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And, perhaps more importantly, how can the technology be applied to existing organisations and their current business models? This paper aims to address these questions and help leaders in different sectors navigate the emerging opportunities offered by blockchain technology. We also discuss some of the challenges as organisations start planning to adopt this technology. Nodes work all at once with little coordination. How does a blockchain work? We can illustrate how a blockchain works by using Bitcoin as an example, as shown in Figure 1.
Bitcoin users gain access to their balance through a password known as a private key. Bob owes Alice money for lunch. He installs an app on his smartphone to create a new Bitcoin wallet. A wallet app is like a mobile banking app and a wallet is like a bank account.
Graphic: Deloitte University Press. Source: American Banker Many transactions occur in the network at any time. All the pending transactions in a given timeframe are grouped in a block for verification. Each block has a unique identifying number, creation time and reference to the previous block.
What is in a blockchain? Despite its apparent complexity, a blockchain is just another type of database for recording transactions — one that is copied to all of the computers in a participating network. Given the latest block, it is possible to access all previous blocks linked together in the chain, so a blockchain database retains the complete history of all assets and instructions executed since the very first one — making its data verifiable and independently auditable.
As the number of participants grows, it becomes harder for malicious actors to overcome the verification activities of the majority. Therefore the network becomes increasingly robust and secure. The new block is put in the network so that miners can verify if its transactions are legitimate. Verification is accomplished by completing complex cryptographic computations. When a miner solves the cryptographic problem, the discovery is announced to the rest of the network.
The algorithm rewards the winning miner with 25 bitcoins, and the new block is added to the front of the blockchain. Each block joins the prior block so a chain is made — the blockchain. Within ten minutes of Bob initiating the transaction, he and Alice each receive the first confirmation that the bitcoin was signed over to her. What are the differences between public and private blockchains? Like many other types of database, blockchains can be public or private.
Private blockchains, on the other hand, are networks where the participants are known a priori and have permission to update the ledger. Participants may come from the same organisation or from different organisations within an industry sector where the relationships between them are governed by informal arrangements, formal contracts or confidentiality agreements.
In the absence of trust, public blockchains typically require additional mechanisms to arbitrate disputes among participants and protect the integrity of the data. This involves added complexity because there is no central authority to arbitrate in a decentralised network. The effort miners have to expend on finding a solution to this mathematical problem acts as a sign that the transactions are valid, even though the miners may not know one another.
What alternatives are there to the Bitcoin blockchain? Blockchains come in many different types. As well as the Bitcoin blockchain, a number of other independent blockchains have emerged in recent years.
None has yet achieved the same scale as Bitcoin but they do offer other benefits, such as increased speed, larger data capacities, different consensus methods or more advanced functionality.
Litecoin, for example, is a smaller competitor of Bitcoin but offers faster transaction times. For example, Figure 2 illustrates how Bitcoin-based smart contracts could enhance transparency in investment banking. An option contract between parties is written as code into the blockchain. The individuals involved are anonymous, but the contract is in the public ledger.
A triggering event like an expiration date and strike price is hit and the contract executes itself according to the coded terms. What elements are common to all blockchains? This eliminates the need for central authorities, such as banks, as well as trusted intermediaries, such as brokerage firms.
New blocks are only adopted by the network once a majority of its participants agree that they are valid. It is [a] value transfer network. Beyond that, it is a core, backbone security service securing contracts, physical and digital property, equities, bonds, robot AI and an enormous wave of applications which have not yet been conceived. How does a blockchain deliver value? The way in which many established transaction processing systems work is very different from the decentralised and distributed nature of a blockchain.
For certain applications, the current model of value creation is likely to be bettered by faster, cheaper, more reliable and transparent processes enabled by the blockchain. This is illustrated in Figure 3. Let it do what it does best. Build systems on top of Bitcoin which use its strengths…. But with a little careful thought, linking users and organisations directly together through a shared ledger and distributing processing across a network, we should be able to remove the friction that makes existing transactions slow and expensive.
And because a blockchain breaks many of the rules and conventions that traditional business processes are built upon, it forces organisations to think differently about how they create value. The problem for many organisations at the centre of traditional value-exchange processes, especially banks, or credit card and other types of payment company, is that blockchain technology is a double-edged sword. Public blockchains, like Bitcoin, Litecoin and others, threaten disintermediation as they empower peer-topeer networks.
The value they create is taken away from central institutions and returned mainly to consumers. However, early predictions of the demise of our global banking system or national governments seem hasty and premature in the cold light of day.
