blockchain technology - vurore · blockchains are public, and no permissions are required to join....
Post on 07-Jul-2020
0 Views
Preview:
TRANSCRIPT
Blockchain technology: How this could impact the audit
EY
March 20, 2018
Page 2
René Jongma Senior Manager
Risk Assurance
Data Analytics & IT
Phone: +31 88 407 12 95
Mobile: +31 6 21 25 27 79
Email: rene.jongma@nl.ey.com
Page 3
PART 1: Blockchain: Why, How, and What
PART 2: Blockchain in real life
PART 3: Blockchain for the financial (impact on audit)
Overview
Page 4
QU
ESTI
ON
What is your vision about
Blockchain?
PART 2: Blockchain for the financial…. video time……..
Page 7
QU
ESTI
ON
How far have you already
encountered Blockchain
related challanges during your
work?
Page 8
▶ Chain of ledgers interconnected to record, verify and validate
transactions
▶ A transaction can be recorded in the blockchain if it has been validated
by a majority of the parties.
▶ Once a transaction is recorded in the blockchain it cannot be removed
▶ The blockchain is the technology underlying the bitcoin.
So what is Blockchain?
Page 9
Blockchain what is the Blockchain concept?
Blockchain is an open, public database that can record transactions between
two parties efficiently and in a verifiable and permanent way.
It promises to radically speed up transactions and cut costs by
establishing trust and the transfer of value without the involvement of
traditional intermediaries
Blockchain
Plateau Enlightenment Disillusion Peak Innovation
5 to 10 years
Blockchain hype cycle Types of Blockchain
Public and
permission-less
Private and
permissioned
Hybrid
Blockchains
• All transactions in these
Blockchains are public,
and no permissions are
required to join.
• Example, Bitcoin
• Limited to designated members
• Transactions are private, and
permission from an owner or
manager entity is required to
join
Example, used by private consortia
to manage industry value chain
opportunities
• Different (public or
private) Blockchains can
communicate with each
other, enabling
transactions between
participants across
Blockchain networks
Example, Sidechain
Blockchain is simply a database that is publicly distributed and continuously updated, and secured by the art of cryptography.
Page 10
How does Blockchain exactly work? (1/5)
Traditional Blockchain
Central infrastructure Blockchain network
1
4
4
3
5
2
2
1
2
6
5
Comparing transactions, the old way and the
(new) Blockchain way…..
Page 11
How does Blockchain exactly work? (2/5)
Blockchain
Blockchain network
Purpose
Messaging
Processing
Ledger
Front end
In traditional networks In Blockchain networks
Node or user – the
trigger of the
transaction
Technical connectivity
with the ledger
(database)
Execution of agreed
actions
Auditable repository
or database
Through central
infrastructure Peer-to-peer
• Centrally
• Batch or per
transaction
• Distributed (at
device)
• Pre -programmed
• Central
• Closed (one trusted
party)
• Multiparty
• Decentralised
• Highest encryption
In principle remains the same though IoT
likely to increase and diversify the number
of machine nodes
1
1
2
3
4
4
2
2
Institution Own and administer
the transaction
Centrally with cost
added to
transaction price
Redundant as
transaction owner 5
5
Page 12
The network becomes distributed and acts like a highly secure “intra” or “inter” net
Centralized Decentralized Distributed ledgers
Distributed ledgers can be public or private and vary in their structure
and size
Public Blockchains
► Users are anonymous
► Each user has a copy of the ledger and participates in confirming transactions independently
Private Blockchains
► Users are not anonymous
► Permission is required for users to have a copy of the ledge and participate in confirming transactions
How does Blockchain exactly work? (3/5)
Page 13
Allows the move from master ledgers,
e.g., clearing houses, banks … … to distributed ledgers with no intermediaries
Blockchains eliminate the need for a trusted central authority throughout the lifetime of an transaction.
