January 20, 2014

Interviewer: George W. Russell for the Hong Kong Institute of Certified Public Accountants.
Publication: Global official magazine of the Hong Kong Institute of Certified Public Accountants.

Future of Bitcoin & Statistical Probabilistic Quantitative Methods:
Global Financial Regulation (Interview: Hong Kong Institute of CPAs)

Yogesh Malhotra, PhD

Future of Finance Project (www.FutureOfFinance.org), Global Risk Management Network, LLC,
757 Warren Road, Cornell Business and Technology Park, Ithaca, NY 14852-4892, U.S.A.

www.FinRM.org

"Recently, such probabilistic, statistical, and numerical methods related concerns are in globally popular press related to cybersecurity controls and compliance. Earlier, similar probabilistic, statistical, and numerical methods related concerns were in the global popular press in the context of the global financial crisis. Future questions focused on the underlying assumptions and logic may focus on related implications for compliance, controls, valuation, risk management, etc. Likewise, recent developments about mathematical entropy measures shedding new light on apparently greater vulnerability of prior encryption mechanisms may offer additional insights for compliance and control experts. For instance, given related mathematical, statistical and numerical frameworks, analysis may also focus on potential implications for pricing, valuation and risk models. The important point is that many such fundamental assumptions and logic underlying widely used probabilistic, statistical, and numerical methods may not as readily meet the eye."

 

"The much-vaunted security of [Bitcoin's] underlying protocol has also been questioned. “Several risks, threats, and vulnerabilities are inherent in the design of the bitcoin protocol which is susceptible to cryptographic vulnerabilities,” says Yogesh Malhotra, Chief Research Scientist at Global Risk Management Network..." - Hong Kong Institute of Certified Public Accountants Magazine, A+, 10(2), February 2014.

"Tokyo-based bitcoin exchange Mt. Gox filed for bankruptcy last week, saying hackers had stolen the equivalent of $460 million from its online coffers. The news rocked the bitcoin world, and it could even bring down the much-hyped digital currency." - The Inside Story of Mt. Gox, Bitcoin’s $460 Million Disaster, Wired, March 03, 2014.

"That being said, it is important to recognize why many governments, among China, Hong Kong, US, and Germany are interested in characterizing BTC as a ‘virtual commodity’ or ‘private money’ but not legal tender... Specific reasons that are motivating most governments’ classification of legal status of BTC include controlling money laundering and investment frauds, and, imposing and collecting sales taxes and capital gains taxes resulting from BTC transactions and BTC investments."

- Dr. Yogesh Malhotra in Future of Bitcoin & Statistical Probabilistic Quantitative Methods: Global Financial Regulation, Interview with George W. Russell for the Hong Kong Institute of CPAs. Jan 20, 2014.


"U.S. Internal Revenue Service said on Tuesday that bitcoins and other virtual currencies are to be treated, for tax purposes, as property and not as currency... The IRS supplied that in its statement, which dealt a blow to bitcoin "miners," who unlock new bitcoins online. The IRS said miners must include the fair market value of the virtual currency as gross income on the date of receipt... The IRS also said that virtual currency is not to be treated as legal-tender currency to determine if a transaction causes a foreign currency gain or loss under U.S. tax law... If a taxpayer holds virtual currency as capital - like stocks or bonds or other investment property - gains or losses are realized as capital gains or losses, the agency said." - Bitcoins are property, not currency, IRS says regarding taxes, Reuters, Mar 25, 2014 7:03pm EDT

IRS Declares Bitcoin Not Legal Tender

How do you see bitcoin's future?

There are two aspects to bitcoin’s future. First relates to the cryptographic ‘bitcoin protocol’ and the second relates to the crypto-currency ‘bitcoin coin’ or BTC. Crypto-currency BTC seems to get most media coverage given its role in global monetary transactions, electronic payments and related governmental and regulatory concerns. However, its underlying ‘bitcoin protocol’ based upon cryptographic proof-of-work is what is often attributed for related innovations. Some such innovations of the cryptographic protocol enable creation and regulation of issue of the crypto-currency BTC, preventing its counterfeiting and double-spending, and securing its global transmission at minimal transaction cost and processing time. World governments and global financial institutions such as big banks are interested in the technical protocol and related cryptographic frameworks and technologies. Given their interest in developing and controlling such crypto-currencies, global governments and financial institutions represent potential competitive threats to BTC and other crypto-currencies. For example, while Canadian Government has declared that BTC digital ‘currency’ is not legal tender in the country, the Royal Canadian Mint has unveiled the prototype of the MintChip – digital currency similar to BTC but backed by the Canadian dollar and paired with a credit and debit machine. Being pegged to the Canadian dollar is expected to avert the kind of risky speculative spikes and drops typically associated with BTC and related volatility concerns of regulators such as in China. Hence, in the financial, monetary, and regulatory contexts, the ‘bitcoin protocol’ based upon cryptographic proof-of-work seems to have a greater shelf life than crypto-currencies such as BTC. The technical protocol not only underlies BTC but other competing crypto-currencies with some notable differences. Its features such as P2P network based decentralization without need of a third-party intermediary underlie future digital innovations enabled by public key cryptography such as next-generation electronic contracting as well as next-generation social networks. My research report on Bitcoin Protocol with focus on BTC mining, transactions, and payments explaining the above contrast between the protocol and the currency is accessible at http://yogeshmalhotra.com/BitcoinProtocol.html. BTC and other crypto-currencies seem to embody the digital evolution of money from what we think of as ‘real money’ to ‘quantum money’. The underlying technical cryptographic protocol is what seems to hold most appeal in terms of such future innovations to national and state governments, regulators, financial institutions, and private enterprises including those enabling the current crypto-currencies as well as other players.  

How do you see bitcoin's future in China?

Bitcoin’s future in China and Hong Kong should probably not be much different from its future in other nations across the world if current commonly shared governmental and regulatory trends continue. Current key concerns of government and financial regulators in China mirror those of other nations such as Hong Kong, Taiwan, Canada and the USA. China’s central bank expressed concerns about BTC that more or less mirror other nations’ such as US central bank’s concerns including lack of legal status, high risks of money laundering, and potential association with illegal activities. Bypassing traditional financial intermediaries such as banks, BTC transactions via decentralized P2P network enable movement of large amounts of currencies cheaply, almost instantly, and potentially anonymously. As noted in the above Bitcoin Protocol research report, China earlier allowed popular participation in bitcoin market while emphasizing just like most other countries that it does not recognize BTC. Given highly speculative trend of BTC traders, China’s prior stance was associated with BTC jumping past the $1,000 mark for the first time and BTC China taking over Mt. Gox as the world’s largest BTC exchange. A report noted large scale money flows out of China illegally, with Chinese share of US residential real estate jumping 50% last year with total Chinese ownership of $450 billion to $700 billion in offshore assets. Another analyst noted yuan-BTC exchange rate becoming the leading indicator of the USD-BTC rate. Like most other governments, China seems concerned about its control of monetary policy, cross-border currency and capital flows, and currency exchange rates. In addition to prior concerns noted above, such policy concerns mirroring concerns expressed by other nations, motivated China to subsequently ban financial institutions and payment companies from handling virtual currencies. BTC China and other exchanges are trying to work around the ban while trying to reduce highly speculative price volatility of the BTC. BTC China had earlier removed its trading fees resulting in a surge in trading volumes resulting in record high BTC price of $1,214 on Dec. 1. Recently, to reduce speculative trading, it reintroduced the trading fees. Just last week, BTC China reported that trading volumes are being gradually restored by use of vouchers that bypass third-party payment providers and referral incentives.

