Positive As Well As Negative Proofs Inwards Blockchain Audits

As the erstwhile logical fallacy goes - you can't attempt out a negative, together with absence of evidence is non evidence of absence. While for a long fourth dimension this might've been truthful inwards diverse fiscal audits - you lot could solely attempt out that unopen to invoice existed, non that in that location were no invoices you lot missed - thank you lot to the blockchain technology scientific discipline things mightiness alter inwards the nigh future.

Positive vs negative proof

In general, nosotros job positive proofs a lot inwards our everyday lives together with inwards business. To practice a positive proof, nosotros solely involve to demo that something be - demo an invoice of a transaction, a recording of a conversation, etc. Even inwards the Bitcoin Genesis Block Satoshi used a positive proof - a quote from The Times to attempt out that the Block could non accept been created earlier 2009-01-03.

Negative proofs, spell applicable inwards mathematics together with another cases, are oftentimes used inwards logical fallacies. If your finish is to attempt out for example, that in that location are no mice inwards the attic. You tin forcefulness out easily disprove that theory amongst a positive proof if you lot uncovering a unmarried mouse there. However, searching the attic together with non finding anything solely proved that you lot accept no evidence in that location are mice there, non that you lot had a proof in that location were no mice there. H5N1 subtle, but of import difference.

Proofs on the blockchain

As inwards most cases, it is slowly to practice a positive proof on a blockchain. Point to a transaction paying for a detail invoice, if it is included inwards a block amongst 6+ confirmations, it's all you lot need.

Now, what if instead nosotros are beingness audited together with nosotros accept to create an exhaustive listing of all transactions nosotros sent together with received? It is possible, but nosotros would accept to practice unopen to preparations beforehand.

Cryptographic audit on the blockchain

First of all, nosotros involve to institute unopen to vogue of uniquely declaring unopen to data, maxim "I am X together with this is a message coming from me: ...". If nosotros had something similar government-issued unique digital signatures, that would locomote skillful enough. Alternatively, nosotros could rely on unopen to less infallible methods - notarized letters, tweets from unopen to official handles, posting information on our website for everyone to see, maybe sending the information to our competitors (if nosotros attempt to prevarication most something, they would practice goodness from calling us out). Once nosotros tin forcefulness out attempt out that nosotros every bit the individual or a corporation were the authors of whatever given message, nosotros tin forcefulness out job cryptographic digests to attempt out whatever piece of information is coming from us, together with coupled amongst embedding messages into the Bitcoin blockchain for timestamping (directly, or through Factom for example), nosotros tin forcefulness out practice tight fourth dimension bounds on when the information was created.

Why practice nosotros involve all of this? Well, depending on how nosotros job the blockchain, nosotros volition involve to locomote able to practice timestamped commits / anchors that nosotros accept to attempt out came from us.

If nosotros solely job ane address on a populace blockchain for all of our transactions, nosotros accept to commit to that address early through the inwards a higher house system - "I am X, together with I volition locomote using the address 1PiachuEVn6sh52Ez7o6Fymvw54qvQ4RBm".

If nosotros job multiple addresses on a populace blockchain, it would locomote best if all of those addresses were split-key address generation, multiplying the base of operations individual fundamental yesteryear a sequential listing of integers. This way, nosotros tin forcefulness out easily expose the populace fundamental of the seed together with allow whatever auditor to derive all of the other populace keys, spell nevertheless keeping our individual keys safe. This vogue nosotros solely involve to declare ane address early to practice a total proof for the audit.

If the blockchain nosotros are using is private, whether it is used solely yesteryear us internally or yesteryear multiple parties, it would involve to locomote anchored into the Bitcoin blockchain periodically to attempt out it wasn't altered inwards whatever vogue (Factom does this for example). Once nosotros accept that, nosotros would also involve a consummate re-create of the blockchain (or at to the lowest degree the relevant piece betwixt 2 anchors) every bit portion of the audit. If it is our internal blockchain, it would locomote analysed inwards whole, if it is shared - nosotros would involve to dot which parts nosotros used simply similar inwards the populace blockchain scenarios.

Having gone through all of that effort, nosotros tin forcefulness out finally practice our in conclusion information compilation for our audit, consisting of:

• The entire block history inwards the piece of fourth dimension nosotros are analysing (say, all of 2010)
• Whatever else is needed to attempt out the block history was unaltered. This tin forcefulness out come upward inwards block header chain upward to the newest Bitcoin block, simplified-payment-verification-esque branches of anchor transactions included inwards blocks, etc
• Our master commits to the addresses nosotros would job (if applicable), along amongst the necessary proofs that nosotros committed to them at the appropriate time
• Any relevant metadata nosotros wishing to submit (descriptions of which transaction was for what, etc.)

Finally, nosotros would accept non solely a cryptographically verifiable proof that all of the transactions took place, but also accept irrefutable proof of the fourth dimension frame they took house inwards (we couldn't forge a few extra transactions from in conclusion twelvemonth afterwards the fact) together with locomote able to attempt out that nosotros didn't omit whatever piece of information - creating a negative proof.

The in conclusion ane is possible because the records nosotros are dealing amongst are cryptographically sealed (we can't alter the blockchain without invalidating its future, which would locomote evident), but also populace together with finite (we CAN iterate over every block together with every transaction together with cheque whether it is relevant to the audit or not). This vogue nosotros non solely render every relevant transaction, but attempt out in that location are no relevant transactions nosotros didn't provide.

Conclusions

Thanks to the advent of cryptography together with blockchain technology scientific discipline amongst atomic, countable transactions, it is at nowadays possible to practice an undeniable cryptographic provable consummate audits. Hopefully this volition aid us avoid more audit fraud cases inwards the future...
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