Industrializing the blockchain

EY Global Blockchain Summit

San Francisco, CA

April 26, 2017


EY Ops ChainWhere blockchain meets finance, operations technology and information technology


► Problems to be addressed

► Our vision: EY Ops Chain

► Our commitment and global

investment

► New enterprise, new technology

► The new competitor


EY Ops Chain is about making blockchains work for enterprise-scale markets and businesses.

Origin of the

technology

Today:

FinTech focus

The future: trusted enterprise networks for

value creation

Source: http://bitcoin.i-

rme.es/img/Bitcoin%20Logo%204096%

20PNG%20Forocoches%20(RME).png


Traditional (pre-blockchain) systems are centralized and, consequently, represent a single point of trust, risk and failure.

BankMerchant 2

Merchant 3

Merchant 1

Customer 2

Customer 3

Customer 1

Visa, MasterCard

and American

Express networks


Once we leave the world of digital payments and assets, the process for completing transactions becomes even slower.

Pull raw materials from

inventory

Product

manufacturing

Ship finished

goods

Receive purchase order

Customer receipt

of product

Customer receipt

of invoice

Invoice and goods receipt

matching

Invoice generated for

customer

Payment sent to supplierMatch payment

and invoice

Close

transaction

Create and send

purchase order


The lack of trusted intermediaries means that business operational systems are a far bigger mess than finance

The world of business

operations is awash in a

flood of just-out-of-sync and

nonstandard EDI and XML

messages.

The results are:

1. Islands of information

2. Data that never

propagates past one

node in the network

3. Information that always

is slightly out of sync

Logistics

provider

Storage

and

distribution

center

Retail

partner

Original

equipment

manufacturer

Tier 1

Supplier

Tier 2

Supplier


The disconnected nature of untrustworthy systems manifests itself in the time required to fully close out transactions.

0

10

20

30

40

50

60

70

Credit Card Stock Trade Mortgage DSO F100

Da

ys r

eq

uire

d to

se

ttle

Average settlement time by transaction type

Source: EY

Credit card Stock trade

Source:

http://blog.unibulmerchantservices.

com/submission-clearing-and-

settlement-of-credit-card-

transactions

Source: http://www.investopedia.com/terms/s/settlement_period.asp

Source:

https://themortgagereports.com/194

87/how-long-does-it-take-to-close-

a-mortgage-gina-pogol

This chart was developed by EY based on readily available public data. Sources are included.


► Problems to be address



investment




Historically, information and operations technology and enterprise finance have been loosely coupled, and often are out of sync.

Information

technology

► Master data

management

► ERP

► CRM

► IT security

Enterprise

finance

► Payables

► Receivables

► Internal transfers

► Assurance and tax

► Working capital

Operations

technology

► Inventory

► Production

► Transport and logistics

Loosely coupled with messaging and activity triggers


With blockchains, we build systems that all together sell, build, deliver and pay for product.

Information

technology

Enterprise

finance

Operations

technology

Customer information that always is up to date

Procurement pricing that automatically adjusts

when you meet volume thresholds

End-to-end business operations that always

are in sync

Payments that are collected when carriers provide

proof of delivery

Goods that are insured automatically when they

are loaded aboard a ship


EY is putting blockchain technology to work in the enterprise to realize this vision.

EY Ops Chain: three key components

Assets Services Partners

► EY software assets

► EY process assets

► Third-party software

► Process consulting

► System integration

► Tax

► Assurance and audit

► Enterprise software

► Industry foundations

► Leading start-ups


EY is focused on building assets and an ecosystem of partners across five key solution areas.

Embedded

finance

Industrial

solutions

Operational

enablers

Enterprise IT

integration

Turning finance from a vertical into an embedded

horizontal

Industry-specific assets covering everything from power to

media

Core operations capabilities from logistics to asset

management

Cloud integration, system security and ERP connectivity

Secure, scalable systems on every device, everywhere

Solutions

Internet of

Things


Industrializing the blockchain means making it simple to apply this technology to your business.

► Process maps for areas impacted

by blockchain technology

► Software assets for jump-starting

solution development

► Case studies and lessons learned

from existing solutions and

approaches

► Integration tools and guides for

process and technology

For each area, following is a set of assets

that will make it easier and faster to get up

and running.