The Chinese government has turned against bitcoin in the regulatory environment. How does that affect the bitcoin market?

Like most other nations, given China’s apparently cautious stance about widespread unregulated and uncontrolled use of virtual currencies, it should not be surprising if BTC’s future tracks similarly across most countries. Europe was the first to recognize the potential risk of losing control of monetary policy with current trend of cautiously watching developments while watching over the interests of consumers. Mirroring the above concerns, China’s largest online marketplace, Alibaba group, banned sale of BTCs “in the interest of consumer protection” and to better manage its internal controls on capital flows given its planned IPO later this year. Like other concerned nations, China’s central bank banned financial institutions from BTC trading expressing that the government would act to prevent associated money laundering risks. China did not first ban individual trading of BTCs subsequently asking third-party payment services to stop BTC transactions forcing exchanges such as BTC China to stop taking Chinese yuan deposits. However, caution on part of China and other nations is one of many other factors noted below that affect the BTC market besides inherent risks and vulnerabilities in the bitcoin protocol and the global arms race of monopolistic and oligopolistic mining pools and botnets that can subvert control of the P2P BTC networks. Volatility related to spikes in BTC price also results from announcements such as the one by the largest social-network gaming sites announcing acceptance of BTC. Ironically, some such prominent social-network gaming sites are already targets of ongoing surveillance and investigations by various national government agencies searching for terrorist and criminal networks. 

Several risks, threats, and vulnerabilities are inherent in the design of the bitcoin protocol which is susceptible to cryptographic vulnerabilities and threats as noted in my Bitcoin Protocol research report.  For example, a specific attack on BTC P2P network results from anyone in the network acquiring predominant (>50%) computing power being able to exclude, modify, and self-reverse transactions and prevent some or all mining of valid blocks of BTC transactions. Even with less than 50% power such attacks are feasible: e.g. someone with 40% of network computing power can overcome a 6-deep confirmed transaction with a 50% success rate. In the beginning of the second week of January, 2014, a mining pool GHash.io run by a Ukraine-based secretive company CEX.io is reported to have controlled 45% of BTC network computing power by eliminating BTC trading fees. Such dominance allows it to reverse transactions and makes its ‘double spending’ of existing BTCs feasible rendering the integrity of the BTC network suspect and crypto-currency effectively unusable by others. Even though CEX.io issued a press release about reducing such dominance, however nothing stops it or others such as China and Hong Kong based entrepreneurs from launching such attacks individually or as oligopolies. The latest developments have led a Bloomberg report to conclude that bitcoin is now less a currency than a kind of risky bond for which the issuers bear no responsibility, hence investors should be aware that the situation is ripe for abuse. Related risks obviously motivated recent policy decisions of various governments and regulators such as in China and Hong Kong. More details about ‘double spending’ and other related bitcoin attacks, threats, and vulnerabilities are available in the Bitcoin Protocol report.

There are plans to install a bitcoin-ready ATM in Hong Kong - what effect will this have?

Quite likely, installation of a bitcoin-ready ATM in Hong Kong will have no significant effect based upon current state of global regulatory announcements about BTC. The likely effect of BTC-ATMs being installed in Hong Kong or in any other city may be deduced from three angles. First, even though such trend has existed only over a short term, one may try to generalize based on what effect BTC-ATMs had in other cities in other countries such as Canada that have been in BTC regulation related headlines. Second, despite differences across national monetary, capital, and currency control policies, overall similar and shared policy concerns guiding recent BTC regulations and enforcements may help to deduce such effects in predicting the future of BTC. Third, specific analysis and observations reported by regulators of China, Hong Kong, Taiwan and other countries such as Canada and USA have noted no significant effect of BTCs on their respective financial systems. The last point is self-evident given current 12 million BTCs in circulation with total circulation capped at 21 million by 2140: representing a very small fraction relative to national and global financial money supplies and transaction volumes. The first two points are further explained below with specific evidence already on public record.

First Point: Installation of a BTC-ATM seems to have virtually no effect, i.e., it is an imprecise predictor, if it can be considered a predictor at all, of related national or state regulatory or monitory policy.  Installation of a BTC-ATM merely demonstrates if current laws exist to out-rightly ban installation of BTC-ATMs or not. It doesn’t predict if subsequently, BTC or even BTC ATMs will be outlawed or banned or not. Hence, regardless of installation of BTC-ATMs, the future of BTCs will depend upon the individual national and state regulatory policy and related enforcement as further explained below.

Evidence: World’s first ATM was reportedly installed in Vancouver, Canada, in October last year. However, subsequently Canada’s Big-6 banks froze or shut down accounts of BTC exchanges; Canadian central bank is offering digital alternative to BTC; and Canadian government declared that BTC is not legal tender in country. Thereafter, Toronto and Ottawa also reported recent installations of BTC ATMs. There is a rumor about a local entrepreneur planning installation of New York City’s first ATM in the USA; however, New York City is in the process of creating a regulatory framework for BTC and other alternative crypto-currencies. 22 BTC-related companies are reported to have been subpoenaed by the New York City Department of Financial Services for public hearings starting in the last week of January, 2014. Some popular media reports seem to perhaps imprecisely quote the comments from the letter of US Fed chief that he attributed to others in his letter filed in the context of the US Senate hearings of November, 2013. The source letter is accessible from the Bitcoin Protocol report which provides a more balanced summary of the Fed chairman’s comments besides noting comments that he attributed to other sources. Diverse popular media reports seem to also offer contrasting account of the above US Senate hearings ranging in terms such as a ‘BTC lovefest’ and a ‘BTC hot potato’ event. The facts evident from the US Fed chief’s letter establish that he in fact noted that virtual currency exchanges and related bank transactions must comply with Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) requirements. Also, he reinforced Fed’s role in the enforcement of the US Patriot Act against Bitcoin exchanges such as the Liberty Reserve S.A. which was held guilty in a $6 billion money-laundering case.

Second Point: Despite some contrasts across national policies described in popular media reports, the primary concerns of governments and regulators across nations including China and Hong Kong actually seem quite consistent. Hence, despite any superficial differences that sometimes seem to be exaggerated in some media reports, most major nations seem to share consistent and common regulatory concerns about BTCs. Accordingly, if the current trend continues, the future of national regulatory policies and enforcements may probably have similar impact on the future of BTC.

Evidence: Recent ruling of the Canadian government that BTC is not legal tender is further amplified by one of Canada’s Big-6 banks which notes: “Smaller, stand-alone payment systems for which there are many substitutes – like bitcoin — should generally require much less intensive oversight and regulation because they pose much less risk to the Canadian financial system as a whole.” Following statement by the same bank sums up the concerns about BTC. “Nevertheless, these payment systems should be designed and operated to meet the needs of Canadians which would include convenience and ease of use, price, reliability, safety, and effective redress mechanisms.” BTC currently does not offer stability of price given extreme volatility; questions about reliability and safety have led to accounts of BTC exchanges being frozen by banks; and, consumers have no redress even for goods or services that they do not receive even after making BTC payments given nonrepudiation related inadequacies.

