Institutional grade” custody solutions providers are very likely to be asked for reports on SoC1 and/or SoC2.
Conclusion
The takeaway of the whole story is:blockchains and crypto are profoundly rooted in the assumption that all the requisite confidence is provided by the in-built crypto algorithms of the technology. But a number of real-world examples and emerging and theoretical use cases involve human intervention, whether the human acts as an oracle to ensure real-world data consistency with data inserted into a blockchain or as an auditor valuing collateralized revenue streams for an asset-backed token. Where there is human intervention, a definite third-party assurance in the form of blockchain SoC2 auditing services becomes significant.
Adam Mazzocchetti
Adam Mazzocchetti is a blockchain security specialist who has spent the last five years researching, advising and auditing blockchain security systems. He holds degrees in cyber security and behavioral psychology. Adam is also a certified blockchain security professional, certified ethical hacker, and CompTIA Security+ certified. Reach out to him here.
Follow Us on Twitter Facebook Telegram
Disclaimer: Opinions expressed at The Daily Hodl are not investment advice. Investors should do their due diligence before making any high-risk investments in Bitcoin, cryptocurrency or digital assets. Please be advised that your transfers and trades are at your own risk, and any loses you may incur are your responsibility. The Daily Hodl does not recommend the buying or selling of any cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.
Featured Image: Shutterstock/Chinnapong/dencg
