How and why blockchain will change our futureGabriele Tamburini, EMEA Blockchain Lab26th September 2018

© 2018 Deloitte 2

Explore the basics of blockchain

Share what Deloitte is doing

Understand key opportunities

Agenda

© 2018 Deloitte 3

Rome wasn’t built in a day

How it all started \1

2008

20041999199819971983 1988

Blind signature

Anonymous cryptographic

electronic money used as

micropayment system at one US bank from 1995 to

1998. In 2002 eCashTechnologies was

acquired by InfoSpace (currently known as Blucora)

eCash, D. Chaum

B-money, W. Dai

Distributed DB

Early proposal created for an "anonymous,

distributed electronic cash system". In the

1st protocol in the essay, the use of a

proof of work function is proposed

as a means of creating money

Hashcash, A. Back

Proof of work

Proof-of-work system used to limit

email spam and denial-of-service

attacks

Bit Gold, N. Szabo

Sequential money creation

Szabo designed a mechanism for a decentralized

digital currency. A participant would

dedicate computer power to solving

cryptographic puzzles. Bit gold was never implemented.

Anonymous Electronic Cash, T.

Sander & A. Ta-Shma

Anonymity

Fully anonymous, auditable system, by constructing an

electronic cash system that is

signature-free

H. Finney

In 2004, Finney created the

first reusable proof of work

system (P.o.W.)

Reusable P.o.W

In November 2008 Satoshi Nakamoto

published the Bitcoin white paper

Bitcoin: A P2P Electronic Cash

System, S. Nakamoto

Bitcoin

© 2018 Deloitte 4

Bitcoin is the first successful blockchain implementation

How it all started \2

2008

2010

First real payment in BTC (10k

BTC for two pizzas)

2011

Launch of the firste-wallet app for

smartphone

2012

Paymium is the first EU exchange with Payment

institution license

Oct 2013: US government closes Silk Road; BTC price shrinks but rapidly recovers

Dec 2013: Chinese central bank (biggest BTC market) forbid to the Chinese FS to hold BTC

Feb 2014: MtGox, the biggest BTC exchange, went bankruptcy with over 850k BTC losses

Nov 2008: Satoshi Nakamoto published Bitcoin white paper

Jan 2009: releasing of software: blockchain is operative

First steps of bitcoin

2009

Resilience to shocks

2015 2017

Bitcoin shows period of high volatility but once

stabilized overtakes Western Union in term of daily transacted volume

20142013

~$16 billion

Market Cap

$1,2 billions of Venture Capital’s

investment in Bitcoin and

blockchain sectors

Source: historyofbitcoin.org; thenextweb.com; coinmarketcap.com (24/09/18)

Today

4%Bitcoin

Cash 52%

11%Bitcoin

Ripple9%

Ethereum

Other

24%

Market Cap

~$218 billion

Today’s Cryptos market cap (~$218 billion) accounts for

~0,5% of the GDP of USA, EU and China (about $46k Billion)

© 2018 Deloitte 5Source: Gartner Hype Cycle for emerging technologies 2018 – July 2018

Blockchain for Gartner

From fear of missing out it is now going trough a disillusionment phase

Blockchain today

Blockchain last year

© 2018 Deloitte 6

AGENDA

What is the blockchain?1

The Deloitte Blockchain Lab2

Blockchain hot opportunities3

© 2018 Deloitte 7

© 2018 Deloitte 8

Exchange of value in the absence of trust

What is basically Blockchain?

FSI

Data is copied

between users

User 2User 1

Blockchain – The new paradigm

Blockchain

Web 1.0/ Web 2.0

Text and Images

Videos

Music

Intangible assets (currency, shares, patents, votes, personal data)

Tangible assets (real estates, goods, etc.)

Obligations (contracts, pledges)

Ownership is transferred

between users

User 2User 1 The need of trust required to exchange value has slowed down the disruption of FSI

“As other industries that have

been transformed by new

technologies and digitization,

blockchain technology could

reshape the financial industry”

Nathaniel Karp BBVA Compass’ Chief Economist (July 2015)

Disruptive digital evolution

© 2018 Deloitte 9

(Bitcoin) Blockchain

Blockchain is at the crossroad of 3 key elements

Cutting edge

CryptographyLargest (non-military)

application of public key

cryptography in history

Cryp

tog

rap

hy

1

Computer networking

and data transmission

BitTorrent-like P2P Network

Architecture with no central

nodes

Ch

ain

of

blo

cks

2

Game Theory

Consensus around the “truth”

designed balancing incentives of

competing players

Monetary theory

De facto deflationary

monetary policy

Pro

of

of

wo

rk

3

© 2018 Deloitte 10

Cutting edge Cryptography

Cryptography allows for the secure exchange of value when is not possible to leverage on trust

Cryptographic Digital

Signature

How can we...