Similar sentiment is shared by financial regulators and institutions, whether in Hong Kong, China, or Taiwan, or for that matter in most other countries. Probably none of them will disagree with the above ‘core’ concerns about safeguarding the financial interests of their citizens. Hong Kong Monetary Authority (HKMA) noted “It appears the proposed machine is another channel for acquiring Bitcoin or a vending machine. Bitcoin is not regulated by the HKMA. Bitcoin is not a currency, but a virtual commodity.” In contrast, Taiwanese Financial Supervisory Commission (FSC) observed that “Bitcoin is not a currency. Financial institutions and the public shouldn't use it as medium of payment. Given Bitcoin's non-currency status, no bank deposits should be made with it, and banks are not allowed to receive or provide Bitcoins. To install Bitcoin ATMs would require approval from FSC, which will not be given, so it is impossible for a Bitcoin ATM to come to or appear in Taiwan.” The People's Bank of China last month outlawed Bitcoin transactions among local banks and financial institutions, forbidding all third-party payment providers from handling the BTC crypto-currency. The country's central bank had expressed concerns about Bitcoin's lack of legal status, high risks of money laundering, and potential association with illegal activities. Similarly, reports painting an apparent contrast between Hong Kong and Taiwan with the former getting its first ATM must be very carefully interpreted. While no regulatory approval is required from the Hong Kong Monetary Authority (HKMA) to set up a BTC ATM in Hong Kong as HKMA considers it a vending machine, installation of BTC ATM in Taiwan requires regulatory approval from the Taiwanese Financial Supervisory Commission (FSC). Such concerns are more or less similar to those expressed by most national regulators in USA, Asia, Europe, or elsewhere.

How can accountants make provisions for bitcoin-denominated transactions in financial reports etc.

As apparent, accountants will need to follow regulatory guidelines such as Generally Accepted Accounting Standards (GAAP), International Financial Reporting Standards (IFRS), and Hong Kong Financial Reporting Standards (HKFRS).  However, they need to be cognizant about the legal status and legal classification being accorded to BTC by the specific governments and regulators such as in terms of ‘legal tender’ which is different from ‘virtual currency’ as well as ‘virtual commodity.’ Most nations including China, Hong Kong, and Taiwan as well as others such as US, Canada and Germany have specifically and explicitly ruled that BTC is not ‘legal tender’, it is not backed by any government or any other legal entity, and its supply is not determined by a government central bank. A government central bank issued currency is legal tender in the sense that it is acceptable and legally used for settlement of debts and payment of taxes.  In contrast, creditors are not required by law to settle debts in lieu of BTC payments. Nor do governments accept BTCs for tax payments. Hence, it is important to note that even though terms such as virtual currency, digital currency, and crypto-currency are loosely used to describe BTC, however it doesn’t enjoy the same status as government central bank issued currencies such as the Chinese yuan, the Hong Kong dollar, the US dollar, or even Royal Canadian Mint’s digital currency MintChip which is backed by the Government of Canada. BTC and other non-government virtual currencies are deemed highly speculative and risky for consumers as their value is not backed by any physical commodity such as gold, issuers such as central banks, or the real economy.

Consistently, wherever existing regulatory laws and policies require ATMs (automated teller machines) to dispense currencies, coins, and bills that are ‘legal tender’, i.e., issued and backed by government central banks, BTC ATMs will not be allowed by law. Taiwan represents such an illustrative case. Even though China, Hong Kong, and Taiwan have accorded the same legal status to BTC as ‘virtual commodity’, statements of their national regulators’ seem to have been superficially interpreted in some media reports as contrasts in respective legal status accorded to BTC which is not the case. Hence, it is important to distinguish the issue of BTC acceptance as ‘legal tender’ from the stance of Hong Kong Monetary Authority (HKMA) about not regulating ‘virtual commodities.’ Given that they do not consider BTC legal tender just like all other governments, what HKMA has simply noted is that they really don’t regulate installation of ‘vending machines’ that dispense commodities such as BTCs, Dutch tulips, dolphin teeth, or chewing gum. Dutch tulips are known for the speculative economic bubble known as tulip mania wherein mere ‘scarcity’ of tulip bulbs was somehow foolishly interpreted as their ‘intrinsic value.’  Dolphin teeth have enjoyed the role of private money currency among the people of Solomon Islands. In mid-January of 2014 HKMA’s point was made amply clear a week after the announcement of BTC ATM deployment in Hong Kong by private entrepreneurs when HKMA specifically rejected the description of BTC as a ‘virtual currency’ underscoring that BTC fails to meet ‘the two preconditions of a virtual currency: consensus on its par value and confidence in the issuers.’

That being said, it is important to recognize why many governments, among China, Hong Kong, US, and Germany are interested in characterizing BTC as a ‘virtual commodity’ or ‘private money’ but not legal tender. Specific classifications of BTC transactions and investments and related nuances can then be applied for interpreting and applying the specific GAAP, IFRS and HKFRS standards in financial accounting and auditing statements. Particularly, being aware about the specific evolving regulatory guidelines will enable accountants and auditors in Hong Kong and elsewhere to make provisions for compliance about BTC-related disclosure and reporting. Specific reasons that are motivating most governments’ classification of legal status of BTC include controlling money laundering and investment frauds, and, imposing and collecting sales taxes and capital gains taxes resulting from BTC transactions and BTC investments. The Notice on Precautions Against the Risks of Bitcoins, issued on December 5 by People's Bank of China among other mainland ministry/commissions emphasized that BTCs have no legal status equivalent to that of a currency. That Notice expressly required all financial institutions and payment institutions not to embark on any BTC-related services such as provision payment, clearing and settlement for transactions. In the same week, Central Bank of China had observed that “Bitcoin is a certain virtual commodity, does not possess the same legal status as currency and cannot and should not be circulated and used in the market as such” adding that “ordinary people, under the premise of voluntarily shouldering the risk, have the freedom to participate in bitcoin trading as a kind of buying and selling activity on the Internet.” In the same week, the Central Bank of Taiwan emulating the Central Bank of China specified status of BTC as not being a currency in the real sense [i.e., legal tender] but a virtual commodity with general public being free to participate in its trading while shouldering all associated risks. Earlier, on November 20th, 2013, the Central Bank of Taiwan declared BTC as a ‘new kind of money circulating among a specific group of people.’ In the last week of 2013, Central Bank of Taiwan noted that “Bitcoin holders are on their own, as the currency is not issued by any monetary authority and is therefore not entitled to legal claims or guarantee of conversion.” On January 8, 2014, Hong Kong Government issued its directive that virtual currencies such as BTC are virtual commodities which given their price volatility and lack of price stability are difficult to foresee as becoming common medium of payment or e-currency.

In mid-January of 2014, the US senator who held the first congressional hearing about bitcoin on November 18, 2013, had asked the US Commodity Futures Trading Commission (CFTC) to clarify how it will regulate BTC. The outgoing CFTC chairman noted: “While the commission does not have policies and procedures that are specific to virtual currencies, the agency’s regulatory authority extends to futures and swaps contracts in any commodity,” observing that the law “broadly defines the term commodity,” but didn’t lay out any plan to regulate virtual currencies or approve products based on them, however the agency has “broad enforcement powers” on commodities. In August, 2013, the German Finance Ministry had noted that BTC is not e-money or foreign currency, but ‘private money’ that can be used in ‘multilateral clearing circles.’ A member of the German parliament’s Finance committee responsible for legal classification of BTCs had noted that German authorities were preparing regulations on how to tax bitcoin transactions. In other words, the legal classification of BTC meant that commercial profits resulting from using BTCs in trade may be taxable. In the first week of January, 2014, the German Central Bank alerted that BTCs were “highly speculative” due to their high volatility and the way they were constructed, and noted that “There is no state guarantee for Bitcoins and investors could lose all their money. The Bundesbank is warning emphatically about these risks.” A month earlier, the European Banking Authority had warned that consumers were not protected by any refund rights under EU law when using virtual currencies such as BTCs for commercial transactions. As noted, most governments are classifying legal status of BTC to control money laundering and investment frauds, and, impose and collect sales and capital gains taxes from BTC related activities.

