Blockchain & Smart Contracts Presentation by Paul Kayrouz
Agenda 1. Evolution of Finance & Blockchain 03 2. Smart Contracts 17 Fintech, Blockchain & Emerging Technology (PwC Legal) PwC 2
Evolution of Finance & Blockchain
Blockchain: A simple definition A Distributed Ledger The Blockchain is a Blocks are added to A Blockchain can be Given its transparent Technology (DLT) continuously growing the historical chain programmed by nature, a blockchain shared across private set of blocks which after consensus algorithms as network has no central authority – or public network. contain information protocols validate referred to as ‘Smart Contracts’ The Network is cryptographically the transaction. And Hence the birth of ‘Decentralised’ and visible to all nodes stored/encrypted that since all information that execute form a chain – Thus, ‘Democratised’ (end users) who is timestamped on transactions hold a LIVE copy of the name Blockchain. the ledger, double on the ledger once systems. the Ledger. entries or fraud are a specific set of thus made virtually conditions are met. impossible. Fintech, Blockchain & Emerging Technology (PwC Legal) PwC 4
Blockchain Key principles Decentralisation No centralised authority controls the network. Transparency The ledger is visible to all nodes and historically trackable. No third party involvement Security Data is cryptographically encrypted. Immutability Information is timestamped, thus cannot be tampered with. Fintech, Blockchain & Emerging Technology (PwC Legal) PwC 5
Blockchain Types/Forms Permissionless and public Permissioned and public • • Blockchains are public. Blockchains are public. Public • • Any node can participate to add Permitted nodes can participate blocks or verify a transaction. on the ledger. Permissionless and private Permissioned and private • • Blockchains are private. Blockchains are private. Private • • A centralised entity permits nodes A centralised entity operates to participate in the ledger. the ledger. Nodes can only view the ledger. Little scalable Very scalable Fintech, Blockchain & Emerging Technology (PwC Legal) PwC 6
Blockchain: Illustrative example Validation A verified transaction can involve any digital asset Requested transaction is broadcast The network of nodes validate the to the p2p network of nodes transaction following the protocol A transaction is requested Once verified, the transaction becomes a part of new block for the ledger A transaction The new verified block gets added is complete to the existing blockchain Source: https://www.edureka.co/blog/blockchain-technologyar Fintech, Blockchain & Emerging Technology (PwC Legal) PwC 7
A look at Blockchain Technology Fintech, Blockchain & Emerging Technology (PwC Legal) PwC 8
Why Blockchain vs. Other Solutions? Legacy Ecosystem Blockchain Ecosystem - Ability to automate, create, populate, and certify certain low risk - Data matching between systems will no longer be needed as transaction posted on shared ledger reconciliations is immutable and consistent shared across all systems - Ability to automate daily data matching, exception management, and - GL to Sub-ledger reconciliations will still be needed. Account reconciliations are performed on period-end balancing with internal controls and audit trail balance sheet accounts, whereas blockchain will be driven by transactions - Automated internal and external reporting tools - Reporting tools will still be needed to create the reports, however data used in reporting will be enhanced as the transactional data is from one single source vs. multiple sources containing potential conflicting information - Close workflow integration across systems & manual processes - Workflow tools will still be needed to automate and manage the close process, however, fewer steps may be needed to close due to level of comfort over quality of data and fewer reconciliations needed - Delivers global data collection, financial consolidation, reporting and - Consolidation and reporting tools will still be needed to perform consolidation and elimination analysis in a single solution steps, however, fewer reconciliations and out of balance entities as due to shared ledger - Automates and streamlines planning, budgeting, forecasting, and - Planning tools will still be needed for budgeting and forecasting, however data from shared consolidation activities ledger can be used to enhance the quality of the forecasts for better planning and quicker management decisions Fintech, Blockchain & Emerging Technology (PwC Legal) PwC 9
In-house blockchain-as-a-service (BaaS) offerings Recent Adopters – Minimally Developed Early Adopters – Highly Developed May 16, 2017 – SAP announces a November 9 , 2015: Microsoft BaaS offering within its new SAO announces development of Leonardo SAP digital innovation tool. Blockchain as a Service on the The tool is classified as having “early - Azure platform stage blockchain capabilities.” October 2, 2017 – Oracle announces December 17, 2015: IBM announces the “Oracle Blockchain Cloud it will be leading member of Linux Service,” a BaaS offering integrated foundation, the origination of the into the Oracle Cloud Platform Hyperledger Project No announcements have been May 3, 2016: Amazon announces made by Workday in regards to Blockchain as a Service blockchain technology as of October Sandbox for Developers 2017 Fintech, Blockchain & Emerging Technology (PwC Legal) PwC 10
Effective Blockchain journey starts with identifying high impact areas for application Production launch Configure/build logic and • rules based on use case(s) Execute proof Initiate mock-simulations • Conduct technology of concept • Make adjustments to • experimentation in sandbox configuration and logic and environment (iterative) refine data sets as Coordinate with selected • necessary (iterative) channel partners on specific data sets required for Conduct pilot simulation Plan Identify Confirm channel partner • opportunity areas Establish action plan and arrangements finalize business case for moving forward on blockchain expansion, Identify potential adoption, and Engage selected channel partners for channel partners • implementation Define goals and success factors partnership and innovation piloting • Confirm use case(s) for proof of Evaluate platforms / blockchain technology • • concept (POC) vendors to the vision, capabilities and Gather transaction Gather • Determine which requirements metrics • pilot metrics product/customer segment Confirm blockchain vendor partnership Assess key learnings • • offers the highest value to arrangements Confirm business case for • support POC validation expansion Fintech, Blockchain & Emerging Technology (PwC Legal) PwC 11
Security issues with Blockchain Although Blockchain technology provides transaction security (by protecting data stored in the • Blockchain ledger against tampering), it does not provide individual wallet or account security. Individual wallets or accounts remain susceptible to risks (e.g. stealing private keys) • In addition, a malicious actor theoretically could take over more than 50% of network participant • nodes, which in turn creates cybersecurity risks and threats to the larger Blockchain. Other risks include data confidentiality concerns; network participants will always have access to • some of the metadata which in turn can reveal information about the type of activity and volume associated with the activity (although personal data is not revealed). Fintech, Blockchain & Emerging Technology (PwC Legal) PwC 12
Drivers of financial innovation Changing financial Evolving Shifting consumer regulation: technology: preferences: Changes in regulatory and Advances in technology Higher customer expectations supervisory requirements, related to the internet, big for convenience, speed, cost and related changes in data, mobile technology, and and “user - friendliness” business incentives of computing power incumbents and new players Demand Side Supply Side Fintech, Blockchain & Emerging Technology (PwC Legal) PwC 13
Fintech’s emergence MARKET SIDE CUTTING EDGE ICT TECHNOLOGIES + SMARTPHONE ADOPTION CHANGE IN CONSUMER GOVERNMENT SUPPORT + RISE OF PREFERENCE ON REGULATORY BARRIER FINTECH TRANSACTION METHODS REDUCTION GOVERNMENT SIDE DEMAND FOR ALTERNATIVE FINANCE AFTER FINANCIAL CRISIS Fintech, Blockchain & Emerging Technology (PwC Legal) PwC 14
Fintech universe Payments Digital RegTech Banking Investme Fintech InsurTech nts Blockchai n/ Crowdfun ding Cryptocur rency P2P Lending Fintech, Blockchain & Emerging Technology (PwC Legal) PwC 15
Smart Contracts
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