Trusted Intermediary Trusted Network
cutting out the intermediary
How does Blockchain exactly work? (4/5)
Page 14
The Blockchain is a network and a database
Distributed ledger
Back-end database that
maintains a shared,
distributed ledger
Smart contract Time-stamped and
permanent
Consensus
validation
Embedding trust rules
inside transactions and
interactions
Time-stamping, rights
and ownership proofs
Resistance to single
point of failure of
censorship
Secure and
encrypted
Trust vs No Trust Smart wallet Peer to peer network Immutable Traceable
Self-execution of
business logic with self-
enforcement
Transactions are stored in virtual blocks, which are connected together in a chain, creating a complete history of all transactions that have ever occurred
within a particular network
How does Blockchain exactly work? (5/5)
Page 15
Adding transactions to the Blockchain
Page 16
Smart Contracts why distributed transactions are possible
Traditional contracts Smart contracts What?
Business rules
or terms of agreement
form the transaction
How?
Code-based,
stored in the Blockchain
and self-executed
Advantages
Guaranteed future execution.
Verifiable, signed and encrypted
Challenges
Scalability in speed of execution
Interoperability with “old”systems
► Protocol intended to facilitate, verify, or enforce the negotiation or performance of a contract.
► The advantage of Blockchain-based contracts is that they reduce the amount of human involvement required to create, execute and enforce
a contract
► Thereby lowering its cost while raising the assurance of execution and enforcement processes. By automating a transaction in a fully verifiable framework
(the Blockchain) the transactions can have legal validity even at high frequency – a key enabler for network balancing
Smart Contracts
are bits of executable code
that act only if specific conditions
within the Blockchain are met
Page 17
Benefits of Blockchain
Page 18
PART 2: Blockchain in real life
Page 19
Trade Finance: Oil transaction on a Blockchain
Blockchain in real life (1/5)
Page 20
► On 22 February, ING and Société Générale Corporate & Investment Banking
presented Blockchain prototype testing results coinciding with IP Week in London
together with trading house Mercuria.
► Both banks presented the results of the Easy Trading Connect Blockchain prototype
after successfully using the new technology to carry out a live oil trade between
parties with Mercuria, a global commodity trading group. The test proved that there
were significant speed, cost and risk benefits to be achieved.
► The platform, called Easy Trading Connect, is designed for paperless trading and
aims to digitalise and standardise commodity transactions in order to increase
speed and efficiencies in the trade process.
► The prototype was used in a real trade to validate expectations. The experiment
involved an oil cargo shipment containing African crude which was sold three
times on its way to China, and included traders, banks as well as an agent and
an inspector, all performing their role in the transaction directly on the platform.
► The challenge at the core of this project is the need for technological advancements
in commodity trading and finance, an age-old sector that is still very much based on
the exchange of physical paper documents travelling around the world
Trade Finance: Oil transaction on a Blockchain
Blockchain in real life (2/5)
Page 21
Blockchain in real life (3/5) Example from the healthcare industry
Health care in the US
• Current system is centralized and vulnerable
• The amount of information and the complexity results in high overhead costs
• Systems are not dynamic with reading, analysing or sharing information
• Due to recent data breaches this subject has raised extra attention
Company: Patientory
Where: Atlanta, US
What: Patientory is a developer of electronical
database for medical information for individuals
built on a private Blockchain
ICO: $7.2 million USD
Blockchain application in real life
• Users can create a profile in an app
• The can connect “care providers” and other users (with comparable medical issues)
• Patients increase their control on their own health information / data
• The amount & quality of data can substantially increase as well as a decrease of overall
costs
• Decentralization could increase data safety and security
• Disintermediation could increase overall trust in the system
Page 22
Blockchain in real life (4/5) Example from the clothing industry
Company: A Transparent Company
Where: UK
What: A Transparent Company led the strategy and
implementation for a collaborative case study
between Danish fashion designer Martine Jarlgaard
and the app behind the technology, Provenance.
