blockchain - deloitte us · blockchain is a linked list, with hash addresses calculated with an...

© 2017. For information, contact Deloitte China.

Solution Overview

Paul Sin, Ph.D.

Partner, Consulting

Deloitte China

[email protected]

Blockchain


2

Evolution of Data DistributionBlockchain is a network for distributed ledger with data integrity ensured through real-time synchronization and consensus. It is the result of decades of development on data distribution.

…

… …

…

… …

…

… …

…… …

……

…

Cannot Tamper

Conflict Resolution

Real-Time, Hybrid Cloud

Centralized Database

Client ServerDistributed Database

Master Data Management

Blockchain


3

CAP TheoremDid Blockchain resolve the CAP constraints? It ensures availability, but only “eventual consistency,” thus needs to wait 6 minutes to 5 hours for the data to be solidly stored.

Consistency Availability

Partition ToleranceOr Latency

• NoSQL• Cassandra• Riak

• MongoDB• HBase

• Centralized Database Blockchai

n


4

Hash Address

… | … | …

Tamper-ProofBlockchain is a linked list, with hash addresses calculated with an algorithm using contents in all blocks on the chain. Any tampered block will create an invalid hash for the next block and be rejected by all the other nodes.

Genesis Block

ReceiverSender

0x123 | 0x456 | $30

Hash Address

Optional Encryption

One-Time Address Generation

Mining

Private Key Public Key

Tampered Block


5

Fraud PreventionBlockchain allows double spending or financing without exposing sensitive information.

Player A

Buyer | Seller | 111 | Amount

Hash Address

0289d40ae4d74911942079

Hash Address

Player B

Blockchain


Hash Address

030af6ea351643fbb7f79f1

Hash Address


Hash Address

030af6ea351643fbb7f79f1

Hash Address

Synchronize

Fraud Alert

???

Impossible to Decrypt


6

Hash Address

Smart ContractSmart contract is essentially a program, and the Ethereum is becoming a global virtual machine.

Genesis Block

Event (e.g. Price Feed)

contract xxx {address owner;function xxx() {

owner = msg.sender;}

function kill() {if (msg.sender == owner)selfdestruct(owner);

}}

0xe9b31da13292480f5af23ee1

Hash Address

Mining

Compile

Pending Transactions

Payment


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Hash Address

Vault for DocumentDue to the size limit and performance requirement of a Blockchain node, vault was developed.

Genesis Block

Customer Vault

3P14159f73E4gFr7JterCCQh9QjiTPublic Key

Customer ID | ID | Address

Hash Address

ID.tif

AddressProof.pdf

IncomeProof.pdf

Bank A

Private Key

Bank B

KYC Fee

Inquiry

KYC Result


8

Conflict Resolution for Public BlockchainIn a public Blockchain like Bitcoins, the block with the most complete transaction set hashed will be accepted, all the others will be dropped.

Node 1

Node 3Node 2

Pool of Pending Transactions Broadcasted

The biggest block will reject all the smaller ones, as one of the consensus mechanism.

miner

minerminer


9

Conflict Resolution for Private BlockchainIt is obviously inefficient to have everyone mining and most of the results not accepted, hence in a permissioned Blockchain, more efficient network with trusted validators evolves, with consensus reached through majority voting.

Pool

node

Notarynode

node

node

Notary

node

node

Notary

nodenode


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Three ModelsAmong three models of implementation, the private and permissioned Blockchain network in a closed eco-system is the most promising one for short term.

Public Permissioned Private

• OTC Clearing & Settlement, Replacing Central Clearing (e.g. R3, Citi, JPMC, Santander, etc.)

• FX Exchange, Replacing Intermediaries (e.g. Ripple)

• Letter of Lading / Credit

• Mutual Fund Issuance & Redemption, Replacing Transfer Agency

• Insurance Claim with Medical Providers

• Blacklist for KYC

• KYC among Banks and Authorities, (e.g. Smart Entity Using Vault in UK, Singapore, etc.)

• OTC Clearing & Settlement with Counterparties, Brokers, and Market Makers (e.g. Using Ethereum* or Smart Contract with ~40% Saving)

• Syndicated Loan Among Participants

• Supplier Chain Finance (e.g. Barclays, DBS, SCB, BoA, etc.)

