Unblocking the Blocks

Transcription

1 Unblocking the Blocks Blockchain - Workbook Gurugram March 2019

2 About Blockchain

3 What is Blockchain The concept of a Distributed Ledger was synthesized in Blockchain was introduced as a distributed ledger platform for the Bitcoin application as the ultimate incarnation of a decentralized ledger by anonymous consensus. Blockchain A Blockchain is a tamper-evident, shared digital ledger that records transactions in a public or private peer-to-peer network. (IBM.com) Distributed Ledger A distributed ledger is a type of database that is shared, replicated, and synchronized among the members of a network. (IBM.com) E6B Block A block is a container for transactions. (Dev.to) Node A node is a computer that is connected to a Blockchain network. Nodes store copies of the ledger, make transactions and/or validate transactions/blocks. (bitcoin.org)

4 Blockchain Concepts 03 Private / Public Key Private key cryptography to secure identities and hash functions to make blockchain immutable 04 Proof of work A methodology to confirm a transaction has taken place 02 Distributed Ledger Every single participant on the network has a copy of the ledger. There is no centralized copy 05 Mining A process by which, transactions are verified and added to the public ledger 01 Hash Taking a input string of any length of data and giving an output of fixed length 06 Consensus A system to ensure that, parties agree to a certain state of the system as the true state

5 Why should Blockchain be Considered? Already considered to have large disruptive potential in industries, blockchain also has the potential to deliver cost savings, operational efficiencies, and growth enablement. Emerging trend Cost advantages Functional advantages Potentials for growth Disruptive innovation ( Internet of money ) Cryptos accepted by over 100,000 retail merchants worldwide by end of 2017 High media coverage Growing interest in technology industry Venture capitalist have invested $1.3 billion this year alone in blockchain Very low transaction and user fees (about 0.03 vs. 2-5% debit/credit card) No chargebacks and related charges / administrative efforts High potential for automation of payment transactions Instantaneous capital effects through direct transactions without delay International payments (24 x 7) in real-time Micropayments possible (1 Bitcoin can be divided into 100m pieces) Public ledger (wallet sharing, tracking of spending habits, marketing purposes) Easy integration in existing business models Existing software and solution provider infrastructure (e.g. wallets, payment, exchanges, etc.) Access to new customers and markets (international payments, technological affine segments) Access to customers with not sufficient credit ratings / no access to int. payment system (Africa, India) Creation of new business models / products using electronic payments / micropayment / smart contracts

6 Blockchain Technology Ecosystem Other Partnerships Industry consortiums Hyperledger R3CEV Chinaledger PTDL Group DPactum Document Digitization Trade Finance OTC Derivatives Corporate Actions Syndicated Loans Record Keeping Applications and use-cases Cross-border Payments Digital Identifies / KYC Smart contracts Cryptocurrencies and Tokenization Fixed Income trading Clearing and Trade Settlement Consensus mechanisms Leader based Proprietary distributed ledger consensus Federated consensus Node-tonode (N2N) Proof of work Proof of stake Delegated Proof of stake Round Robin PBFT and derivatives Swirlds hashgraph Private/proprietary Private Consortium Open-source Open Platform Technologies/ providers Digital Asset NASDAQ (Linq) Chain Tendermint SETL Intel (Sawtooth) CASPER Ripple Wave Juno Corda (R3 CEV) Sentinel (Kynetix) Multichain Hyperledger Ethereum Bitcoin Coinprism Stellar Consensys Symbiont PBFT Paxos Bitcoin Infrastructure technologies/ providers Public/private cloud AWS, Azure, etc. Non-DLT/Traditional Infrastructure In-house systems/data centers IBM Bluemix Amazon Web Services MS Azure ETH BAAS DLT-specific Infrastructure Successful market examples, tests and implementations ILLUSTRATIVE

