Blockchain: What Partners Need to Know

Transcription

1 Blockchain: What Partners Need to Know Amanda Wilkie, PMP Consultant

2 Amanda Wilkie Consultant Preeminent industry thought leader on Blockchain Resume Highlights 14+ years of in accounting technology Experience in multiple Top 50 firms Certified Project Management Professional (PMP) and Microsoft Certified Solution Associate (MCSA) Past CIO at Withum My passion includes preparing our profession for the impact of disruptive technologies. Contact me at LinkedIn: Communities l Consulting l Training

3 Boomer Consulting Core Team Jim Boomer Sandra Wiley Marc Staut L. Gary Boomer Arianna Campbell Amanda Wilkie Eric Benson Jon Hubbard Erin Cheever Deanna Perkins Jacqueline Lombardo Megan Bloomfield Samantha Zerr Heather Robinson Jenna Bloomfield Josie McCoy

4 Thank You FACEBOOK: LINKEDIN: Our website is the best place to learn more about our services. Visit:

5 Blockchain definition A distributed, append-only ledger of provably signed, sequentially linked, and cryptographically secured transactions that s replicated across a network of computer nodes, with ongoing updates determined by a software driven-consensus.

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7 Blockchain Timeline 2008 Bitcoin Whitepaper 2015 Year of Consortia & Hyperledger 2017 Year of ICOs 2017 Smart Contracts 2023 Blockchain replace Legacy Systems 2013 Bitcoin Ethereum 2016 Year of Proof of Concept 2020 Blockchain Apps- Parallel with Current Systems 2025 Blockchain widely adopted 2019 Year of Regulation?

8 Six Categories of Blockchain Use Cases Record Keeping Static Registry Identity Smart Contracts Dynamic Registry Transactions Payment Infrastructure Other Distributed database for storing reference data Example: Land title Food and safety an origin Patent Distributed database with identity-related information. Particular case of static registry treated as a separate group of use cases due to extensive set of identity-specific use case Example: Identity fraud Civil registry and identity records Voting Set of conditions recorded on a blockchain triggering automated, selfexecuting actions when pre-defined conditions are met Example: Insurance-claim payout Case-equity trading New- music release Dynamic distributed database that updates as assets are exchanged on the digital platform Example: Fractional investing Drug supply chain Dynamic distributed data base that updates as cash or cryptocurrency payments are made among participants Example: Cross-boarder peer-to-peer payment Insurance claim Escrows Use case composed of several of the previous groups Standalone use case not fitting any of the previous categories Example: Initial coin offering Blockchain as a service Source: PwC

9 Key Challenges To Blockchain Participant Trust Legal, Regulatory & Audit Framework Blockchain Maturity Adoption Interoperability/ Integration Safety: Are transactions secure Regulatory Body: No global regulatory body to set standards Young Technology: May not operate at scale without compromising on security, speed or cost Proper Incentives: Potential participants will need to be sold on the value of the platform Interoperability: Ability to integrate with participant existing client systems and processes Public vs. Private: Information Accessibility/Exposure Auditing Challenge: How do you audit this technology? Cost: Hard to estimate true cost of total conversion Consensus Needed: Participants must come to group agreement on platform and standards acceptable to all Architectural Role: How will blockchain eliminate, replace, or work with current technological platforms

10 What blockchain can do for public accounting Improved Efficiency Reduced Errors Easier Reconciliation Reduced Cost Reduced Fraud Improved Regulatory Compliance Reduced Auditing Getting data into and out of the system can be more efficient than legacy accounting applications. Reduce data entry errors. Smart contracts will reduce human error making many accounting functions automatic. Smart contracts can automate tasks associated with reconciliation, making this end-of-month chore less of a burden. Increased efficiency and reduced errors translates into reduced cost. Immutability of blockchains make it extremely difficult to perpetrate fraud. Improved security can simplify the burden of an agency to satisfy regulatory demands. Through smart contracts, many auditing functions can be automated, reducing the time an auditor needs to spend looking at records.

11 Cryptoassets: Currencies & Tokens Cryptocurrencies: A digital currency that uses cryptography for security Bitcoin, Litecoin Security Tokens: Investment with expectation of future profit The DAO, Blockchain Capital Utility Tokens: Future rights to access or use a service or product Basic Attention Token Digital Asset: Record of ownership Cook County, Illinois

12 Initial Coin Offerings Initial Coin Offering Security Token Offering Whitepaper Objective Success criteria Minimum funds needed Length of ICO Funds Not Raised Considered unsuccessful Funds are returned Funds Raised ICO is successful Project moves forward a fundraising mechanism in which new projects sell their underlying crypto tokens in exchange for bitcoin and ether. It's somewhat similar to an Initial Public Offering ( IPO ) in which investors purchase shares of a company. ~Bitcoin Magazine