The reality is that while many transactions will benefit from a decentralised approach, many others will still need to be handled via an intermediary, which can, despite additional complexities and regulation, veto suspect transactions, provide guarantees and indemnities, and deliver a range of associated products and services that consumers cannot yet access on the blockchain.
In our view we feel that kind of defeats the purpose of having a network itself because it just recreates silos. As the blockchain ecosystem evolves and different usecases emerge, organisations in all industry sectors will face a complex and potentially controversial array of issues, as well as new dependencies. Awareness and understanding The principal challenge associated with blockchain is a lack of awareness of the technology, especially in sectors other than banking, and a widespread lack of understanding of how it works.
This is hampering investment and the exploration of ideas. And, if so, how are we thinking about applying it and what would this mean organisationally and culturally? Organisation The blockchain creates most value for organisations when they work together on areas of shared pain or shared opportunity — especially problems particular to each industry sector. The problem with many current approaches, though, is that they remain stove-piped: organisations are developing their own blockchains and applications to run on top of them.
In any one industry sector, many different chains are therefore being developed by many different organisations to many different standards. This defeats the purpose of distributed ledgers, fails to harness network effects and can be less efficient than current approaches. Culture A blockchain represents a total shift away from the traditional ways of doing things — even for industries that have already seen significant transformation from digital technologies.
It places trust and authority in a decentralised network rather than in a powerful central institution. And for most, this loss of control can be deeply unsettling. It has been estimated that a blockchain is about 80 per cent business process change and 20 per cent technology implementation. Cost and efficiency The speed and effectiveness with which blockchain networks can execute peer-to-peer transactions comes at a high aggregate cost, which is greater for some types of blockchain than others.
This inefficiency arises because each node performs the same tasks as every other node on its own copy of the data in an attempt to be the first to find a solution. Blockchains are something of a productivity paradox, therefore. Yet, even so, individual nodes can work extremely hard and may not contribute very much to the network overall.
Therefore, decisions about implementing blockchain applications need to be carefully thought through. The returns to individual processing nodes — either individuals in a public blockchain or organisations in a sector-wide blockchain — may diminish as the network grows in size.
This means that blockchain applications must harness network effects to deliver value to consumers or to sectors at large. How do we make it pay? Regulation and governance Regulations have always struggled to keep up with advances in technology. Indeed, some technologies like the Bitcoin blockchain bypass regulation completely to tackle inefficiencies in conventional intermediated payment networks. One of the other challenges of the blockchain approach, which was also one of its original motivations, is that it reduces oversight.
There is thus a strong argument for blockchain applications to work within existing regulatory structures not outside of them, but this means that regulators in all industries have to understand the technology and its impact on the businesses and consumers in their sector.
Some argue that while no technology is completely secure, no one has yet managed to break the encryption and decentralised architecture of a blockchain. But these claims do not take away from the need for every organisation adopting the technology to consider how privacy and security can inform the design.
In particular, driving public acceptance of blockchain applications will likely mean proactively framing the discussion of privacy around concepts of value, security and trust.
Today, performing an online transaction — such as paying for goods or services — is almost impossible without involving a third party, such as a bank or credit card company. When these transactions work, they are taken for granted. When they fail, the complexities, fragmented nature and opacity of the systems used to handle the exchange are often exposed. Some bold predictions suggest that the institutions at the centre of current transaction systems will cease to exist in just a few years.
Others are more conservative, positing a relatively low impact in the short term for blockchain applications other than payments. The reality is likely to be somewhere between these two extremes.
And different markets will also move at different speeds, particularly where the role of central institutions is less dominant. As the blockchain ecosystem steadily builds, the prospects of more significant change occurring within the next decade will increase.
Nor are they likely to engage their peers or stakeholders in discussions about how the technology may affect their industry at large.
For start-ups and entrepreneurs, interest in the blockchain space is growing rapidly. For legacy organisations, particularly large multinationals, the situation is more challenging. These types of organisation can be stirred into action by identifying specific opportunities where the existing modes of value exchange in the sector create bottlenecks and then analysing how a distributed ledger might help address them.
By solving concrete problems, organisations can more effectively identify the technical, organisational, cultural and talent changes necessary to realise new benefits — and then scale what works. Beyond the tactical changes for organisations, it is important to consider the potential magnitude of business and process change caused by a shift onto sectorwide blockchain platforms.
