simcorp 16. versicherungsfachtagung köln 25. oktober 2017 blockchain solutions: eris industries,...

Thomas Heinatz

SimCorp16. VersicherungsfachtagungKöln

25. Oktober 2017

Growing momentum in BlockChain

Grows to over 60 members. Completes atest of issuing, trading, and redeemingcommercial paper among 40 consortiumparticipants using five differentblockchain solutions: Eris Industries,Ethereum, IBM, Intel and Chain

Unites Industry leaders to advance Blockchain Technology:Accenture, ANZ Bank, Cisco, CLS, Credits, Deutsche Börse,Digital Asset Holdings, DTCC, Fujitsu Limited, IC3, IBM,Intel, J.P. Morgan, London Stock Exchange Group,Mitsubishi UFJ Financial Group (MUFG), R3, State Street,SWIFT, VMware and Wells Fargo.

The Hong Kong Monetary Authority(HKMA) has begun work on a blockchaininitiative with the Hong Kong Applied Scienceand Technology Research Institute (ASTRI)

Announces plans to create a global utility settlement coinwith Clearmatics directly convertible to cash at CentralBanks, cutting post trade settlement time across a numberof asset classes including traditional stocks and bonds

Successful blockchain experiment for regulatoryreporting of transactional data. Indicates 20k TPS areasonable expectation.

Announced two partners, agriculture co-operativeOrnua and food product distributor SeychellesTrading Company, were able to successfully transfertrade documentation via a blockchain platformcreated by its accelerator program graduate, Wave

Testing movement of U.S. dollars among 2,200clients between London and Tokyo using blockchainDLT. Jamie Dimon warns: “Silicon Valley is coming,”with “hundreds of startups with a lot of brains andmoney working on various alternatives to traditionalbanking.”

Developed “MUFG coin” aimed at decreasing the costsof managing financial transactions, particularly in thecase of P2P transfer and remittances.

Eleven of the worlds largest banks have successfullycompleted a test using decentralized ledger technologyknown as a blockchain hosted in Microsoft Azure’s publiccloud platform.

Chosen by ASX for next generation clearing & settlement.Announces global alliance with Accenture.

DTCC calls a test for CDS documentation on blockchain byJPMorgan and Cit a success and is moving into the nextphase of development to apply the technology acrossmany CDS products.

Commissioner Giancarlo said agencyshould reexamine existing rules asnecessary to foster innovation withblockchain technologies

IBM Financing announces it will launch a blockchain DLTfor partner and supply chain management saving $100m+in capital tied to disputes at any given time,Reconciliation target 10 days vs. 45 currently

Launches blockchain enabled Linq atNASDAQ for the issuance, tradingand tracking of private equity sharesincreasing transparency & liquidity

In conjunction with World Bank & IMFHosts “Finance In Flux:The TechnologicalTransformation of the Financial Sector",themed around blockchain and Fintech

CONSORTIA SERVICE PROVIDER REGULATORY/INDUSTRY EXPLORATION

2Copyright © 2017 Accenture. All rights reserved.

3

AgendaWas ist BlockChain und wie funktioniert es?

Nutzungsbeispiele von BlockChain

Ausblick – Herausforderungen und die Zukunft

Copyright © 2017 Accenture. All rights reserved.

4

BLOCKCHAIN

#01


Why can asset transfer not be like information transfer?

5

ONCE UPON A TIME …

A PHONECALL WAS MADE USING A PUBLIC SWITCHED TELEPHONE NETWORK

– AN INTERMEDIARY

TODAY WE CAN CALL/TEXT/EMAIL

- ANYONE

- ANYWHERE

- DIRECTLY

CAN YOU SAY THE SAME FOR MONEY?

By using math and cryptography BlockChain provides an open, decentralized database for every transaction involving value:

- MONEY

- GOODS

- PROPERTY

- WORK

- VOTES

This means the enablement of transactions to ANYONE, ANYWHERE, DIRECTLY. All that is needed is internet access.

BlockChain


A distributed ledger has no central authority

• Central hub administers data and pushes it out to clients

• “Master record” is held by central hub

• Read and write permissions are managed by central hub

• No central hub

• The entire ledger is held by all nodes in the network

• New data is added by consensus

Distributed LedgerCentralized Ledger


Solution to asset transfer is a distributed ledger

BlockChain technology forms the basis for cryptocurrencies

Distributed Ledger

• Is a concept

BlockChain

• Is a technology to implement a Distributed Ledger

Bitcoin, Ether, etc.