13 Ethereum raised over $18mil in 2014 Successful ICOs Ripple pre-mined 1 million XRP in 2013 Aragon raised $25mil in 15 minutes Basic Attention Token raised $35mil in 30 seconds

14 ICO Opportunity for Firms High Risk High Reward Average cost of an ICO rages $1-3mil Exchange Fees Illiquidity Premium Regulatory Premium High Demand for CPAs Accounting & Legal Fees Advisor Fees Block Conversion Premium Must be Collaborative Being Very Selective

15 Smart Contracts: The future of business contract automation

16 What Is a Smart Contract? Concept was first introduced by Nick Szabo in 1994 Enforce a functional implementation of a particular requirement Can show proof that certain conditions were met or not met Replace many functions currently executed by expensive or slow intermediaries Used as an audit trail to prove that terms of legal agreement were followed or not

17 Smart Contract in Transportation Example Detention: Unreasonable delay when loading or unloading a truck Drivers can legally operate up to 14 hours per day (Lines 3 & 4) Drive time cannot be more than 11 hours (Line 3) Non-driving work in excess of 3 hours cuts into drive time Many contracts stipulate a fee for detaining drivers Credit: Blockchain in Transport Alliance

18 Smart Contract Challenges All possible outcomes may not be addresses in the contact by design Difficult to renegotiate due to unforeseen error Incomplete (flexible) contacts can lead to settlement issues or disputes Is a Smart Contracts an invoice or other debt/payable?

19 Smart Contracts Result in Automation Automate the contracting process Monitoring and enforcement of contractual promises with minimal human intervention Improve efficiency, reduce settlement times and operational errors Reduce ambiguity by translating all contractual terms into computer logic

20 Auditing Smart Contracts Opportunities for auditors to identify errors or vulnerabilities Smart contracts business logic Interface between smart contracts and external data sources Management s controls over the smart contract code Skills needed An understanding of blockchain technology Programming languages & computer logic

21 Self-Sovereign Identity (SSI) A decentralized, portable, secure, privacy-respecting, and entirely user-controlled digital identity Blockchain is the tool that makes SSI possible.

22 Evolution of Digital Identity Phase 1 - Centralized Controlled by a single entity, siloed, fragmented across systems, users does not own data, little control Phase 2 Federated Same credentials with multiple systems, still controlled by service provider Phase 3 - User-Centric Portable, user-controlled, secure digital identity - still maintained and controlled by the entities providing the service Phase 4 Self Sovereign Identity Fully user-controlled and decentralized model - Control over who has access to what, Protected from unauthorized access or use, able to use it without seeking permission

23 Self Sovereign Identity Security Controllability Portability The identity information must e kept secure Protection Persistence Minimization Individual must be in control of who can see and access their data Existence Persistence Control Consent Individual must be able tot use their identity data wherever they want and not be tied to a single provider Interoperability Transparency Access

24 Impact of SSI Identity & Access Management Replace insecure ID verification (SSN and passwords) RegTech Changes KYC & AML, adherence to GDPR Cybersecurity Data Integration Make data sharing much more flexible

25 Walmart & IBM Food Trust 2016 pilot project tracked pork in China Built using Hyperledger, only included 3 nodes (Walmart, IBM, unnamed supplier) 2018 Nine retailers and food companies, including Nestle, Dole, Tyson Foods, Walmart, partner with IBM. September 2019 all suppliers of leafy green vegetables will use blockchain system

26 Maersk Shipping Pilot Currently accounts for almost 16% world's global shipping fleet traffic "We believe we have proved the technology with one shipper. And we want to continue engaging more and more in any part of the supply chain. - Ibrahim Gokcen, Chief Digital Officer Maersk Pilot objective was to reduce cost by moving paperwork process to DLT-based smart contracts Built on Hyperledger s Fabric Only 4 nodes were active along the supply chain Every party involved received credentials and were able to view shipping data along every step

27 2018 Top 100 Firms Accounting Today Firms our size will not be developing the radical new technologies, but will need to stay in close step with technology partners to stay on the leading edge of adopting these gamechanging technologies, - Brian Kreischer, Managing Partner, Frank, Rimerman & Co. Across our businesses, we re collaborating with clients and alliance partners on new technologies, solutions and tools in intelligent automation, which includes cognitive, AI and RPA, as well as blockchain. - Lynne Doughtie, CEO, KPMG The technology revolution won t be slowing down any time soon; it s going to speed up. With automation, AI and blockchain, firms that aren t future-ready will not be competitive. - Andy Armanino, Managing Partner, Armanino

28 We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next ten. Don't let yourself be lulled into inaction.

29 Start your research

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