In a P2P system

Bitcoin is completely based

on P2P transactions and

there isn’t any central

authority allowed to rule

in disputes

…create a wallet or account

where values are stored?

…assure that the transaction is

done by the sender for a

receiver?

…make it easy for everyone to

verify?

1

© 2018 Deloitte 11

Computer networking and data transmission | Distributed Ledger

It also allows for the safe transfer of value throughout a distributed network that has no central authority

Central authorities (banks, insurances, BCE, notary…)

Multiple intermediaries

The security and accuracy of the transaction relies on intermediaries

Central authorities

Transfer of Value

Centralized system

The net is created with spontaneous nodes that can enter and exit at anytime. When a node enters, it can copy the entire ledger

Every node can transfer information and “mine” (“play the game” and gain cryptocurrency)

When a block is mined, it gets appended to the chain and communicated to everyone

Distributed system - Blockchain

Transfer of Value

DATA DATA DATA DATA DATA …

Past Future

Today

Node 1 Node 4

Node 2

Node 5

Node 6

Node 8

Node 7

Node 9

Node n

Node 3

Any member of the network (or “node”) can see existing entries, and

can store new data

Any disagreement is fixed through

consensus

vs

2

© 2018 Deloitte 12

Cutting edge Cryptography | Data structure overview

The blockchain data structure is an ordered, cryptographically secure, back-linked list of transaction blocks

2

Data

Previous block hashGenesis

block

Block 1 Block 2

Body = Data

Header = previous block hash

Blocks

Blocks are made by two parts: the

header and the body:

− the header contains the previous

block hash (fingerprint)

− the body contains data (e.g.

transactions)

Genesis block

The genesis block is the first brick of

the blockchain

It is hardcoded into the protocol

In Bitcoin it contains the quotation:

“The Times 03/Jan/2009 Chancellor

on brink of second bailout for banks”

© 2018 Deloitte 13

To gain the right to add a new block to the chain, miners need to solve a computationally -intensive puzzle, re-writing history is very expensive!

Cutting edge Cryptography | Data structure overview

Source: Prof. F. Ametrano, Politecnico di Milano

Decentralized security is ‘inefficient’ by design!Bitcoin mining operations alone ‘burn’ 332 megawatts/h, around 268,990 average American citizen homes

2

© 2018 Deloitte 14

Blockchain integrity is guaranteed by the computation work done by miners

Proof-of-(Computational) Work3

Guarantee blockchain security and immutability, creating new blocks, extending the blockchain, avoiding that malicious agents are not able to transfer what they don’t

own or to corrupt it

Validate new transactions assuring that after it is completed, the sender

cannot repudiate what he did

The special nodes of the network that

guarantee computational power are called

MINERS

They do this because if they WIN (Game

theory) they gain a prize with an implicit

increasing VALUE (Monetary theory)

© 2018 Deloitte 15

Three areas of proven value

Blockchain features and applications

Peer-to-Peer

Near real-time

Enables the sharing of value without having to go through a central server

Network of equal nodes

No central authority

Distributed ledger

Notreversible

Censorship resistant

Crypto secure

Open source

More dynamic and less prone to data altering

Validation as a matter of minutes

Cryptographic proof does not require trust between parties

No centralized supervision

Digital proofs guarantee the order and the content of transactions

Public distributed ledger

Prevents double spending, fraud, and abuse

Altering of transactions impossible

No central point of failure Fail-proof and attack-proof Every transactions is saved

Cryptographic functions guarantee the security of the network

Kept a proof related to every transaction

Open source code auditable by the entire community

Source-code available to anyone

Blockchainfeatures

Blockchain fundamental applications

Value Exchange

Immutability proof

Smart Contracts

€ Transactions among

peers within the network is blockchain’sfirst successful use case

PoW consensus on permissionlessblockchains makes (some of) them really immutable

Code can be executed in a distributed turing-complete computational network

© 2018 Deloitte 16

AGENDA

What is the blockchain?1

The Deloitte Blockchain Lab2

Blockchain hot opportunities3

© 2018 Deloitte 17

In the past years Deloitte invested substantial resources in the development of blockchain capabilities and can now boast a renowned leadership on this technology

Deloitte blockchain Expertise

+

EMEA Blockchain Lab

Task force fully dedicated to exploring blockchain technology in order to identify new applications and create working prototypes

Community of Practice

+1000 practitioners from +20 countries worldwide collaborating for the development of Blockchain use cases

Projects and POCs

Extensive experience in the design and implementation of Blockchain driven solutions

Distinctive approach

Specific approach to the development of Blockchain solutions from training to realization

Thought leadership

Recognized thought leadership on cryptocurrecy thanks to a large number of publications and events