• Some Cryptocurrencies use BlockChain technology


Utility Settlement Coin (UBS)

• Other Cryptocurrencies do not use BlockChain

Other Technologies

• Other ways to implement a Distributed Ledger

Blockchain can implement a distributed ledger


THE DIFFERENCE BETWEEN GIVING AN APPLE PHYSICALLY / IN-PERSON

… AND DIGITALLY?

Welche Funktion hat BlockChain?

How do you know that I am giving you MY apple?

How do you know that I did not send the apple to others first as an attachment?

How do you know that I did not make copies?

How do you know that you are actually getting a red apple – and not a green?

How do you know that the apple is in fact eatable – ant not too old?

… Well you don’t? Do you?

The solution is a BlockChain

-MONEY -GOODS-PROPERTY-WORK-VOTES

Blockchains order and validate transactions through consensusaccording to different models and rules

9

BLOCKCHAIN IS A DISTRIBUTED LEDGER TECHNOLOGY FOR SECURELY TRANSMITTING ANY TYPE OF INFORMATION WITHOUT THE CONTROL OF ANY CENTRAL AUTHORITY

Transactionsrepresent a transfer of information between two or more participants within the network

BlockChain is a mechanism that implements a distributed ledger of transactions, with identical copies in multiple nodes

Cryptography is used to prevent manipulation of data and to authenticate participants


BlockChain includes components that ensure that the digital apple has real value

A distributed ledgeris a decentralized database of transactions, with identical copies in multiple nodes

Tx1Tx2Tx3

Tx4Tx5Tx6

Tx7Tx8Tx9

Tx10Tx11Tx12

Tx13Tx14Tx15

Tx16Tx17Tx18

Blocks contain many transactionsBlocks are created by network participants

and attached to previous blocks

Genesis Block

…

The Distributed Ledger is implemented by a “BlockChain”

BlockChain links together related blocks of data


A BlockChain is composed of many blocks that are connected together sequentially

Blocks contain data that can represent transactions, documents or other information

Each network participant (“node”) can add blocks with new data to the BlockChain

When a new Block is added, all nodes on the network are updated

RECIPIENTSENDER

WITHIN BLOCKCHAIN:

• Transactions are made between network addresses (nodes) using digital wallets

• The other nodes in the network will validate incoming transactions through the consensus mechanism

• Transactions can represent anything of economic value

• The BlockChain determines ownership of an entity (for example a Bitcoin) only on the basis of transactions, not positions

Transactions are the content of Blocks


$

A transaction is an agreement between a buyer and a seller to exchange goods, services and/or financial instruments.

In accounting, the events that affect the finances of a business must be recorded on the books; the ledger

TRANSACTION DETAILS AND/OR VALUE

VALIDATE

ADD TO BLOCKCHAIN1 2 3

Other Consensus mechanisms

• Round robin

• Voting

• Federated consensus

• Etc.

Practical Byzantine Fault Tolerance (PBFT)

• A centralized, low-latency distributed ledger consensus solution

• Transactions are signed by a node to be accepted by the network

Proof of Stake

• Transactions are validated by stakeholders who are in possession of part of the asset

Proof of Work

• Bitcoin utilizes proof of work consensus

• Proof-of-work is the computing power exerted by miners to generate valid blocks


Consensus: mechanism to add blocks to a BlockChain

• Consensus serves to :➢Decide what block is to be added to the BlockChain next➢Ensure that there is one single valid version of the Blockchain➢Prevent data manipulation or fraudulent transactions

Cryptographic methods are used to secure a BlockChain

Link subsequent blocks together

Ensure that BlockChain history cannot be altered

Authenticate nodes (users) who want to

contribute blocks


1 2 3

14

VON BLOCKCHAIN

#02


Blockchain has disruptive potentialin many areas of the economy

FINANCIAL SERVICES CONSUMER DATA BUSINESS & COMMERCE PUBLIC SERVICES

• Payment Processing

• Market Trading & Settlement

• FX Exchange

• Digital Money

• Trade Finance

• Health Care Records

• Global Credit Reporting

• Global ID

• Travel Documents and Records

• Employee Benefits & Insurance

• Smart Contracts

• Enterprise Software License

• Content Management

• Retail Payments

• Secure Messaging

• Smart Elections

• Global Criminal Records

• Public Records

• Licensure

• Census and Population Dynamics


What is the practical application of a distributed ledger?

