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© 2017. For information, contact Deloitte China.
Solution Overview
Paul Sin, Ph.D.
Partner, Consulting
Deloitte China
Blockchain
© 2017. For information, contact Deloitte China.
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
© 2017. For information, contact Deloitte China.
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
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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
© 2017. For information, contact Deloitte China.
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
Buyer | Seller | 222 | Amount
Hash Address
030af6ea351643fbb7f79f1
Hash Address
Buyer | Seller | 222 | Amount
Hash Address
030af6ea351643fbb7f79f1
Hash Address
Synchronize
Fraud Alert
???
Impossible to Decrypt
© 2017. For information, contact Deloitte China.
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
© 2017. For information, contact Deloitte China.
7
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
© 2017. For information, contact Deloitte China.
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
© 2017. For information, contact Deloitte China.
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
© 2017. For information, contact Deloitte China.
10
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
© 2017. For information, contact Deloitte China.
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
© 2017. For information, contact Deloitte China.
12
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
© 2017. For information, contact Deloitte China.
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
© 2017. For information, contact Deloitte China.
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
© 2017. For information, contact Deloitte China.
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
© 2017. For information, contact Deloitte China.
16
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
© 2017. For information, contact Deloitte China.
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
© 2017. For information, contact Deloitte China.
DemonstrationDeloitte Mercury Trade Finance Solution
© 2017. For information, contact Deloitte China.
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
© 2017. For information, contact Deloitte China.
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
© 2017. For information, contact Deloitte China.
21
Dashboard
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22
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23
Data Encryption & Smart Contract
© 2017. For information, contact Deloitte China.
24
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
© 2017. For information, contact Deloitte China.
© 2017. For information, contact Deloitte China.
ArchitectureDeployment Options
© 2017. For information, contact Deloitte China.
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
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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
Buyer SellerLogistics
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
© 2017. For information, contact Deloitte China.
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
Buyer SellerLogistics
Ethereum Node
Ethereum Node
Pending Transaction
TF Web Portal
Consensus
MiningMining
API Gateway API Gateway
Online Banking
Online Banking
Tracking SystemERP
© 2017. For information, contact Deloitte China.
30
Microservices on Cloud