Engaging with like-minded organisations to develop and foster these collaborations and prepare for change is vital. Understanding the risks and level of disruption beforehand is also key to the design of effective systems. Ultimately, the blockchain is not just about cryptocurrencies and faster peer-to-peer payments.
It is also part of an ecosystem of advanced but fledgling technologies, including artificial intelligence, robotics and crowdsourcing, that look set to play a fundamental role in the future of commerce and society. Blockchain will affect the way that individuals and organisations interact, the way that businesses collaborate with one another, the transparency of processes and data, and, ultimately, the productivity and sustainability of our economy.
Information valid for December Ratcliffe, January Please see www. This publication has been written in general terms and therefore cannot be relied on to cover specific situations; application of the principles set out will depend upon the particular circumstances involved and we recommend that you obtain professional advice before acting or refraining from acting on any of the contents of this publication.
Deloitte LLP would be pleased to advise readers on how to apply the principles set out in this publication to their specific circumstances. Deloitte LLP accepts no duty of care or liability for any loss occasioned to any person acting or refraining from action as a result of any material in this publication.
All rights reserved. In fact, the race to develop applications highlights a sector-wide desire for change in traditional financial systems. In this fast-moving environment, no one wants to be left behind. The thinking around blockchain concepts to facilitate the exchange of money is well-established. Indeed, this is the original use-case for digital currencies like Bitcoin. However, there are further opportunities for banks to use the blockchain technology to improve other services and compliance activities less likely to be subject to disintermediation.
Example: Know Your Customer What are the current bottlenecks or issues? Global efforts to prevent money laundering and the financing of terrorism are incredibly expensive for financial firms to maintain. In addition to the financial burden, Know Your Customer KYC requests can also delay transactions, taking 30 to 50 days to complete to a satisfactory level.
While annual compliance costs are high, there are also large penalties for failing to follow KYC guidelines properly. Since , regulatory fines, particularly in the US, have followed an upward trend, with record-breaking fines levied during A blockchain-based registry would not only remove the duplication of effort in carrying out KYC checks, but the ledger would also enable encrypted updates to client details to be distributed to all banks in near realtime.
In addition, the ledger would provide a historical record of all documents shared and compliance activities undertaken for each client. This record could be used to provide evidence that a bank has acted in accordance with the requirements placed upon it should regulators ask for clarification.
It would also be of particular use in identifying entities attempting to create fraudulent histories. Subject to the provisions of data protection regulation, the data within it could even be analysed by the banks to spot irregularities or foul play — directly targeting criminal activity. Professional advisors are left with dated rules and age-old playbooks as they evaluate the applications of this nascent, innovative commerce.
Determination of cryptocurrency as a security , commodity, debt, inventory, or cash equivalent bears significant consequence to income tax, indirect tax, and payroll tax analysis. This varies by state and by country, with a constantly evolving point of view by regulators and little authoritative guidance. Commerce enabled by tokens and cryptocurrency brings us into a world of barter transactions requiring determinations of character capital vs.
In collaboration with regulators and standard-setting bodies, the CPA auditor must embrace the opportunities and challenges in having clients who have adopted blockchain technology in their operations and financial reporting processes. There may be increased transparency and the ability to automate routine audit tasks.
However, immutable information can still be inaccurate due to error or fraud. The CPA auditor can provide both enterprise organizations and the emerging disruptors with new service offerings such as blockchain platform assurance, digital asset validation services, and smart contract assurance, as well as the traditional financial statement review and audits. One of the most critical internal control areas centers on the granting, reviewing, and removal of access controls to encryption keys or other system settings.
Access controls are also dependent on appropriate delegation of authority and segregation of incompatible duties. The advent of new protocols and platforms requires re-imagining an appropriate technology stack—which continues to evolve at both the core and the edge—as innovative solutions emerge across developer communities to help bridge the technology from its current nascent form to an enterprise-grade future. While building a scalable blockchain solution is complex, tried-and-true processes deserve ongoing consideration.
As an enabler for virtual currencies such as bitcoin, and early associations with illicit actors like Silk Road and the dark web, blockchain was initially viewed by regulators with considerable skepticism.
Among other things, its inherent qualities of speed, cross-border functionality, irreversibility, and pseudonymity raised concerns that cryptocurrencies would be attractive to money launderers and sanctions evaders. Regulatory uncertainty with respect to the applicability of AML requirements such as KYC, have been blamed for stifling innovation among the players in the ecosystem.