• Bancassurance

• Multiple Systems Updating Customer Information, Especially Subsidiaries (e.g. Smart Entity in UK)

Consortium / Regulator B2B Partnership Enterprise / Group

* Potential Latency of 17s


11

Trade Finance: As-Is Process FlowUsing Trade Finance as an example, effort reduction ranged from 28% to 75% in different stage, average at 37.9%, and the productivity gain will be around 61.1%.

Bu

yer

Issu

ing

Ban

k

Order

Ad

visi

ng

Ban

kSe

ller

AcceptIssue

Contract

Sign Apply LC

Review Document

Send Document

?

Review Document ?

Complete Shipment

File B/L, Invoice, etc.

Apply Export

ReviewDocument

ReviewDocument

Send Shipment

ReviewDocument

ReleasePayment

Receive Payment

Send Document

Review Document

ReceiveShipment

Confirm

Ship

Ship Goods

ReceiveGood

Collect Payment

Transfer Payment

Send Payment

Receive Payment

Reconcile

1. Contracting

2. LC Application 3. Export Application

5. Payment Collection

Reconcile Payment

4. Shipping


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Trade Finance: To-Be Process FlowThe effort reduction is more significant in the banking sector, ranged from 50 to 55%, while the customers will have much betterexperience in terms of turnaround time by at least 60%.

Bu

yer

Issu

ing

Ban

k

Order

Ad

visi

ng

Ban

kSe

ller

AcceptIssue

Contract

Sign Apply LC

Review Document

Review Document

Upload Document

Apply Export

Send Shipment

ReleasePayment

Receive Payment

Review Document

ReceiveShipment

Ship

Ship Goods

ReceiveGood

Collect Payment

Transfer Payment

Send Payment

Receive Payment

1. Contracting

2. LC Application 3. Export Application

5. Payment Collection

4. Shipping


13

Trade Finance: Risk Reduction

POReceived

InvoiceReceived

Last Shipment

Date

InvoiceMaturity

Date

Buyer Bank Finances Supplier Based on PO Using Buyer’s Credit Line, e.g. 70% of PO Value

Buyer Bank Converts the PO Financing (70%) to Invoicing Financing (100%)Upon Goods Arrival to Buyer’s Satisfaction

Ideal ScenarioPOC

2nd InvoiceReceived

3rd InvoiceReceived

Partial Shipment

Supplier Fails to Meet Obligation, and Repays 70%

Repayment Scenario

PO-Invoice Matching

Shipment and Buyer Acceptance Lead to Invoice / Repayment

Apart from productivity gain, Blockchain and Smart Contract together reduce significant credit and operational risk, as well as fraud in the processes.

Avoid Duplicated Financing


14

Bancassurance Case: As-Is Process FlowUsing Bancassurance as an example, effort reduction ranged from 15% to 75%, with an average of 34.5%, resulting in 52.6% productivity gain.

Cu

sto

mer

Ban

kIn

sura

nce

Contact

Sell

KYC

Prepare Illustration

Sign Proposal

UW?

Issue Policy

Receive Policy

Conduct Underwriting

KYC

Claim

Validate Claim Form

Fill up Claim Form

Pay Claim

Detect Fraud

Receive Payment

Debit Account

Collect Premium

Extract Premium

Data

Extract Commission

Data

Send Result

Reconcile Payment

Receive Debit Note

Update CRM

Extract Commission

Data

Pay Commission

Reconcile Commission

Request Service

Inquire CRM & Respond

Extract Policy Update

1. Selling

2. Underwriting 3. Claim 4. Premium

5. Commission

6. Service


15

Bancassurance Case: To-Be Process FlowInsurance firm will be benefited most from the transformation, resulting in 86% reduction in effort.

Cu

sto

mer

Ban

kIn

sura

nce

Contact

Sell

KYC

Prepare Illustration

Sign Proposal

UW?

Receive Policy

Conduct Underwriting

Claim

Fill up Claim Form

Pay Claim

Receive Payment

Debit Account

Collect Premium

Extract Premium

Data

Receive Debit Note

Update CRM

Pay Commission

Request Service

Inquire CRM & Respond

1. Selling

2. Underwriting 3. Claim 4. Premium

5. Commission

6. Service


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Fund Transfer

Banking Use CasesBlockchain significantly reduces cost, effort, and risk, as well as create new revenue stream.