Blockchain in the supply chain for retail
• Development of a pilot project to track end-to-end a UK Alpaca supply chain, from farm to
finished product.
• Consumers we want to know that what we are buying is true and education on how we can
trust the information is needed.
• Blockchain penetration in the fashion industry will take some time, but it is happening. It is
vital for proof of origin and authenticity, to help fashion businesses track their
products in their supply chain.
Blockchain application in real life
• Each step in the production process is registered and tracked on the Blockchain ->
from shearing at an Alpaca fashion farm in England, to spinning at Two Rivers Mill, through
to knitting at Knitster LDN and then finally to the designer’s studio in London.
• A unique digital token is given to each garment which enables Provenance to verify
every step of its production and create a digital history (including location data and
timescales).
• This information is presented through the app, which consumers can access through
their item’s QR code or NFC-enabled label, working on both Apple and Android devices.
Page 23
Blockchain in real life (5/5) Example from the clothing industry
PART 3: Blockchain for the financial (impact on audit)
PART 2: Blockchain for the financial…. video time again!
Page 27
The changing role of the financial
1950
2000
2027
Innovation 2017 Blockchain
Reporting
Reporting
Information sharing
Process optimisation
Robotics Cloud
Analytics
Artificial Intelligence
Big data
Page 28
► Increase in IT security:
Blockchains are considered as safe and difficult to manipulate, which
results in an decrease in fraud and hacking
► Control over the value chain:
Blockchain applications offer flexibility over efficient internal control
systems. The entire supply chain process could be integrated in one
system with Smart Contracts to automatically execute
► Organizing and enforcing contracts
In line with the abovementioned control over the value chain, the
delivery and payment process occurring when a product is sold and
delivered to the client can be organized within one system
#1 Identification & security
#2 Blockchain use with
validation in audits,
increasing efficiency
#3 Adjustments for internal
& external control
systems
#4 Regulatory
requirements
Financials will use Blockchain because:
Applications
Why Financials will use Blockchain….
It provides the possibility to record transactions between two (unknown) parties in a safe way
Page 29
How Blockchain could impact the financial
Execution role:
Enablement role:
Development role:
EY’s point of view
EY identified three main pillars for the financial:
Page 30
How Blockchain could impact the financial EY’s point of view of
Execution role:
► Blockchains distributed nature decreases the opportunity for fraud or reporting inaccuracy.
► The immutable transaction history provides a single documentation trail that will streamline
the audit process and allow for greater focus on systems and controls.
► The centralized data source will allow for greater reporting speed and validity for both internal
and external stakeholders.
Enablement role:
► A distributed ledger will allow for more efficient and transparent intercompany transactions
that are settled simultaneously.
► Less manual attention will be needed for reconciliation and consolidation processes,
allowing for a more efficient finance function.
► Blockchain’s data trail will allow for more accurate monitoring of transactions, balances and
project results.
Development role:
► With improved efficiency and strategic analysis, the finance function will be able to devote
more time and attention to organizational strategy.
► With some public transactions and improved audit approaches, the financial will be able to
communicate to the marketplace more quickly and with more clarity and transparency.
Execution (planning & control)
Enablement (Funding & strategic support)
Development (strategy & communication)
Page 31
Blockchain applications (1/3)
Blockchain
Application
Manufacturing, Power & Utilities
► Supply chain managemnent
► Cross-border trade & logistics
Regulators
► Explore central-bank controlled digital currency
► Estalish policies and guidelines to manage Blockchain-based economy
Healthcare
► Healthcare records management
► Medical procedure billing & ordering
Cross-sector
► Corporate Audit, regulatory reporting
► Identify management
► Private blokchains for internal efficiencies
Public Sector
► Public registries (IDs, titles)
► Ownership rights, dispute & fraud management
► Voting
Media / Telecom
► IP management (music, art)
► Loyalty
► New micro-transaction revenue models
Retail / Consumer Goods
► Decentralized market places
► Organic food and ethically caught tuna traceability
examples of impact on sector level
Financial Services, Exchanges
► Cross-border payments
► Stock / debt issuance
► Securities and derivative clearing & settlement
► Trade finance, Asset Custody
Page 32
Contacts (from digital contract
module) will be referenced by
transaction hash on supplied
goods. These will be recorded at
point of contact; shipping, transit,
receipt.