Solutions

Embedded

finance

Industrial

solutions

Operational

enablers

Enterprise IT

integration

Internet of

Things


EY Ops Chain: industrializing the blockchainWhere information and operational technology meet the blockchain

Turning finance from a vertical into a

horizontal

Payments, settlements, asset

management and securitization

integrated into platforms, for

example:

► Cars that insure themselves

► Parking meters that can

securitize themselves

► Doors that get paid to open

► Sensors that get paid for data

Embedded

finance

Industrial

solutions

Operational

enablers

Enterprise IT

integration

Internet of

Things



Industry-specific solutions that take

into account unique issues for each

sector, for example:

► Distributed energy management

in power and utilities

► Multiparty contract manufacturing

in electronics

► Distributed asset management

and finance in heavy industry

► Digital rights management and

rights markets in media

► Medical services billing

► Clinical trial management

Industry-specific assets covering

everything from power to media

Embedded

finance

Industrial

solutions

Operational

enablers

Enterprise IT

integration

Internet of

Things



Secure, scalable solutions for core

cross-industry operational

challenges, for example:

► Decentralized autonomous

organization (DAO) markets for

cargo and logistics

► Enterprise-internal and DAO-

based asset management

► Inventory management,

ownership and finance

► Trade finance and cross-border

logistics

► Quality control and monitoring for

agriculture, pharmaceuticals and

manufacturing

Core operations capabilities from

logistics to asset management

Embedded

finance

Industrial

solutions

Operational

enablers

Enterprise IT

integration

Internet of

Things



Multiple cloud and ERP systems

that deliver the broad set of back-

office and inter-enterprise service

integrations in order to build, run,

and integrate blockchain solutions

and leverage best-in-class services

from providers such as:

► BlueMix

► Predix

► Cisco

► Azure

► SAP

Cloud integration, system security

and ERP connectivity

Embedded

finance

Industrial

solutions

Operational

enablers

Enterprise IT

integration

Internet of

Things



Blockchains on nearly everything,

from anywhere, to deliver:

► Secure, scalable device

management

► Distributed systems that resist

distributed denial of service

(DDOS) attacks

► Commerce, service and

integration on any device

► Machine learning and blockchain

integrations on any device

► Low power, low storage solutions

Secure, scalable systems on every

device, everywhere

Embedded

finance

Industrial

solutions

Operational

enablers

Enterprise IT

integration

Internet of

Things


Leveraging EY’s global reach and the breadth and depth of our service lines

► Automated securitization

► Secondary markets

► Consumer financing

► Smart contracts that

calculate and pay value-

added tax (VAT)

► Blockchains that are

“born” compliant

► Hyperledger or Ethereum?

► Public or private chain?

► Key management strategy

► Integration with legacy IT

► Business process

transformation

► Productivity gains

► Tamper-proof audit trails

► Instant financial close

► Smart contracts that hold up in court

► Value chain transformation

► Secure collaboration

► New business models

End-to-end

thinking from

finance, to tax, to

industry

processes

Joined up and

delivered by

professionals in

more than 200

countries

Finance

Tech

Tax

Process

IndustryLegal

and

audit


Integration of tax, assurance and regulatory compliance is a key differentiator for EY.

The creation of

immutable

records that span

multiple entities

creates unique

opportunities to

radically simplify

tax, regulatory

and audit

challenges.

Headquarters

Foreign subsidiary

Distribution partner

Safety regulator

Tax authorityInternal audit

► Build controls into smart contracts

► No ability to violate or cover up actions

► Track profits and

transfer pricing

across the world

► Verified marketing payments

► Inventory and sellout visibility

► Instant close

► Global visibility► Product history

► Supplier history

► Automatic payments

► Automatic filing


The EY Ops Chain ecosystem: curated partnersCombining heavyweight enterprise champions and aggressive newcomers

Enterprise

software

leaders

Leading-edge

start-ups

Industry

foundations





investment




We are guided by a set of key principles to help prioritize our relationships and development work.

Key principles for EY

investment in blockchain

1. Blockchain technologies are not

a fix-all. Solutions should be

driven by business requirements.

2. New technologies have the

biggest impact when applied to

new workloads and previously

unresolved problems.

3. An open-source foundation is

essential for any platform that

will involve the secure, inter-

enterprise transfer of value.