7 Popular Use-Cases Across the Sectors Legal Smart contracts with defined rules, expiration, and accessibility Marketing Bypass intermediaries, providing more cost effective advertising Insurance Improve multi party contracts; Streamline risk contract efficiency etc. Human Resources Background checks; verification of identity; employment history Auto Track Truthful, full history of vehicle from pre-production to sale Energy Bypass public grids to allow cheaper, P2P energy transfer Education Digitizing, verifying, academic credentials Cybersecurity Fight hacking with immutability of ledger Real Estate Transparency within agreements; Verify property information; digitize transactional processes Banking Streamline payments processing with high efficiency; fast and secure transactions Blockchain Government and Voting Reduce voter Fraud, inefficiencies with verifiable audit trails; integrity of citizen register data Medical and Healthcare Drug supply chain integrity; Patient database/ Indexes on blockchain etc. Law enforcement Integrity of evidence; Documentation of falsification of case data Will & Inheritances Smart contracts to determine validity of will and allocation of inheritances Media Control of ownership rights; anti-piracy; use of smart contracts for artist compensation Gun safety Tracking gun ownership and possession related info. Charity Tracking donation allocation and accountability Credit History Make credit reports more accurate, transparent Music streaming Prevent illegal downloading of music IoT Contribute transactional data to blockchain implications across industries

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10 Detailed Use Cases

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12 Blockchain Banking Use-Case KYC Current state Future state with blockchain Bank 1 Bank 2 Customer approaches bank Query on KYC Validation of information Update KYC on shared ledger Account opening Bank N Provide Personal Information Acquire and validate personal information for completeness and authenticity Store Personal Information Monitor Changes The KYC information is shared and distributed across the blockchain network Bank B Bank C Bank A Challenges Benefits Customers have to submit KYC information for each bank and endure longer onboarding time Most KYC processes are manual and paper-intensive resulting in high operating costs Current KYC landscape makes it harder to identify fraudulent customer behavior across banks For Customers For Banks For Regulators Enhanced customer experience Shorter on-boarding times Control over private data shared across banks Lower KYC on-boarding and regulatory compliance costs Access to latest and richer customer data and company relationships Better understanding of customer activity across banks Auditable customer as well as bank KYC activities

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14 Blockchain Use-Case - Platform for Asset Managers Current state Future state with blockchain C C Investor Distributor Distributor Fund platform Clearing & Settlement House Transfer Agent Fund platform Transmit fund documentation Order routing, clearing and settlement Deliver market Intelligence Compute and collect inducements Clearing & Settlement House Wire cash from investors Transfer Agent Custodians Perform AML/KYC and sales Perform AML/KYD Collect orders and update register of shareholders Collect cash from investors and make payments Perform reconciliations with TA orders Safe-keep fund assets Custodians Asset Manager Distributor Orders & Confirmation User Interface Blockchain based platform Cash CCP Asset Manager Investor register Cash flow NAV Investor register Transfer Agent Challenges Benefits Multiple intermediaries between investor and asset manager Higher fees due to multiple intermediaries Higher reconciliation efforts between Transfer Agent (TA) and Fund Custodian Manual data updates in multiple systems Elimination of intermediaries Lower processing fess as number of intermediaries are minimal Elimination of reconciliation effort due to auditability Automated data updates at close to real-time basis Significant cost reduction for fund distribution (up to 70%)

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16 Blockchain Use-Case - Airworthiness Current Scenario Future with blockchain Airlines Blockchain Network Tier-1: Engine/ Structure Manufacturer OEM: Aircraft Manufacturer Tier-1: Engine/ Structure Manufacturer Operators Commercial Corporate Military Tier-2: Sub Assembly Manufacturer OEM: Aircraft Manufacturer Tier 3: Component manufacturer MRO Service Providers Tier-3 Component Manufacturer Tier 1: Engine Structure Manufacturer Regular supplies MRO supplies Various quality parties/departments are involved in different stages Transaction Blocks Tier 2: Sub assembly Manufacturer Challenges Systems and processes working in silos Tracking and maintenance of certificates by each component manufacturer Absence of audit trail for aircraft maintenance Huge effort for reconciliations of data Benefits Immutable and secure version of data is available for validation and verification purposes to all participants Accountability of each participant of blockchain prevents counterfeiting of components and forgery of certificates Smart contracts brings in logical movement of workflow and helps to bring in other required business rules into the system Reduction in reconciliation effort Elimination of intermediaries

