The collapse of cryptography and the democratization of auditing

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There is an interesting phenomenon in the job market that is often not clearly defined or understood within the IT and audit community: democratization.

You may have heard the recent news regarding the collapse of the cryptocurrency exchange (e.g. the FTX affair). Similar to how the Enron and WorldCom scandals arguably influenced the creation of the Sarbanes-Oxley Act of 2002, the crypto meltdown will influence future security and financial regulation, especially in the emerging sector. Web3 technology.

There will be two major outcomes of the upcoming increases in Web3 regulation. First, there will be an increased need for listeners within Web3 (decentralized networks, blockchain, crypto, artificial intelligence [AI]) technology-related industries as regulatory concerns continue to mount. Second, there will be more adoption of decentralized technology (AI, blockchain) across all industries as regulators finally crack down on abuse in the Web3 space. This sets a new regulatory precedent for providing framework guidance to emerging industries related to Web3. All of this will lead to increasing the importance of understanding the evolution of auditing as it continues to merge with IT.

Technology adoption is growing rapidly in all areas of government and in all industries. This adoption has become particularly important during the global COVID pandemic. All organizations, national and international, including local, state and federal government departments; non-profit organizations; limited liability companies; unions; and even new blockchain-based organizations such as Decentralized Autonomous Organizations are concerned with employee and management skills and the adoption of emerging technologies. The adoption of emerging technologies in all areas and at all levels of an organization is democratization.

This democratization will define much of the next industrial (r)evolution.

The importance of democratizing technology in modern organizations has been discussed at length in the literature on big data, large language models (e.g., ChatGPT), decentralized systems, blockchain intelligence, machine learning, customer-facing AI systems and other Web3 technologies.

For those in roles related to any type of audit in big tech, finance, security, consulting, and many other IT systems-focused industries, these emerging technologies require human oversight and involvement to ensure optimal results. For example, a modern audit of any type of IT system includes two types of auditors: the security and technical audit performed by engineering personnel and the financial regulatory audit performed by compliance personnel. In the modern organization, finding the balance between these two skill sets is paramount. While organizations may seek employees with both of these skills (often referred to as unicorns), building your own team through democratization and training them for the organization’s particular technology business needs can be much more viable and economically successful.

The reasons for democratization within successful modern organizations are rooted in the changing roles of auditors, and therefore management. Engineering and compliance auditors can essentially function as middle managers, providing status reports and other updates across the organization to upper-level leaders. Many compliance people are now as technically skilled as engineers (and sometimes even more skilled). The adoption of emerging technologies has resulted in a blending of engineering and compliance roles, with both types of positions now having to be highly technically competent. Indeed, emerging technology systems often focus on managing the intelligently connected organization of the future, which operates on a flat organizational structure. This flattening of the organizational structure brought about democratization and changed the role of management.

Management can no longer have a hands-off approach to interacting with lower-level systems or employees, as the democratization of technology will continue to impact the highest levels of an organization. Management should see themselves as administrators of the organizational network and assume the role of a super user, that is, a system user with elevated privileges. For example, modern C-level or VP-level managers should have a dashboard or overview view of organizational health data visualization and have user privileges to make changes at the organization’s system administrator level. In addition, democratized approval techniques may be needed, such as agreement or consensus mechanisms between different managers and leaders. These management agreements or consensus mechanisms are another way emerging technologies, such as secure multi-party computations and blockchain, are invaluable to modern managers as they lead the flatter organizations of the future.

This process of democratization is particularly relevant in regulated or governance industries where formal audit procedures are explicitly adopted (system and organizational controls [SOC] 2, International Organization for Standardization). In less regulated industries, or industries that until recently were unregulated (social media, search, web3), even engineering-related technical testing such as unit and model testing are adopting auditing frameworks whether the system or data in question may have a high impact on consumers. This means that audit technology is also being democratized across the organization for unregulated (non-compliance) personnel as modern organizations continue to flatten.

In conclusion, workforce leaders at all levels (junior, mid, and senior) must continually hone themselves to adapt to the many facets of modern competitive organizations. Democratization will continue to be an important overarching theme during this revolution. Workers at all levels interact with and are empowered by highly complex (and in some cases, intelligent) computer systems, while managers and leaders now reach agreement and consensus through distributed automated mechanisms, and auditors are constantly challenged to learn new skills to meet compliance and engineering requirements. As the flat organizations of the future become even more inclusive and open to new ideas, IT, audit, regulatory, and management leaders will need to ensure their stakeholders continue to democratize a variety of process and skills.

Editor’s Note: For more information on this topic, read the author’s recent Journal article, “Blockchain Smart Contracts Part 3: Deployment and Integration With Existing Information Technology Systems”, ISACA Journal, Volume 1 2023.

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