Hong Kong Government’s 2014 directive noted that even though like many other regions, Hong Kong at present has no legislation directly regulating bitcoins and other similar virtual currencies, however, their existing laws such as the Organised and Serious Crimes Ordinance provided sanctions against unlawful acts involving bitcoins, such as fraud or money laundering. In the first week of December, 2014, Central Bank of Taiwan issued a directive for BTC trading Web sites to register in compliance with Telecommunications Act and the Regulation on Internet Information Service and relevant organizations to follow the requirements of the Anti-Money Laundering Act in compliance with the legally required anti-money laundering procedures such as KYC and suspicious transaction reporting. In the first week of January, 2014, Hong Kong’s Secretary for Financial Services and the Treasury warned the public that BTC is a highly speculative commodity which poses numerous risks consistent with what Taiwan had said earlier while denying license for operating BTC-ATMs in the country. In the second week of January, 2014, Hong Kong Monetary Authority (HKMA) warned regulated banks to monitor potential and existing customers dealing in or operating schemes related to virtual currencies such as BTC particularly given money-laundering risks associated with the relative anonymity afforded by BTC transactions. Noting that ‘virtual commodities’ transacted or held anonymously pose significantly higher money laundering and terrorist financing risks, HKMA further reinforced banks compliance responsibilities under its Anti-Money Laundering and Counter-Terrorist Financing (Financial Institutions) Ordinance (AMLO) of April 2012. Virtual currencies related AML risks were earlier highlighted in May, 2013, when the U.S. government closed Liberty Reserve, a BTC exchange, and arrested its founders on money laundering charges. Since then Internal Revenue Service (IRS) had also begun investigations into the potential use of digital currencies for tax evasion, a criminal activity representing a predicate offence for money laundering in several regions including Hong Kong.

US Fed chief’s letter of September 6, 2013 in context of the November 18, 2013, U.S. Senate Committee on Homeland Security & Governmental Affairs had earlier observed that such virtual currency exchanges and related bank transactions must comply with Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) requirements. He also reinforced Fed’s role in enforcement of section 311 of US Patriot Act against Bitcoin exchanges such as Liberty Reserve S.A. which pleaded guilty in a $6 billion money-laundering case. US statute applicable to ‘financial transactions’ doesn’t directly apply to AML in case of BTC as such transactions must involve ‘monetary instrument’ including ‘coin or currency of the United States or of any other country’. BTC is not legal tender given it is not issued by any national government or central bank. AML statutes however also apply to financial institutions that are in the money services business. Hence BTC exchanges and miners engaged in sale or trading of BTCs were notified in their role as money service businesses in March last year by US Treasury’s Financial Crimes Enforcement Network to report BTC transactions and identities. Likewise, definition of securities that include investment contracts involving taking money from customers to generate profits qualifies as a security under the SEC regulations and is thus covered by related AML regulations. Future delivery of option or futures subject to CFTC regulations is similarly applicable to future delivery of BTCs. Everyone paid in BTCs is subject to US federal tax law applying to all income from whatever sources. Laws about capital assets generating capital gains can also be extended to miners and investors of BTCs.

Based upon the above observations, two key conclusions can be drawn at the moment that seem relevant to disclosure and reporting by accountants and auditors in China, Hong Kong, Taiwan, Canada, USA and elsewhere. First, regulators across most nations including China and Hong Kong in Asia and Canada and USA in North America are actively monitoring BTC developments while in the process of formulating specific regulations related to BTC and other virtual currencies. Second, most legal entities seem to be following similar regulatory strategies based on existing regional, national, state, and agency frameworks while in process evolving frameworks to address shared concerns such as those related to money laundering and terrorist financing, investment frauds, sales taxes, and capital gains taxes.

Generally, how can accountants best acquaint themselves with the bitcoin environment?

As apparent, the recent developments in the bitcoin environment represent a microcosm of the evolving state of global financial and accounting regulation with increasingly information-intensive virtual global financial currencies, financial instruments, and financial exchanges. Years ago, as a management consultant and software engineer with a global French bank in Hong Kong I was designing and developing Hong Kong Government’s Treasury Management System with focus on multi-currency arbitrage. On returning to the USA, I found discussions with accountants here who were caught up in what seemed soon to be traditional notions of ‘intangibles’ accounting at the time of emergence of the World Wide Web quite insightful. Subsequently, I have had the privilege of being invited by the United Nations Headquarters to advise their global constituencies on the national asset measurements related to digital and virtual knowledge assets. From similar experiences, there are two apparent lessons learned that may be relevant for accountants to acquaint themselves with the increasingly virtual global environments of financial currencies and instruments including BTC and other crypto-currencies.

The first lesson learned is common with Apple CEO Steve Job’s playbook that he shared in 2007: “There’s an old Wayne Gretzky quote that I love. ‘I skate to where the puck is going to be, not where it has been.’” (Wayne Douglas Gretzky is a Canadian former professional ice hockey player called "the greatest hockey player ever." A puck is a disk made of vulcanized rubber used in professional ice hockey serving the same function as a ball.) Given evolving state of global information and technology developments currently morphing national and global financial systems to increasingly virtual forms, accountants, auditors, and regulators will need to develop related foresights. For instance, if today we need to understand crypto-currencies such as BTC, tomorrow may be about quantum money given that money and related global transaction and payment systems and mechanisms will continue to evolve. While some may speculate quantitative computing applications becoming mainstream in next three to ten years, history, as in the case of RSA, however shows that in some cases speculated future may arrive much, much sooner than speculated by even the smartest scientists at the most prestigious institutions.

The second lesson learned relates to what all of us who are professionally trained as accountants and auditors are taught: that of professional skepticism. All of us know that professional skepticism of the accountant and auditor is most critical to ensuring an attitude based upon a questioning mind and a critical assessment of evidence. In formal quantitative research methods, the process is sometimes called triangulation of observations using diverse research methods and measures. Additionally, it may involve analyzing the fundamental assumptions and logic underling any crypto-system, financial instrument, or a narrative legal or policy argument or directive, for example. It is likely that model risks encountered in global financial systems and risk management systems such as those assessed using VaR (Value at Risk) and other quantitative finance frameworks could have been better served by a similar attitude. Similarly, in a different context such as in the case of cybersecurity controls and compliance, having analyzed the security of an encryption system, it may be equally important to ensure the robustness of the underlying random number generator and other algorithms. Going forward, one may observe that similar random number generators are also extensively used as predictive stochastic determinants of future prices of financial instruments as in Monte Carlo models. Recently, such probabilistic, statistical, and numerical methods related concerns are in globally popular press related to cybersecurity controls and compliance. Earlier, similar probabilistic, statistical, and numerical methods related concerns were in the global popular press in the context of the global financial crisis. Future questions focused on the underlying assumptions and logic may focus on related implications for compliance, controls, valuation, risk management, etc. Likewise, recent developments about mathematical entropy measures shedding new light on apparently greater vulnerability of prior encryption mechanisms may offer additional insights for compliance and control experts. For instance, given related mathematical, statistical and numerical frameworks, analysis may also focus on potential implications for pricing, valuation and risk models. The important point is that many such fundamental assumptions and logic underlying widely used probabilistic, statistical, and numerical methods may not as readily meet the eye. For instance, most accountants and analysts may take the random number generators used in modeling for granted. However, sophistication and finesse of any modeling and analysis is only as good as the underlying foundations such as those discussed above.