• h

It allows the transfer and recordkeeping of assets without a central authority

• Potentially eliminates Clearing, Custodian, Exchanges and other intermediaries

Consequently costs, security, efficiency and speed of transaction can be improved

• Costs are reduced because intermediaries are unnecessary and processes are automated

• Speed is increased because everything happens on network

• Security is increased because there is no single point of failure

Why is BlockChain relevant?Flattening Business Models

BlockChain

Ledger

Custodian

Broker

Firm

Seller

Buyer

Custodian

Broker ClearingHouse

ClearingHouse

Firmt+


• Smart Contracts can be seen as embedded business logic within the blockchain

• They are programmable contracts defined with computer code which can verify and execute contract terms automatically

• Transfers of money, securities, property or anything of value can be done efficiently and conflict-free without the need of an intermediary


Smart contracts are blockscontaining business logic

A smart contract is created and stored on the

BlockChain

A triggering event activates

the smart contract

Transactions are automatically

generated by the contract

Since the smart contract is immutable and executes automatically, fulfilment of the terms is guaranteed, does not have to be enforced and

does not require arbitration


Settlement in seconds; 24 hours a day, 365 days a yearSettlement in 1-3 days

No intermediary to charge processing feesIntermediary charges processing fees

Counterparty risk eliminatedCounterparty risk due to intermediaries

Full visibility, automatic reconciliation and lower compliance costs

Limited visibility, manual reconciliation and higher compliance costs

Receiving Bank’s accountis credited

Sending Bankinitiates transfer

Correspondent or Central Bank

SendingBank

ReceivingBank Receiving Bank’s

accountis credited

Sending Bankinitiates transfer

Blockchain

345746345533233736484574875968

TRADITIONAL FUND TRANSFER BLOCKCHAIN-BASED FUND TRANSFER

Fund Transfer


Shorter Processes

Automated Corporate Actions (Smart Contracts)

All stakeholders hold the same record

Full visibility, automatic reconciliation and lower compliance costs

Issuance Cataloguing

Transfer Corporate Actions

=

Securities Transactions


PROVISION OF A CENTRAL COLLATERAL EXCHANGE WITHIN THE ORGANIZATION GIVES DESK THE MEANS TO OBTAIN OR RELINQUISH POTENTIAL COLLATERAL ASSETS WHERE REQUIRED

As a trading desk…• Collateral pricing and availability within the organization becomes more transparent• Prevents unnecessary additional trading costs from purchasing collateral in the market• Access to a wider range of potential assets whilst maintaining a degree of control over inventory

As a collateral management function…• Improves management, analysis, and control of collateral within the organization through the distributed ledger• Greater transparency of the movement of assets between collateral giving entities• Increased availability of potential collateral within the organization

As a technology function…• Proves the viability of distributed ledger technology as an enterprise grade solution• Experience in hands-on management of the design, implementation and support of the technology• Builds talent within the organization

Central Collateral Exchange


WARRANTS CAN BE ISSUED, DISTRIBUTED AND TRADED AS TOKENS ON THE BLOCKCHAIN

Blockchain Potential buyerCorporate 1 2 3Asset servicer

Warrant token

W

Corporate instructs the asset servicer to issue a warrant to market

Provides all necessary details on how to structure the terms of the warrant1

Servicer creates a number of new tokens to represent the warrants the corporate wishes to issue

All details of the warrant stored within the data of the token2

Potential buyers can purchase warrants through a two-way transaction of cash for transfer of ownership

Upon purchase, settling the token represents the ownership of the asset and the right to convert this to shares in the future3

Warrants

22

Application in Trade Finance


BLOCKCHAIN TECHNOLOGY CAN BE APPLIED TO TRADE FINANCE USE CASES BY UTILIZING SMART CONTRACTS INCLUDING MULTI-SIGNATURE

Fast and duplicate free document handling, single pool of documents related to a transaction. Multi-signature transactions in one Paper-based document exchange, creating delays

Transaction parties sign off the transaction on a decentralized basis – no additional time spent on coordination and transaction executionSignificant time spent on coordination and transaction execution

Optimized workflow, better and smarter fraud prevention built-in. Terms of contract only executed when predefined terms are met Heavy dependency on internal controls and compliance