Blockchains aren’t for everyone and they aren’t for every solution: a five-point test

1.Are there multiple parties in this

ecosystem?

► Blockchains are more secure with more parties in the

network. Single-participant networks are not especially

secure.

3.Is it critical to have a tamper-proof

permanent record of transactions?

► Blockchains create permanent records that cannot be

edited or deleted.

4.Are we securing the ownership or

management of a finite resource?

► Core logic in the system is designed to prevent double

counting of assets and record ownership and

transfers.

► Blockchains are transparent by design, wherein

ownership or control of assets is public and

transparent by design.

Does this ecosystem benefit from

improved transparency?5.

► Blockchains improve trust between participants by

providing multiple points of verification.Is establishing trust between all of

the parties an issue?2.


EY research and developmentBlending deep subject-matter experience with skills in math and science

Development, computer

science and math skillsBusiness process, tax and

audit knowledge

► Mathematics

► Cryptography

► Information theory

► Physics

► Machine learning

► Biometrics

► Business process design

► Direct and indirect tax

► Tariffs, tax and trade duties

► Audit

► Regulatory reporting

Working collaboratively across EY Blockchain Labs in New York, London and Trivandrum to develop and

provide solutions for imbedded finance, tax, audit and industrial applications


A global network of research labs and delivery centers

New York

Financial Services Innovation Center

London

Blockchain Global Research and

Development Lab

Trivandrum

Global Service Center

EY wavespace™ Innovation Centers with

blockchain skillsEY Blockchain Labs

San Jose

San Francisco

Paris

Zurich

Warsaw


EY has invested significantly in intellectual capital during the last year around the business applications of blockchain.

EY blockchain point of view EY blockchain: health care point of view

► EY’s point of view white paper discusses blockchain

as it infiltrates finance, health care and a host of

other industries. “The long-term blockchain vision is

of markets that run by themselves, with finance

embedded directly into the natural activities

occurring within those markets. In such an

environment, the finance industry will look very

different than it does today.”

CoinDesk highlights EY’s public blockchain

work in Best of 2016

► “From the original pitch, we had high hopes for this

submission – and it didn't disappoint … EY tends to

tread softly and carry a big stick, and the piece was

a reminder of how much thought work it has ongoing

behind the scenes – even as it eschews PoCs and

PR. At a time when many institutions still dismiss

bitcoin and other open blockchains, EY's salvo was

a rare entry that championed collaboration and

open-mindedness.”

► This EY point of view white paper that

“demonstrates how blockchain technology supports

a distributed network of payers and improves

processes for maintaining and sharing provider

data … Leveraging a shared infrastructure can

provide new efficiencies to payers and providers

and ultimately impact labor costs, reconciliation

efforts, auto-adjudication rates, and overall member

experience.”

Source: http://www.ey.com/Publication/vwLUAssets/ey-blockchain-

reaction-tech-companies-plan-for-critical-mass/$FILE/ey-blockchain-

reaction.pdf, P. 10 Angus Champion de Crespigny, EY

Source: http://www.ey.com/Publication/vwLUAssets/ey-blockchain-in-

health/$FILE/ey-blockchain-in-health.pdf, P. 4 Executive Summary

Source: Article by Pete Rizzo, http://www.coindesk.com/coindesk-2016-

review-blockchain-best-stories, CoinDesk, Jan 17, 2017

http://www.coindesk.com/coindesk-2016-review-blockchain-best-stories/


EY is building a sizable portfolio of our own blockchain assets to complement third-party solutions.

EY Identity Management

► Distributed identity management

EY Blockchain Navigator

► Administration user interface for

blockchain tools

In production In development, pilot and proof of concept for clients

Supply chain

management

► Enterprise procurement

► Contract manufacturing

► Bill of materials

management

► Commodity pricing

► Contract management

► Invoicing and payments

► Spend auditing

► Asset provenance

Media

► Digital rights markets

Tax

► Cross-border VAT

► Trade tax and duty

Automotive

► Fractional vehicle

ownership

Assurance and audit

► Bitcoin exchange audit

tools and process

► Confirmations blockchain

Enterprise IT

► Database connectors

► Security management and

access logging

► Master data management

► ERP integration and sync

► EDI-to-blockchain sync

Financial services

► Trade settlement

► Asset exchanges

► Embedded payments

► Autonomous marketplaces

with artificial intelligence

► Marine insurance

Life sciences

► Production traceability

► Clinical trial collaboration

Health care

► Payor management

Energy

► Distributed smart metering

Pilot and proof of concept assets in use for clients





investment




The enterprise has changed beyond all recognition, but the approach to enterprise information technology hasn’t.