Above illustrative examples relate to one or more of the CPA accountant and auditor practice areas, such as financial valuations, pricing, forensics, and taxation as well as related controls and compliance. However, the above two lessons learned can probably apply equally to other related practice areas.


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*Measuring & Managing Financial Risks with Improved Alternatives Beyond Value-at-Risk (VaR).

*Markov Chain Monte Carlo Models for High-Dimensionality Complex Network Security Problems.
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*Cyber-Finance Risk Management: Strategies, Tactics, Operations, Intelligence: ERM to MRM.
*Number Field Sieve Cryptanalytic Algorithms for Efficient Prime Factorization on Composites.
*Bitcoin & Statistical Probabilistic Quant Methods: Financial Regulation: Hong Kong CPAs.
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*2015-2023 120+ SSRN Top-10 Rankings: AI-ML-Quant-Cyber-Crypto-Quantum-Risk Computing.
*2008 AACSB International Impact of Research Report: Among Finance Nobel Laureates Black-Scholes

Top Wall Street Investment Banks Quantitative Finance Projects & FinTech Ventures

US Air Force HQ AI-Machine Learning Commercial Exchange: Pioneering AGI To Save the World
AFRL Commercialization Academy: Building the Future of AGI: Griffiss Cyberspace & Drone™.
MIT Computer Science & AI Lab AI-Machine Learning Executive Guide: AI, ML, DL, NLP, RPA.
Princeton: Future of Finance: 'Rethinking Finance' for Era of Global Networked Digital Finance.

Journal of Financial Transformation:Capital Markets: AI Augmentation Cyber Risk Management.
New York State Cyber Security Conference: AI-ML-GANs-DeepFakes: Cyber Risk of Deep Fakes.
CFA Society Keynote: JP Morgan-Goldman Sachs Practices: Model Risk Management with AutoML.
AFCEA C4I Cyber Conference: AI-ML-Cybersecurity Risk & Uncertainty Management Controls.
MIT Sloan-Computer Sc. & AI Lab AI-ML Executive Guide including RPA & Cognitive Automation
Princeton FinTech Quant Conference: Research Presentation: AI-ML-Deep Learning MRM.
Journal of Operational Risk: 'Cyber-Finance’ Cyber Risk Management Frameworks of Practice.
National Association of Insurance Commissioners: Expert Paper: Cyber Risk Insurance Modeling
Princeton Quant Trading Presentation: Beyond Model Risk Management to Model Risk Arbitrage.
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Quantitative Finance Risk Analytics Modeling Wall Street Investment Banks & VC Projects
Model Risk Management: Risk Management Analytics from 'Prediction' to 'Anticipation of Risk'
Quantitative Finance Risk Analytics, Econometric Analytics, Numerical Programming Models
Quantitative Finance Model Risk Management for Systemic-Tail Risks in Cyber Risk Insurance
JP Morgan Portfolio Optimization, VaR & Stress Testing: 17-Asset Class Portfolio
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Bayesian VaR Beyond Value-At-Risk (VaR) Model Risks Exposed by Global Financial Crisis
Goldman Sachs Alumnus Asset Manager Large-Scale Data High Freq Econometric Models
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Technologies of Computational Quantitative Finance & Risk Analytics and Risk Management
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Digital Social Enterprise Ventures Creating Trillion $ Practices for Hundreds of Millions

Named among FinTech Finance & IT Nobel laureates for Real World Impact of Research
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FinTech Innovations: Model Risk Arbitrage, Cyber Finance, Cyber Risk Insurance Modeling
Computational Quantitative Finance Modeling & Risk Management Research Publications
Model Risk Management of Cyber Risk Insurance Models & Quantitative Finance Analytics
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Bayesian VaR Beyond Value-At-Risk (VaR) Model Risks Exposed by Global Financial Crisis
Markov Chain Monte Carlo Models & Algorithms to Enable Bayesian Inference Modeling
OCC Notes Cybersecurity Risk & Cyber Attacks as Key Contributor to Banks' Financial Risk
Future of Bitcoin & Statistical Probabilistic Quantitative Methods: Global Financial Regulation
Models Validation Expert Panels: IT, Operations Research, Economics, Computer Science

Global, National, & Enterprise CxO Level FinTech-Cyber-Risk Analytics Ventures
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Digital Transformation - Artificial Intelligence: ML-DL-NLP-RPA - Cyber-Crypto Computing - Post AI-Quantum Computing

30-Years as World-Leading AI-Cyber-Global Digital Transformation Networks Pioneer: Post-WWW to Post AI-Quantum Computing

"There are many definitions of knowledge management. It has been described as "a systematic process for capturing and communicating knowledge people can use." Others have said it is "understanding what your knowledge assets are and how to profit from them." Or the flip side of that: "to obsolete what you know before others obsolete it." (Malhotra) "
- U.S. Department of Defense, Office of the Under Secretary of Defense (Comptroller)

"KM is obsoleting what you know before others obsolete it and profit by creating the challenges and opportunities others haven't even thought about -- Dr. Yogesh Malhotra, Inc. Technology"
- U.S. Defense Information Systems Agency Interoperability Directorate

"If you spend some time at [the digital research lab] founded by Dr. Malhotra you will be blessed by some of the world's most astute thinking on the nature of knowledge and its value."
- U.S. Army Knowledge Symposium, Theme: "Knowledge Dominance: Transforming the Army...from Tooth to Tail", Department of Defense, United States Army.

"We are observing diminishing credibility of information technologists. A key reason for this is an urgent need to understand how technologies, people and processes together combine to influence enterprise performance. Today's effective CIO doesn't deliver IT. He delivers business transformation services."
- Yogesh Malhotra, Journal of Knowledge Management, 2005
- United States Air Force Research Lab CIO Col. Tom Hamilton
in presentation to the Armed Forces Communications Electronics Association titled 'Enterprise IT Solutions Are Tough But They're Tougher If You're Stupid', July 21, 2005.

"Knowledge Management refers to the critical issues of organizational adaptation, survival and competence against discontinuous environmental change. Essentially it embodies organizational processes that seek synergistic combination of data and information processing capacity of information technologies, and the creative and innovative capacity of human beings." -- Yogesh Malhotra
- United States Department of Navy

"Dr. Yogesh Malhotra, PhD, drawing upon numerous sources, proposes several theories as to how IT can be used to drive the change of organizations. As environments become more turbulent, organizations must adapt at the same rate to maintain its advantage. Among his theories are that the turbulent environments (in this case, business, but can translate to the turbulent military conflict environment) drive organizations to use IT for empowering workers at all levels, increasing span of control, and increasing lateral communications."
- United States Marine Corps, Reorganization Of The Marine Air Command And Control System To Meet 21St Century Doctrine And Technology, Thesis, September 2001.