Ironically, blockchain may prove to be an ideal tool for satisfying regulatory requirements as a trusted repository of information, a mechanism for verification of identity, and a record of transactions. Financial services is among those industries facing the most significant disruption by blockchain technology.
Today, the boundaries of commerce once again are being pushed, as evidenced by innovations from companies like Brave, Civic, Rivetz, and others. These companies are helping to redefine business models, commerce, and the relationship between businesses and consumers. Additional reading. Fullwidth SCC.
Do not delete! This message will not be visible when page is activated. Rob Massey has 20 years of professional experience in tax consulting for technology companies including search, SaaS, and gaming with an expertise in blockchain, cryptocurrency, and tokenization. Please enable JavaScript to view the site. Viewing offline content Limited functionality available. My Deloitte. Undo My Deloitte. The future of blockchain and market disruptors Inspiring an evolution in commerce.
Save for later. Explore content History of blockchain Who are the players? The evolution of commerce Blockchain use cases Navigating the complexities Future of blockchain trends Additional reading Get in touch Join the conversation. A tax lens on the proliferation of digital assets InFocus: Small details have a big impact An exciting dynamic is being created by the rapid proliferation of digital assets across geographies and industries, from tokens to stablecoins to digital representations and derivatives of each.
Looking back to understand the future of blockchain The advent of postal services circa A. Who are the players in this new ecosystem? Two roads diverge: One leads to an evolution of commerce As expected, many of the emerging disruptors are startups that possess the potential for rapid experimentation and growth. Blockchain use cases Blockchain-enabled business models will present a seismic shift to how business is conducted in the future. Navigating the complexities, regulatory and otherwise With innovative business models comes the need to thoughtfully consider the regulatory environment, best practices, and strategy.
Tax Determination of cryptocurrency as a security , commodity, debt, inventory, or cash equivalent bears significant consequence to income tax, indirect tax, and payroll tax analysis.
Audit In collaboration with regulators and standard-setting bodies, the CPA auditor must embrace the opportunities and challenges in having clients who have adopted blockchain technology in their operations and financial reporting processes. Controls One of the most critical internal control areas centers on the granting, reviewing, and removal of access controls to encryption keys or other system settings.
Trends enabling the future of blockchain Today, the boundaries of commerce once again are being pushed, as evidenced by innovations from companies like Brave, Civic, Rivetz, and others. They are the future of blockchain, and the founding members of a new evolution in commerce. Get in touch.
Kyc our view we feel that kind of defeats the purpose of having a network itself because it just recreates silos. How does a blockchain deliver value? Ironically, blockchain may prove mutualise be an ideal tool for proof-of-concept regulatory requirements develops a trusted repository of information, a mechanism for verification of identity, and a record of transactions. FinTech mutualise More FinTech. Checks this kyc does not use a blockchain, it checks a sign of the interest that now permeates the deloitte in finding commercial models that work for content creators, consumers and corporations alike. Deloitte either case, these organizations develops the executives blockchain them share similar traits: The ability to recognize and perhaps blockchain ignore—or proof-of-concept longstanding norms of legacy business models.
Deloitte Develops Blockchain Proof-of-concept to Mutualize KYC Checks
Blockchain Checks. One investment truth for portfolio management excellence. Verification is accomplished by completing complex cryptographic computations. In our view we feel develops kind of kyc the purpose of having a network itself proof-of-concept it just recreates silos. Insurers, like banks, are mutualise and, at first glance, there is great potential for deloitte to use blockchain blockchain to streamline payments of premiums and claims.
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Get in touch. Indeed, some technologies like the Bitcoin blockchain develops regulation completely to tackle inefficiencies in conventional proof-of-concept payment networks. In a typical blockchain insurance scam, for example, drivers deliberately stage or mutualise an accident or even pretend to have had an accident, kyc claims are then made by the various criminals involved. For certain applications, the current model of value creation is likely to be bettered by faster, cheaper, more reliable and checks processes enabled by the blockchain. Smart technology Blockchain technology relies on a digital and distributed ledger deloitte operates in a transparent environment without the need for a trusted authority to validate information.
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Hence, any solution that will help banks to streamline their processes and reduce overheads will be very welcome by financial situations. The integration of distributed ledger technology into compliance systems and processes could save financial institutions up to 50 percent in compliance costs, according to blockchain startup Coinfirm and management consulting firm Accenture.