Full visibility of transaction flows. Easy audit-trail and built-in certainty that documents originate from correct entityRisk of fraud incidents and regulatory fines

Contract not easily reversible and possibility of default ruled out Possibility of default

Buyer’s Bank issues letter of credit

Seller’s Bank accepts documents and releases payment

Shipment

Sending Bank Receiving Bank

Current state

Sending Bank Receiving BankBuyer’s Bank issues letter of credit

Seller’s Bank accepts documents and releases payment

345746345533233364845747928276259

Shipment

Blockchain enabled

DEMONSTRATION OVERVIEW

Examples of applications already developed

Real time, interbank money movement and settlement over the Ripple network

Real-time transfer of cryptocurrency (Bitcoin) between iOS Wallets, includingexchange and trading capabilities

Direct Exchange via Atomic Transactions (tokenized assets)

Smart Contract enabled distributed ledgers for different use cases (tradefinance, IoT, energy marketplace, healthcare, etc.)

IoT-related applications of Blockchain: connected home, health…

Privacy protection techniques, including zero knowledge-proof and confidentialtransactions

Supply chain and manufacturing applications


24

HERAUSFORDERUNGENUNDEMPFEHLUNGEN

#03


PrivacyBalancing the confidentiality and

traceability of activity

GovernanceRedefining the “new normal” threat

matrix for shared ledgers among large

banks

ImplementationEstablishing standard tools or

administration interfaces

Scalability & LatencyFinding solutions that can handle the

required volume

ProtectionSafeguarding against reorganization by

one or more participants

• BLOCKCHAIN TECHNOLOGY ENABLES DECENTRALIZED AND SHARED OPERATIONS

• MANY OF PROPERTIES OF BLOCKCHAINS CAN BE BENEFICIAL IN ONE CASE AND A CHALLENGE IN ANOTHER

CHALLENGES

Holistic ViewA universal view of information

from a single source

TransparencyProvidence and greater

transparency for regulatory

reporting

SimplifiedDecreased operational costs

and complexity

SpeedCan enable faster data

transfer times

SecurityData is immutable; logged

transactions cannot be altered

BENEFITS

What BlockChain bringsto the table

Copyright © 2017 Accenture. All rights reserved.25


Challenges of decentralized systems 1/2

•Anonymity of participants poses a problem for regulated markets

•“Private” Ledgers allow BlockChain applications that disclose participants

Identifiability

•All participants can see all transactions on the BlockChain, consequently confidentiality of transactions is not given

•Distribution of Ledger among participants can be limited, but this contradicts the principle of BlockChain

Confidentiality

•Depending on the type of BlockChain implementation, the system may not scale well in terms of performance, latency and memory requirements

•Bitcoin processes about 350’000 transactions a day and is considered used to capacity

• In Germany alone there are about 75 million cash transaction per day

Scalability


Challenges of decentralized systems 2/2

• Some BlockChain variants (like Bitcoin) do not have a defined moment when a transaction is final

• Rather, the probability that a transaction is included in the BlockChain gets (quickly) larger over time until it is so large that for practical purposes it cannot be removed

• Financial transactions require a defined moment in time when the transaction is definitely and finally valid

Finality

• Items on the BlockChain are virtual

• An interface between the BlockChain and the “real world” is required in the form of a trusted intermediary

• BlockChain can document the sale of an asset, but its existence and its properties cannot be determined

Relationship to real values

?FUTURE OUTLOOKWhat will tomorrow look like


• It is not certain in what applications BlockChain will become an established technology

• Industry and business models are not yet well-defined

• For financial applications there remain regulatory, confidentiality and practical issues

• Something will change, new business models will emerge, old business models will have to be adapted

• Practical applications are starting to become operational

• Awareness that BlockChain has the potential to be highly disruptive is important

A PHONECALL WAS MADE USING A PUBLIC SWITCHED TELEPHONE NETWORK

– AN INTERMEDIARY

Profitability 2025

ANALYTICS

ROBOTICS & PROCESS AUTOMATION

ARTIFICIAL INTELLIGENCE

DISTRIBUTED LEDGER TECHNOLOGY.

ROBO-ADVISORY

DIGITAL VENTURES


To enable digital transformationwe see clients working with seven key levers

x2

DIGITAL ECOSYSTEM

Ant Financial

Profitability Today

Increase Productivity Increase Revenues

29

30

… FRAGEN ?

#04