"The self-organizing capacity of dynamically adaptive systems is amazing. They tend to eliminate redundancy, minimize connections, and establish priorities--all without outside direction. When something is organized, we tend to believe that someone organized it, some outside influence. But that's not necessarily so. Self-organization is a process in which the organization of a system occurs spontaneously based on the action of its members, without this process being controlled by an external system. The richness of possible behavior increases rapidly with the number of interconnections and the level of feedback. (Malhotra) "
- U.S. Army War College Quarterly

"Dr. Malhotra argues in Business Process Redesign that reengineering is the notion of discontinuous thinking -- recognizing and breaking away from outdated rules and fundamental assumptions. He suggests that reengineering principles are organized around outcomes, and that people who use the output should perform the process. This links parallel activities instead of integrating results, and puts the decision point where the work is performed (Malhotra, 1996). Integrating the DPW processes further into the installation staff can achieve these outcomes. Seventy percent of Business Process Redesigns (BPR) fail because of business focus on cost-cutting and narrow technical approaches (Malhotra, 1996). The installation commanders should decide how DPWs could best serve the community. They should have the opportunity to focus on efficient output and not on restructuring to cut cost. Developing the Corps as the primary service provider narrows the commander's options and does not solve the problem, merely the symptoms. The ultimate success of BPR depends on the experience of people who execute it and how well they apply their creativity to redesigning the processes."
- U.S. Army Management Staff College

"These activities are often described as "knowledge management." See Knowledge Management, in the World Wide Web Virtual Library, edited by Yogesh Malhotra. (Accessed June 16, 1998)....The terms "marshalling" and "mobilization" are intended here to represent two major activities of knowledge management in U.S. national security decisionmaking. Although others may describe and classify basic knowledge-building activities differently, "knowledge management" has been accepted as an umbrella term. See. for example, TheWorld Wide Web Virtual Library on Knowledge Management, edited by Yogesh Malhotra, (Accessed June 16, 1998)..."
- U.S. Air Force Colonel Roc A. Myers, Colonel (s), Harvard University Air Force National Defense Fellow with the Program in 1997-98. Strategic Knowledgecraft: Operational Art for the Twenty-First Century, Roc A. Myers, Prepared while an Air Force National Defense Fellow with the Program in 1997-98 (September 2000).

"Seventy percent of BPR projects fail. Three primary obstacles inhibit the success of reengineering projects: Lack of sustained management commitment and leadership -- It is critical that senior leadership not only support BPR but also be a vocal advocate. Unrealistic scope and expectations -- It is important to manage expectations. BPR is not a panacea that will cure all ills. Resistance to change -- The world is changing all the time and the pace of change continues to accelerate. It will continue to change whether we participate or not. We must change with it or be left behind. AIT provides AIS program managers the opportunity to completely reexamine and reengineer their entire business process, because it offers capabilities not previously available in terms of timeliness and accuracy of data capture. During the operational prototype, the Air Force provided an excellent example of a reengineered business process as a result of AIT. The Supply Asset Tracking System (SATS) is a front-end server that integrates AIT with the supply AIS, the Standard Base Supply System (SBSS). SATS uses linear bar codes for tracking and inventory purposes and smart cards for personal identification to verify receipt and establish personal accountability of property. (Malhotra) "
- U.S. Department of Defense Logistics Implementation Plan

"Knowledge Management caters to the critical issues of organisational adaption, survival and competence in the face of increasingly discontinuous environmental change ... Essentially, it embodies organisational process that seek synergistic combination of data and information processing capacity of information technologies and the creative and innovative capacity of human beings." - Yogesh Malhotra
- Royal Australian Air Force (RAAF) AIRCDRE John Blackburn, Director General Policy and Planning - Air Force (DGPP-AF), Royal Australian Air Force (RAAF), in Air Power Conference 2000.

"First intangible assets are defined in relation to core competencies of the firm. Each core competence is a combination of intangible assets such as knowledge and skills, standards and values, explicit know-how and technology, management processes and assets, and endowments such as image, relationships, and networks. Knowledge creation is the core competence of any firm (Malhotra, 2000)."
- Government of UK, Ministry of Defence

"Malhotra noted the importance of Information Systems for organizational learning, mentioning a series of techniques, methods and tools that can foster organizational learning at many steps of the process: knowledge acquisition, creation and distribution [Malhotra, 1996]."
- Canadian Department of National Defence, Canada, Defence R&D Canada

"Knowledge Management caters to the critical issues of organisational adaption, survival and competence in the face of increasingly discontinuous environmental change. Essentially, it embodies organisational process that seek synergistic combination of data and information processing capacity of information technologies and the creative and innovative capacity of human beings. -- Yogesh Malhotra"
- Air Force, Australia, Director General Policy and Planning

"According to Malhotra, KM ensures that right knowledge is applied at the right place and time and it is about doing the right thing instead of doing things right. Its application to R&D will avoid unnecessary duplication of research. It can help support both individual and organizational learning from past successes and failures while guiding future actions and changes."
- International Atomic Energy Agency

"The Knowledge Management (KM) area has become so diverse over the past ten years as researchers have begun to investigate not only the mechanics of knowledge creation and transfer but also of social and cultural issues that are of importance in understanding this topic. KM is the process of leveraging and utilizing the vast, untapped potential of both implied and documented knowledge to achieve optimal performance, both are equally important for improving performance. Knowledge Management enables businesses to exchange and optimize the knowledge and experience. "Knowledge Management caters for the critical issues of organisational adoption, survival and competence in face of increasingly discontinuous environmental change. Essentially, it embodies organizational processes that seek synergistic combination of data and information processing capacity of information technologies, and the creative and innovative capacity of human beings" (Dr. Yogesh Malhotra 1997)."
- IBM

"In his latest book, Knowledge Management and Virtual Organisations, KM luminary, Dr. Yogesh Malhotra, offers some cautionary advice. He exposes three myths often associated with KM solutions. The first of these is that knowledge management technologies can deliver the right information to the right person at the right time. This assumes businesses will develop incrementally in stable markets. However as Malhotra says, "the new business model in the Information Age is marked by fundamental, not incremental change. Businesses can't plan long-term; instead, they must shift to a more flexible 'anticipation of surprise' model. Thus it is impossible to build a system that predicts who the right person at the right time even is, let alone what constitutes the right information."
- Microsoft Corporation

"All can be used to further the goal of keeping the channels of communication open to allow for the exchange of issues and ideas within an organization. According to BRINT Institute chairman and CKO Dr. Yogesh Malhotra, "The key issue is not about the latest information technologies, but whether those technologies are used within, and for facilitating, a culture of information sharing, relationship building and trust." With communication and trust, set within the solid framework of a component architecture, your business can harness that elusive ability to get the right information to the right people at the right time for the right business purposes."
- Cisco Systems, Inc.

"According to Yogesh Malhotra, Knowledge Management practitioner and web author, "Knowledge Management is a brand new field emerging at the confluence of organization theory, management strategy, and management information systems." Breaking apart this definition, Knowledge Management can be defined as an internal, corporate strategy. Knowledge Management can also stand alone as a separate, Information Technology program. Malhotra is right on target when he states that Knowledge Management is a brand new field. Knowledge Management began receiving airplay in 1996. At that time, Tom Davenport wrote in CIO Magazine that a chief knowledge officer "captures and leverages structured knowledge, with information technology as a key enabler." Expanding upon Malhotra and Davenport's definitions, Knowledge Management within NCR Corporation can be defined via a business objective (strategic), a method of Knowledge Management delivery (the management information system), and a role within the organization. NCR's objective is to create, capture, and disseminate knowledge."
- NCR Corporation

"Institutionalization of 'best practices' by embedding them in information technology might facilitate efficient handling of routine, 'linear,' and predictable situations during stable or incrementally changing environments. However, when this change is discontinuous, there is a persistent need for continuous renewal of the basic premises underlying the 'best practices' stored in organizational knowledge bases. -- Yogesh Malhotra in Knowledge Management in Inquiring Organizations"
- Vice President, SAP, North America in SAP Portals ASUG Meeting

"Often used synonymously, the terms knowledge and information, are actually different. Information facilitates knowledge, and can exist without knowledge. Knowledge, however, cannot exist without information. To simplify the concept, Dr. Yogesh Malhotra, renowned scholar on Knowledge Management, defines "Knowledge" as potential for action that has an immediate link to performance. This definition suggests that a person's response or action, or contextual consideration for future action, based on information, is knowledge."
- VeriSign Inc.