From vertically integrated … … to ecosystem partner

► River Rouge plant for Ford

► Vertically integrated, end-to-end car manufacturing

► Source: Wikipedia

► Foxconn’s Shenzhen factory complex

► Assembly only, depending on a huge global network

of suppliers

► Source: The Telegraph

http://i.telegraph.co.uk/multimedia/archive/01645/FoxConn8_1645137i.jpg


Transaction processing is the foundation of enterprise computing, but it needs to be reinvented for the ecosystem era

Transactional data

Workflows

Analytics

Optimization

Orders

Payments

Inventory

Shipments

Employees

Billing address


There is a name for what blockchains do: transaction processing

The blockchain:

It’s technology that’s been around since the 1960s.

CICS in 1966

Source: https://www.theregister.co.uk/2016/05/19/acronis_testing_blockchain_for_backup


Congratulations

We just reinvented technology from 1966.


Blockchains are transaction processing for the ecosystem era.

Synchronized records, no

intermediary

► Every participant in the network

has up-to-date information.

► Units of measure and other items

are standardized across all

participants.

Shared governance with

private data

► Governance of the system is

shared, but data always can

remain private.


Traditional computing models centralize processing work.

► Highly efficient because it drives up workload

of very expensive processors (or at least they

used to be)

► Thin-client approach to computing


Source: http://www.mkomo.com/cost-per-gigabyte-update

1985 July

10 MB drive

$710.00

$71,000.00 per GB

2014 March

3.0 TB drive

$99.99

$0.03 per GB

The economics of computing are changing because compute power is now, effectively, free.


Blockchains are a breakthrough in cybersecurity.As the networks get bigger, the environment gets more secure.

Traditional systems have a single

point of failure.

With a blockchain, you must control more than 50% of the

computing power in the network to take control.

As a result, as you add more nodes to the blockchain, it gets harder to hack.


When you add it all up, this amounts to an entirely new way of thinking about computing.

Modern era

Expensive computing

Postmodern era

Free computing

High-trust

environment

Centralized internet

Low-trust

environment

Distributed internet





investment




Command and control enterprises are now competing with self-organizing marketplaces.

► Only a few preferences can be

expressed and managed by a

top-down model.

► Top-down models tend to treat all

participants in largely the same

manner.

► Individual staff cannot easily have

different work hour models, timing,

or varying periods of work intensity.

Supply

Demand

Optimization

algorithm


Bitcoin allowed a bunch of strangers to work as an integrated digital financial system.

Decentralized group acting like

an integrated banking entity

If it works for banking, why not

let it work for other industries?

Source: http://bitcoin.i-

rme.es/img/Bitcoin%20Logo%204096%

20PNG%20Forocoches%20(RME).png


The future of digital markets

► Marketplace models allow everyone to

manage their own preferences and

requirements.

► Incentives and goals shape the

behavior of the participants and help

drive them toward the same overall

productivity targets.

► Marketplace models also allow

enterprises to smoothly blend internal

and external resources.

► Some participants are machines, some

are people, some are based on rules,

and some are based on artificial

intelligence.

People plus DAOs asset pools and machine learning all interacting


Blockchains are the best way to integrate disparate networks of people and systems to create economic value.

The building blocks

Wallets

Keys

Contracts

Ledgers

The features

Identity and discovery

Provisioning and access

Economic exchange

Data storage and reporting


Key contact

Paul Brody

EY Global Innovation Blockchain

Leader

+1 415 894 8046

[email protected]

Twitter: @pbrody


Thank you!

EY | Assurance | Tax | Transactions | Advisory

About EY

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and confidence in the capital markets and in economies the world

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© 2017 EYGM Limited.

All Rights Reserved.

EYG no. 04033-173GBL

1705-2288253

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This material has been prepared for general informational purposes

only and is not intended to be relied upon as accounting, tax or other

professional advice. Please refer to your advisors for specific advice.

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Industrializing the blockchain

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