Blockchain: What Partners Need to Know - Winning is...

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Blockchain: What Partners Need to KnowAmanda Wilkie, PMP – Consultant

© 2019 Boomer Consulting Inc. All rights reserved.Communities l Consulting l Training

• 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 [email protected]: @AmandaWilkieBCILinkedIn: https://www.linkedin.com/in/amanda-wilkie-pmp/

Consultant Amanda Wilkie


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Amanda Wilkie

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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.



Blockchain Timeline

2008 Bitcoin Whitepaper

2013 Bitcoin 2.0 -

Ethereum

2015 Year of Consortia & Hyperledger

2016 Year of Proof of Concept

2017 Smart Contracts

2020 Blockchain

Apps-Parallel with

Current Systems

2023 Blockchain

replace Legacy

Systems

2025 Blockchain

widely adopted

2017 Year of ICOs

2019 – Year of Regulation?


Six Categories of Blockchain Use Cases

Static Registry

• Distributed database for storing reference data

• Example: • Land title • Food and safety

an origin • Patent

Identity

• 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

Smart Contracts

• Set of conditions recorded on a blockchain triggering automated, self-executing actions when pre-defined conditions are met

• Example: • Insurance-claim

payout • Case-equity

trading • New- music

release

Dynamic Registry

• Dynamic distributed database that updates as assets are exchanged on the digital platform

• Example: • Fractional

investing • Drug supply chain

Payment Infrastructure

• 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

Other

• 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

Record Keeping Transactions

Source: PwC


Key Challenges To Blockchain

Participant Trust

Safety: Are transactions secure

Public vs. Private:

Information Accessibility/Exposure

Legal, Regulatory &

Audit Framework

Regulatory Body: No global regulatory

body to set standards

Auditing Challenge: How do you audit this

technology?

Blockchain Maturity

Young Technology: May not operate at

scale without compromising on

security, speed or cost

Cost: Hard to estimate true cost of

total conversion

Adoption

Proper Incentives: Potential participants will need to be sold on the value of the

platform

Consensus Needed: Participants must

come to group agreement on platform and

standards acceptable to all

Interoperability/ Integration

Interoperability: Ability to integrate

with participant existing client systems

and processes

Architectural Role:How will blockchain

eliminate, replace, or work with current

technological platforms


What blockchain can do for public accounting

Improved Efficiency

Getting data into and out of the system can

be more efficient than

legacy accounting

applications.

Reduced Errors

Reduce data entry errors.

Smart contracts will

reduce human error making

many accounting functions

automatic.

Easier Reconciliation

Smart contracts can

automate tasks associated with reconciliation,

making this end-of-month chore less of a

burden.

Reduced Cost

Increased efficiency and reduced errors translates into reduced cost.

Reduced Fraud

Immutability of blockchains

make it extremely difficult to perpetrate

fraud.

Improved Regulatory Compliance

Improved security can simplify the

burden of an agency to

satisfy regulatory demands.

Reduced Auditing

Through smart contracts,

many auditing functions can

be automated, reducing the

time an auditor needs to spend

looking at records.


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


Initial Coin Offerings

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

Initial Coin OfferingSecurity Token Offering


Ethereum raised over $18mil in 2014

Ripple pre-mined 1 million XRP in 2013

Aragon raised $25mil in 15 minutes

Basic Attention Token raised $35mil in 30 seconds

Successful ICOs

© 2019 Boomer Consulting Inc. All rights reserved.© 2019 Boomer Consulting Inc. All rights reserved.

Exchange Fees

Advisor Fees

Accounting & Legal

Fees

ICO Opportunity for FirmsHigh Risk High Reward

Illiquidity Premium

Block Conversion Premium

Regulatory Premium

Average cost of an ICO rages $1-3mil

High Demand for CPAs

Being Very Selective

Must be Collaborative


Smart Contracts:The future of business contract automation


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


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


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?


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


Auditing Smart Contracts

• Smart contracts business logic• Interface between smart contracts and external data

sources • Management’s controls over the smart contract code

Opportunities for auditors to identify

errors or vulnerabilities

• An understanding of blockchain technology• Programming languages & computer logicSkills needed


A decentralized, portable, secure, privacy-respecting, and entirely user-controlled digital identity

Self-Sovereign Identity (SSI)

Blockchain is the tool that makes SSI possible.


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


Self Sovereign Identity

Security

• The identity information must e kept secure• Protection• Persistence• Minimization

Controllability

• Individual must be in control of who can see and access their data• Existence• Persistence• Control• Consent

Portability

• Individual must be able tot use their identity data wherever they want and not be tied to a single provider• Interoperability• Transparency • Access


Impact of SSI

Identity & Access Management

Replace insecure ID verification (SSN and

passwords)

RegTechChanges KYC & AML, adherence to GDPR

CybersecurityData Integration

Make data sharing much more flexible


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


Maersk Shipping Pilot

Currently accounts for almost 16% world's global shipping fleet traffic

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

"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


“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

“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 game-changing technologies,” -Brian Kreischer, Managing

Partner, Frank, Rimerman & Co.

2018 Top 100 Firms –Accounting Today


“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.”


Start your research


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