"It is generally agreed that the greatest challenges to knowledge management initiatives are resistance to change in both an organization's information-sharing culture and the business processes that occur as a result. K.M. Malhotra defined the problem as follows: Culture is the most difficult component of KM to define, quantify, measure and influence. However, the success or failure of an effective KM program is almost solely dependant upon whether an organization's culture encourages or hinders sharing and transferring knowledge freely within the organization's structure. One thing is certain: an organization's cultural predisposition toward the free transfer of knowledge is largely reflective of the proactive stance demonstrated by the organization's leadership."
- Northrop Grumman

"Il Knowledge Management essenzialmente coinvolge processi organizzativi che cercano di realizzare una combinazione tra le capacità di elaborazione di dati e informazioni e le capacità creative e innovative degli esseri umani. (fonte: Yogesh Malhotra, Ph.D., Knowledge Management for the New World of Business...)"
- Microsoft, Italy

"Knowledge Management refers to the critical issues of organisational adaptation, survival and competence against discontinuous environmental change. Essentially it embodies organisational processes that seek synergistic combination of data and information processing capacity of information technologies, and the creative and innovative capacity of human beings. This definition proposed by Dr. Yogesh Malhotra summarises a key issue for e-learning strategies and the way they will impact professional training and companies' organisation policies."
- European Commission

"In the Committee's view, definitions that treat the area as a discipline rather than a mere collection of technologies best encapsulate what knowledge management means. For example, Malhotra says:, "Knowledge Management caters to the critical issue of organisational adaptation, survival and competence in the face of increasingly discontinuous environmental change..."
- Parliament of Victoria, Australia

"It is therefore impossible to typify the roles of Knowledge Management workers other than the CKO, and indeed these roles themselves are in a constant state of change. Dr. Yogesh Malhotra defines this as follows: Given the need for autonomy in learning and decision making, such knowledge workers would also need to be comfortable with self-control and self-learning."
- Government of UK

"We are facing "permanent white-waters" which demands strategies for adaptation to uncertainty in contrast to the conventional emphasis on optimisation based on prediction (Malhotra 1999). To quote a decision-maker in a large multinational firm; "The future is moving so quickly that you can't anticipate it. We have put a tremendous emphasis on quick response instead of planning. We will continue to be surprised, but we won't be surprised that we are surprised. We will anticipate the surprise." (Malhotra 1999)."
- Government of Sweden

"It is difficult, not to say impossible, to replace the significance of individual or collective face-to-face interactions in the sharing of tacit knowledge and articulating it as explicit in an organization, even if rapid development of interactive multimedia applications combining text, image and sound offers increasingly advanced communication potential. Virtual forms of working and work organization might at best supplement, but never totally replace, self-managing teams with close physical and social contacts, for instance, as a forum for learning. (Malhotra) "
- Government of Finland

"A key feature of knowledge management is the sharing of knowledge as opposed to simply the dissemination of information. Knowledge has a different quality to information. Knowledge includes human experience and the ability to make complex judgments based on past experience. Information is more about mere data whereas knowledge is 'potential for action'. (Malhotra)
- Government of Australia

"Ich glaube die Technology ist der leichtere Teil des Ganzen. Die wirkliche Herausforderung stecken doch darin wie die Geschäfts-Prozessen und die darauf aufbauenden Geschäfts- Modelle in Einklang gehalten werden mit den radikalen änderungen in der Geschäftswelt und dem Berufsbild der "Knowledge Worker."[Malhotra, 1993]."
- Government of Austria

"Knowledge management refers to the critical issues of organizational adaptation, survival and competence against discontinuous environmental change. Essentially it embodies organizational processes that seek synergistic combination of data and information processing capacity of information technologies, and the creative and innovative capacity of human beings," says Dr. Yogesh Malhotra, founding chairman and chief knowledge architect of the BRINT Institute, in an interview with Alistair Craven. Widely recognized as a knowledge management pioneer, Malhotra adds, "Knowledge management is more about the pragmatic and thoughtful application of any concept or definition, as it is not in the definition but in real world execution where opportunities and challenges lie. Any definition therefore must be understood within the specific context of expected performance outcomes and value propositions that answer the question 'Why' about relevance of KM.""
- U.S. Embassy, American Center, New Delhi, India

"Knowledge management, which is a new field emerging from the confluence of organisation theory, management strategy and management information systems, is viewed as an essential driver for innovation. According to Malhotra "Knowledge Management caters to the critical issues of organisational adaption, survival and competence in face of increasingly discontinuous change. Essentially it embodies organisational processes that seek a synergistic combination of data and information processing capacity of information technologies, and the creative and innovative capacity of human beings"."
- Government of South Africa

"Estes ativos do conhecimento aumentam com o uso e daí a importância de as empresas identificarem o que sabem e manterem todo o esforço para desenvolverem área de gestão do conhecimento. A gestão do conhecimento, segundo Malhotra é a capacidade de catalizar os aspectos críticos de adaptação, sobrevivência e competência, buscando uma combinação sinérgica da capacidade de processar informações e conhecimento com a capacidade criativa e inovativa dos seres humanos. (MALHOTRA, 1999)."
- Government of Brazil

"Esta enumeración no implica que algún factor no pueda ocupar a la vez distintas posiciones. La principal característica del nuevo entorno de las organizaciones es su alto nivel de incertidumbre. Por incertidumbre entendemos "la diferencia entre la cantidad de información requerida para realizar una tarea y la cantidad de información ya en poder de la organización" YOGESH, Malhotra.""
- Government of Argentina

"The disconnect between IT expenditures and the firms' organizational performance could be attributed to an economic transition from an era of competitive advantage based on information to one based on knowledge creation." - Yogesh Malhotra
- Government of Mauritius

"The focus of knowledge management is on 'doing the right thing' instead of doing things right’, (Yogesh Malhotra, 2001). The emphasize is that that knowledge management provides framework within which the organization views all processes of the activities to sustain the business and/or ensuring the business survival. Within the army organization, there is no difference. The army needs to keep pace with the technology advancement preparing for the increasingly dynamic and unpredictable regional and world environment."
- Royal Military Police Directorate, Army HQ, Malaysia

"Knowledge Management embodies organnizational processes that seek synergistic combinations of data and information processing capacity of information technologies, and the creative and innovative capacity of human beings." -- Yogesh Malhotra, Ph.D."
- Government of Malta

"Dr. Yogesh Malhotra, one of the experts and founder contributor in the development of concept of KM has defined the KM as under : "Knowledge Management caters to the critical issues of organizational adaptation, survival and competence in face of increasingly discontinuous environmental change. Essentially, it embodies organizational processes that seek synergistic combination of data and information processing capacity of information technologies, and the creative and innovative capacity of human beings". As it is clear from this definition that objective of Knowledge Management as a crucial management function is not only to survive under changing environment but also to make the organisation adaptable and competitive. The same is particularly applicable for Banks in India, since they are now operating under such a dynamic business environment."
- Indian Banks' Association, India