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18 Blockchain Use-Case Organic Food Tracking Current Scenario Future with blockchain Farmer procure seeds for a particular crop type Different systems to track different crops Packaging of crops without tracking Transporting of crops without tracking? End customer is in dilemma about the authenticity of crops Challenges Benefits Different systems for different types of crops and traceability results inefficient tracking and leakage of data Dependency on the data provided by the grower group and APMC Multiple non communicating parties results in lack of trust and possible inclusion of counterfeit produce Multiple parties involved increases the cost of the produce Manual nature of data capture results in discrepancies Transparency and Surety : Provides tracking from seed to final packaged good history. In a non corruptible, publically verifiable form Fair Pricing and tax/audit trials : All participants get visibility on the value add across chain. Ability to forecast/ finance and other value add: Creates a secure chain and information that can be used to forecast produce quantity, provide loans/insurance if needed and other value add activities across value chain

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20 Blockchain Use-Case Token Netting Current Scenario Future with blockchain Every entity runs on different system Challenges Different entities have different intercompany agreements and invoicing mechanism Reconciliation goes back to s and legacy contracts Mapping to different chart of accounts and invoices is always a challenge Benefits View on all receivables /payables for all entities with audit trails Concentration of payments and reduction in number of banks used, results in reduction in float All entries on one system and hence no inter system reconciliation Close to real time visibility of all transactions. Reduction of bank transactions, automation and elimination of tasks results in decrease in transaction cost End of term reconciliation efforts is reduced to a minimum

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22 Blockchain Use-Case Customer Loyalty Current Scenario Future with blockchain Challenges Current systems are centralized and require extensive secure connectivity with each partner on boarded Logic for each program has to be managed across the network data security and management is high and it escalates as partners/customers increase Multiple types of loyalty points for individual customers based on different programs/gift cards and other discount programs Lack of sufficient connectivity with IOT devices Benefits Single loyalty digital wallet Easier redemption of points based on market value Purchase triggers respective organization s ongoing loyalty campaigns Real time value of tokens Token value changes on the basis of company s performance Real time reconciliation across universe of loyalty point tokens Security of data handle by defacto blockchain features

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24 Blockchain Use-Case Trade Finance Current Scenario Future with blockchain Pre- Shipment phase Purchase order LC Issue Order Acknowledg ed Production Document preparation and Shipment Payment Invoice negotiatio n - Approval Order receipt- Buyer Verificatio n In Transit Custom Clearance Post- Shipment phase Challenges Benefits High Costs Poor tracking of contract delivery High risk of legal disputes and litigation costs Contractual delays Ambiguous contracts leading to difficult interpretation Payment delays Asset Production Unique digital identity Immutable source of truth Standardized technology Provenance integrity Finance Reduction of working capital Electronic documentation Instant information exchange Visibility of all liabilities Automated payments SCM Enhanced ownership visibility and fraud reduction Standardized data source with asset traceability Elimination of Manual checks

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26 Blockchain Use-Case Component Tracking Current Scenario Future with blockchain Challenges Benefits Low Secondary and Primary Sales Visibility Low shipment location and inventory visibility Inefficient Replenishment Delayed Payments Poor On Shelf Availability Product authenticity Issues Real time tracking and visibility of product flow across the supply chain Speed, accuracy and timeliness of information to all supply chain partners Better Counterfeit Management Enhanced Product Provenance Better order management and payment mechanism

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28 Blockchain Use-Case Carbon Credits Management Current Scenario Future with blockchain Challenges Monitoring and managing SLA between CO2 Offset Provider, Offset Seeker and the UN Executive Board. Complexity to monitor progress of a contract, non-tamper resistant processes Inability to collaborate and trigger specific events, information flow or make financial exchange as defined by contractual SLA. Benefits Single platform to buy and sell carbon credits. End to end tracking of carbon credit tokens Immutable single source of data Integration of IOT and deep store ( large data store ) for purpose of data validation Highly secure environment even when across multi organization with contextual identity access management

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32 Abhishek Kishore Gupta Partner Management Consulting Ph.: +91 (80) Mobile: akgupta@kpmg.com Lekha Satish Associate Director Management Consulting Mobile: lekhasatish@kpmg.com kpmg.com/socialmedia The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ( KPMG International ), a Swiss entity. All rights reserved. The KPMG name and logo are registered trademarks or trademarks of KPMG International.