P B

Speed / Cost / Transparent

C

R B

Santander, Ripple, UBS

Domain

Benefit

As-Is

To-Be

Player

KYC / SVoC

Revenue / Fraud / Service

ICICI Bank, Polcoin

Regulatory Report

Security / Cost

Axiom, Bank of Ireland

R

R

R

R

Trade Finance

Effort / Operational Risk

Ex

B

BNP, UniCredit

Im

Ex B

LC

Im B

CP

Post-Trade

B C

Effort / Operational Risk

B

UBS, ASX

CP


17

I

KYC

Insurance Use CasesBlockchain can be applied to the whole value chain, with both public and private networks.

Fraud / Cost / Compliance

Claim

M

C

Service / Fraud / Cost

C

M

I

IoT

Allianz, SantamTradle, Blockscore

Reinsurance

I

R

Security / Simplicity

I

I

R

I

Blem

I

I

Microinsurance

Market / Simplicity / Cost

C I

IoT

RixKebiz, Consuelo

Loyalty

L

Sticky / Cost

C

L

GI

IL

Loyyal

C GI

IL

I

I

Domain

Benefit

As-Is

To-Be

Player


DemonstrationDeloitte Mercury Trade Finance Solution


19

Trade Finance PotentialDistributed Ledger Technology (DLT) will infuse trust in the trade finance ecosystem, reduce fraud, improve productivity, and most importantly, increase revenue uptake.

Opportunity for trade finance

HK$ billion HK$ billion


20

Trade Finance Eco-System

Regulator

Other Participants DLT Network

Node

Freight Forwarder

Commercial Clients

SMEs

SMEs

SMEs

Bank

Trade

Facilitation

Service Provider

Corporate Client

Bank

Network Operator

Network Participant


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Dashboard


22


23

Data Encryption & Smart Contract


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Global Trade Finance Network

Country Sponsor Stakeholder Business Technology Date

Singapore Infocomm Development Authority (IDA)

Standard CharteredDBS Group

Trade Finance TradeSafe 2016-05

Belgium KBC Deutsche Bank, HSBCKBC, Natixis, RabobankSociété Générale, UniCredit

Trade Finance Digital Trade Chain (DTC) on Corda

2016-07

Singapore Infocomm Development Authority (IDA)

BAML (Azure)HSBC (Corda)

Trade Finance Hyperledger 2016-08

Ireland Irish Dairy Board OrnuaSeychelles Trading

Dairy 2016-09

UK BHP Billiton Oil Ethereum/IPFS 2016-09

India ICICI BankEmirates NBD Bank

Trade Finance 2016-10

US Brighann Cotton Commonwealth Bank of Australia (CBA)Wells Fargo

Cotton(Texas Qingdao)

Skuchain’s Brackets System 2016-10

India Mahindra Group Mahindra FinanceSmartShift

Farm Equipment Hyperledger 2016-11

Netherlands ING Easy TradING ConnectMercuriaSociete Generale

Oil Ethereum 2017-01

China Ping An BankBank of China

Trade Finance Hyperledger 2017-01


ArchitectureDeployment Options


27

Topology: Option 1No cloud infrastructure is involved, leverage existing online banking and trade finance web portal to serve customers and allow logistics partners to update status. Bank firewalls will have to expose certain ports for data replication among nodes.

Bank A Bank B

Buyer SellerLogistics

Ethereum Node

Ethereum Node

Pending Transaction

TF Web Portal

Pending Transaction

TF Web Portal

Flooding

Consensus MiningMining

Online Banking

Online Banking

Tracking SystemERP


28

Topology: Option 2Trade finance web portal and Blockchain infrastructure are hosted on Virtual Private Cloud (VPC), integrating with all partners through microservices exposed on secured API gateways, highly scalable and easy to for new node deployment.

Bank A Bank B

Cloud

VPC.1 VPC.2


Ethereum Node

Ethereum Node

Pending Transaction

TF Web Portal

Pending Transaction

TF Web Portal

Flooding

Consensus MiningMining

API Gateway API Gateway

Online Banking

Online Banking

Tracking SystemERP


29

Topology: Option 3Hosting only application on cloud and distributing the data layer to banks will result in the lowest cost of ownership and fastest consensus reaching. However, it becomes complicated to add more nodes.

Bank A Bank B

Cloud

VPC


Ethereum Node

Ethereum Node

Pending Transaction

TF Web Portal

Consensus

MiningMining

API Gateway API Gateway

Online Banking

Online Banking

Tracking SystemERP


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Microservices on Cloud

blockchain - deloitte us · blockchain is a linked list, with hash addresses calculated with an...

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