"Dr. Yogesh Malhotra, the Founder and Chief Knowledge Architect of BRINT, and a well-known expert in the field of K-economy, opines: "The challenges facing us as we enter the 21st Century are formidable. Globalization, Information Technology and Shareholders' Values are transforming the world. To meet these challenges is to become a knowledge-creating or knowledge intensive organization"."
- Indian Banks' Association, India

"Knowledge Management has structural and functional basis in the IM (Information Management or IRM. The main difference is the high degree of dynamic activity involved in the KM system. To summarize in the words of Dr. Malhotra, (10) 'use of the information and control systems and compliance with pre-defined goals, objectives and best practices may not necessarily achieve long-term organizational competence. This is the world of 're-use,' 're-engineering', 're-cycling' etc, which challenges the assumptions underlying the 'accepted way of doing things.' This world needs the capability to understand the problems afresh given the changing environmental conditions. Knowledge management focuses on 'doing the right thing' instead of 'doing things right.'"
- Indian Statistical Institute, Bangalore, India

"Knowledge Management caters to the critical issues of organizational adaption, survival and competence in face of increasingly discontinuous environmental change. Essentially, it embodies organizational processes that seek synergistic combination of data and information processing capacity of information technologies, and the creative and innovative capacity of human beings."
- National Academy of Psychology (NAOP), India

"Finally, all who are concerned with IT security issues should understand -- and appreciate -- the difference between information and knowledge. Information, writes Yogesh Malhotra, PhD, is embedded in a computer -- while knowledge is embedded in people. "Information generated by a computer is not a very rich carrier of human interpretation for potential action," he writes. "Computer are merely tools, however great their information-processing capabilities may be."
- Chairman of the Board, The Institute of Internal Auditors

"Leadership Quote of the Week: The focus of knowledge management is on doing the right thing instead of doing things right... Yogesh Malhotra"
- Chartered Management Institute, UK

"Dr. Yogesh Malhotra, founder of the Brint Institute and a pioneer in knowledge management, posits that "the basic premise is that you can predict how and what you'll need to do and that IS can simplify this and do it efficiently". However, the new business model, he says, is marked by fundamental, not incremental, change and businesses can't plan long-term. Instead, they must shift to a more flexible "anticipation of surprise" model, making it impossible to build a system that can predict what is the right information to be delivered to the right person at the right time. This is not to say that information technology has been displaced from the knowledge management equation; its place has been preserved by a growing realisation among developers that software alone cannot automatically be seen as the solution."
- National President of the Australian Computer Society, Australia

"Yogesh Malhotra, founding chairman and chief knowledge officer for the BRINT Institute in Syracuse, New York, believes that the fundamental distinction between data and knowledge plays a major role in whether a system is designed for adaptation and quick response to change. "Dynamic and radically changing environments overwhelm the deterministic logic of a structured model, resulting in a 70 percent failure rate that has characterized implementations of knowledge management models" says Malhotra. Recounting his visit to a Silicon Valley hi-tech consulting firm, Malhotra attributes most failed corporate intranet initiatives to the above fallacy... Malhotra says that once routinized for efficiency and optimization, knowledge-harvesting processes may be delegated to others. However, supply managers need to be more proactively involved in knowledge-creation and knowledge-renewal processes..."
- Institute for Supply Management (ISM)

"Yogesh Malhotra, founding Chairman and Chief Knowledge Architect of the BRINT Institute states: "Knowledge management software is not a canned solution; "Knowledge management technologies cannot always deliver the right information to the right person at the right time; "Information technologies cannot store human intelligence and experience; "Knowledge management systems do not account for renewal of existing knowledge and creation of new knowledge; "Greater incentives are needed for workers to contribute quality content to KMS." Improper use of KMS databases can waste resources if an organization does not really know what knowledge assets it possesses and fails to capitalize on potential new initiatives."
- National Association of Realtors

"Similarly, Dr. Yogesh Malhotra, the famous "Knowledge Architect", wrote a cautionary article on "When Best [Practices] Becomes Worst", Momentum: the Quality Magazine of Australasia, Quality Society of Australasia, NSW (Australia, 2002). In fact, the conditions for producing and utilizing knowledge workers are not a question of the persons concerned merely acquiring subject-matter expertise, problem-solving competency and communication skills. It is essential to provide an environment where such persons can operate and flourish. In the same vein, one of Malhotra's recent books (monograph) for UNESCO discusses knowledge work taking place in "hyper turbulent organizational environments.""
- International Labour Office (ILO)

"Knowledge Management - Discipline that seeks to improve the performance of individual organizations by maintaining and leveraging present and future value of knowledge assets, encompassing both human and automated activities. " Knowledge Management caters to the critical issues of organizational adaption, survival and competence in face of increasingly discontinuous environmental change.... Essentially, it embodies organizational processes that seek synergistic combination of data and information processing capacity of information technologies, and the creative and innovative capacity of human beings." - Dr. Yogesh Malhotra"
- U.S. Department of Health & Human Services

"The mechanistic model of information processing and control based upon compliance is not only limited to the computational machinery, but extends to specification of goals, tasks, best practices and institutionalized procedures to achieve the pre-specified outcomes." -- Yogesh Malhotra
- European Health Management Association, Ireland

"KM has become an increasingly important management discipline in recent years. Nevertheless, some say the phrase KM is unhelpful because 'knowledge is not a "thing" that can be "managed"1. They challenge the 'dominance and control model' that often underlies traditional views of knowledge and organisational management and development. They assert instead the notion that knowledge is largely cognitive, tacit and highly personal. They champion the fundamental role of people and the social interactive basis of knowledge sharing and creation. (Malhotra, Y..) "
- UK Department of Health

"Knowledge management is viewed as an essentialdriver for innovation. According to Malhotra, "Knowledge Management caters to the critical issuesof organisational adaptation, survival and competencein the face of increasingly discontinuous change.Essentially it embodies organisational processes thatseek a synergistic combination of the data andinformation processing capacity of informationtechnologies, and the creative and innovative capacityof human beings"."
- United Nations Development Program (UNDP), Geneva, Switzerland

"Adaptive Learning (See: Double Loop Learning): "Adaptive learning, or, single-loop learning, focuses on solving problems in the present without examining the appropriateness of current learning behaviors." -- Malhotra, Y., Organizational learning and learning organizations: an overview."
- World Health Organization (WHO)

"Dr. Yogesh Malhotra is regarded among the world's most influential practitioners and thought leaders on knowledge management. Widely recognized as a knowledge management pioneer, in this extensive interview read what Dr. Malhotra has to say about knowledge, information, technology and chasing success in this field."
- Emerald Group Publishing Ltd (UK)

"Dr. Yogesh Malhotra in the US is a leader in the knowledge management field. In a recent article written for the US Journal for Quality & Participation, he has pointed to a problem in relation to organisations investing heavily in information technology but not realising gains in terms of knowledge creation."
- Irish Times, Ireland

"Be that as it may, there is no doubt that domestic enterprises, faced by a complete bankruptcy of knowledge and ideas, will, some day, understand the value of the knowledge held by their employees. In the meantime, they would do well to study the writings of Dr. Yogesh Malhotra, an authority on technology and innovation management, business performance, and corporate strategy issues related to information systems, knowledge management, e-business and electronic commerce, business decision models, and new organisation forms."
- The Hindu, A Major National Daily Newspaper, India

"Professor Yogesh Malhotra of Syracuse University, New York, and expert in this field, has recently argued that one of the reasons for this failure is that more often than not knowledge management is practiced in isolation and does not take into account the dynamism of the external environment."
- Malaysian Business, Malaysia