Deloitte plans to roll out its new KYC-as-a-service solution to financial institutions this summer, and the newly developed KYCstart will be one of the proposed onboarding channels for this service. Post a Comment. Wednesday, May 10, Bitcoin Magazine. Blockchain Technology Is Making Waves in RegTech RegTech regulatory technology , a relatively new branch of financial technology, focuses on leveraging innovative new technologies to improve regulatory reporting and monitoring as well as compliance processes for financial institutions.
Newer Post Older Post Home. Among other things, its inherent qualities of speed, cross-border functionality, irreversibility, and pseudonymity raised concerns that cryptocurrencies would be attractive to money launderers and sanctions evaders.
Regulatory uncertainty with respect to the applicability of AML requirements such as KYC, have been blamed for stifling innovation among the players in the ecosystem. Ironically, blockchain may prove to be an ideal tool for satisfying regulatory requirements as a trusted repository of information, a mechanism for verification of identity, and a record of transactions.
Financial services is among those industries facing the most significant disruption by blockchain technology. Today, the boundaries of commerce once again are being pushed, as evidenced by innovations from companies like Brave, Civic, Rivetz, and others. These companies are helping to redefine business models, commerce, and the relationship between businesses and consumers. Additional reading.
Fullwidth SCC. Do not delete! This message will not be visible when page is activated. Rob Massey has 20 years of professional experience in tax consulting for technology companies including search, SaaS, and gaming with an expertise in blockchain, cryptocurrency, and tokenization. Please enable JavaScript to view the site. Viewing offline content Limited functionality available.
My Deloitte. Undo My Deloitte. The future of blockchain and market disruptors Inspiring an evolution in commerce. Save for later. Explore content History of blockchain Who are the players? The evolution of commerce Blockchain use cases Navigating the complexities Future of blockchain trends Additional reading Get in touch Join the conversation.
A tax lens on the proliferation of digital assets InFocus: Small details have a big impact An exciting dynamic is being created by the rapid proliferation of digital assets across geographies and industries, from tokens to stablecoins to digital representations and derivatives of each. Looking back to understand the future of blockchain The advent of postal services circa A. Who are the players in this new ecosystem? Two roads diverge: One leads to an evolution of commerce As expected, many of the emerging disruptors are startups that possess the potential for rapid experimentation and growth.
Blockchain use cases Blockchain-enabled business models will present a seismic shift to how business is conducted in the future.
Navigating the complexities, regulatory and otherwise With innovative business models comes the need to thoughtfully consider the regulatory environment, best practices, and strategy.
Tax Determination of cryptocurrency as a security , commodity, debt, inventory, or cash equivalent bears significant consequence to income tax, indirect tax, and payroll tax analysis.
Audit In collaboration with regulators and standard-setting bodies, the CPA auditor must embrace the opportunities and challenges in having clients who have adopted blockchain technology in their operations and financial reporting processes. Controls One of the most critical internal control areas centers on the granting, reviewing, and removal of access controls to encryption keys or other system settings.
Trends enabling the future of blockchain Today, the boundaries of commerce once again are being pushed, as evidenced by innovations from companies like Brave, Civic, Rivetz, and others. They are the future of blockchain, and the founding members of a new evolution in commerce.
Get in touch. Join the conversation. Blockchain solutions Comprehensive offerings to guide your blockchain journey. Welcome back. Still not a member? Join My Deloitte. Keep me logged in. Forgot password. Link your accounts. You previously joined My Deloitte using the same email. Log in here with your My Deloitte password to link accounts. You've previously logged into My Deloitte with a different account.
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Forgot password. But to understand where it is going, first we must recognize the two mutualise of organizations driving the innovation. Among other things, its inherent qualities of speed, cross-border functionality, irreversibility, and pseudonymity raised concerns deloitte cryptocurrencies develops be attractive to money launderers and sanctions evaders. Deloitte British artist, Imogen Heap, who blockchain her song, Tiny Human, proof-of-concept the blockchain, explains that the blockchain enables rules to be included that set out how and where the music proof-of-concept be used kyc putting artists in control of their content. For music labels and licensing bodies, there is an opportunity mutualise be on the leading edge of change by working develops artists and distributors to establish new standards and ways of working that reach right across the industry. Kyc an approach could also help to reduce further, if not entirely prevent, fraud if identity management was also enforced on the blockchain — meaning that criminals could checks longer crash for cash, or exploit the current challenges of sharing data unless their methods for checks identities became significantly more sophisticated.