Ecosystem

Network of relationships with the leading stakeholders in the Blockchain community

© 2018 Deloitte 18

Deloitte has built a network of relationships with the leading stakeholders in the Blockchain community both in Italy and in the global landscape

Deloitte blockchain Ecosystem

Deloitte has developed strong

relationships with the most relevant

stakeholders in the Blockchain

community which allow for an

unparalleled understanding of the

sector and the capability to identify

potential opportunities for its clients

Deloitte Blockchain Ecosystem in Italy

Deloitte Italy a strong connection with BlockchainLab: the

association based in Milan fosters the collaboration between

Blockchain start-ups, Think Tanks and leading FSI institutions

BlockchainLab belongs to a network of Blockchain related

associations from other European countries

Deloitte Italy is associated with Assobit a think tank that

focuses on bringing together large companies and Blockchain

experts in order to:

Spread blockchain technology awareness

Foster innovative technology use cases

Associa

-tions

Think

Tanks

Start-

ups

Deloitte Italy collaborates directly with

numerous promising Blockchain start-ups both

in Italy and in Europe: supporting the

development of new technologies and

facilitating the adoption by large companies

Deloitte Blockchain Ecosystem

Eternity Wall

Deloitte partner and with ongoing project for a leading banking institution

© 2018 Deloitte 19

A structured approach to understand, learn, adopt and exploit the Blockchain technology

Deloitte approach to blockchain technology

Potential benefits for the client in each phase

Educate Explore Build

1:1 TalksIntroductory meetings with the top management

Training and seminarsPlenary events with informative purpose

Bootcamps and hackathonsBootcamps aimed at the structuring of Blockchain use cases

EventsSpecific innovation events focused on structuring the foundation to develop POCs and prototypes

PrototypingPrototype building with the use of an «agile» approach

DevelopmentLarge scale implementation of the identified solutions

1 3 4 652

© 2018 Deloitte 20

We have already been successfully engaged in blockchain related projects

Selected blockchain credentials

Use CaseProjects and PoCsClient Projects and PoCsClient

Deloitte explored how to improve product offerings, customer interaction processes, reporting and regulatory requirements facilitating compliance to EU regulations such as MiFID II

Leading retail bank

Regulatory reporting

Deloitte developed a platform to manage customer information related to fund investors facilitating the KYC process and allowing transfer agents (TA) to leverage due-diligences performed by other TAs

Fund managers

consortium

Know your customer

Deloitte helped to structure the management of customer information developing a Digital Identity solution based on Ethereum and produced a working prototype within six months

Digital Identity

Large Banking Group

Deloitte developed an Inter-company product exchange Prototype within the Healthcare industry to facilitate, digitalize and enhance the data reconciliation process among companies.

Inter-company

Inter-company

reconciliation

The Deloitte team has supported the client in designing and structuring a Blockchain solution integrated into the traditional operational banking processing to meet new Dodd-Frank obligations

Time stamping

Largebanking group

Deloitte has designed a service that makes activating, using and changing product warranty easier, while being more secure and tamper-proof

Customer Warranty

Retailer organization

Deloitte EMEA Blockchain Lab team has supported the client in designing and structuring a fully digital experience integrating cryptocurrencies into traditional on-line home banking

On-line bankingstart-up

Crypto saving

account

Deloitte integrated in a Digital Bank a Blockchain based Payments service making them quicker (5-10 seconds), cheaper, frictionless, immutable, transparent and secure (cryptography protection)

Large retail bank

Payments

Deloitte helped the clients build a digital platform that allows buyers and sellers to access information pertaining exchanged commodities by checking contracts stored on a shared platform

Commodity Trading

Large Energy

Companies

Deloitte has focused on a solution to create a digital equivalent of cash which runs on mobile apps and exploits blockchain as it is allows to achieve security and confidentiality in transaction

Cash Digitization

Largebanking group

Use Case

© 2018 Deloitte 21

AGENDA

What is the blockchain?1

The Deloitte Blockchain Lab2

Blockchain hot opportunities3

© 2018 Deloitte 22

Token

economies

Multiple use cases

creating brand new

token economies or

replacing existing ones:

Proof of authenticity

& tagging

Art management

Digital Advertising

Home booking

solutions

Intellectual property

management

…

Process

revamping

KYC/AML Providers

Crypto payments

solutions

Timestamping solutions

Identity management

Inter-company

reconciliation processes

Commodity trading

Simple processes

reviewed through Smart

contracts

Crypto in

Capital

markets

Institutional Crypto

Trading

Institutional Custody

solutions

Crypto Exchange

Security tokens

emissions and services

Crypto wealth

management services

Crypto funds and fund

management solutions

Three areas for Blockchain “hot opportunities”

Blockchain trends

Boosted by Consortia creation

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