Digital contracts Fulfillment notification Digital invoices Information system Payments
Digital contracts are issued
via Blockchain.
Goods traced via
asset transaction in
the Blockchain
Issue an digital
invoice for goods
Transactions
implemented to
settle invoices.
Transactions
continuously
viewable &
integrated into full
reporting systems
Smart contracts, written in Go and
Java will be deployed from the
customer. Variables within the
contract can be altered by parties
until both agree and lock the
contract.
Nodes and applications will be
established to monitor contract and
party events. These will record
transactions to the Blockchain, and
trigger events through
C++/JavaScript interfaces with
secondary applications.
QR codes may be scanned through
an Iroha mobile application to
update the asset state provided.
Manual updates are available as
well through single-use transaction
codes. IoT device integration will be
considered as well.
Digital contracts fulfilled via
fulfillment notification module are
eligible for a digital invoice. This is
issued by the supplier as a smart
contract, and references the
previous contract and transaction
records.
Customer can raise a dispute during
a reasonable timeline following the
invoice module, and may dispute
the earlier transaction record. Off-
chain data will be provided via
Oracle inputs, and a third party
delegated when possible.
Using an agreed upon token to
represent currency, invoices can be
settled. These tokens will serve as
IOUs against a shared general
ledger, and should settle for USD or
other agreed-upon currency.
Later stages of the POC will allow
for bank integration, as well as
more advanced financial services
such as escrow, credit and
securitized traded assets.
All transactions on the chain are
viewable through a block explorer
application. Users may set users,
contracts and assets as watchable,
with generated reports and alerts
on their activities.
All data generated by the platform
will be available in on-demand,
real-time supply to ERP platforms.
Enterprise reports will be developed
for the POC, and available in a
variety of outputs.
order to cash
Blockchain applications (2/3)
Page 33
Manufacturing
China
US Customs
Intercompany
agreement
Smart
contract
Device components
manufactured in
China
Freight forwarder Shipping Final
assembly
US
Delivery to
retailer
Distributed
Intercompany
Ledger
Shipment
notification
F/X Rates
Ordering
party
Settlement
Trade review
and approval
Tax review
and approval
Company XYZ — China Company XYZ — US Company XYZ — US
Disparate
ERPs
Info received and
registered in the
distributed
intercompany ledger.
Coded smart
contract rules, value
of components is
calculated
The ledger calculates the
value of the transaction in
each currency
The transaction is settled, and
the US subsidiary pays the
Chinese subsidiary the
calculated value.
The transaction &
value can be reviewed and
approved by appropriate
internal and external
authorities.
Ledger =
integrated, transaction
flow to each subsidiary’s
ERP system
Company XYZ US
subsidiary places an
order with its Chinese
subsidiary.
Manufactured in
China, shipped to
the US.
The end result of this process is an automated
transaction that follows standardized policies and
procedures. All business units simultaneously reflect the same accurate
information for many intercompany transactions.
The forwarder sends XYZ
notification being
shipped to the US.
1
2 3
4
6
5
7 8
9
Blockchain applications (3/3) order to cash
Page 34
QU
ESTI
ON
Will Blockchain be able to
contribute to our work?
Page 35
► Blockchain remains a very relevant
subjects
► Disruption in the financial column
► Organizations are experimenting
with Blockchain and smart contracts
Blockchain adoption what do we make of it…..
Important questions remain
► Right to be forgotten
► Privacy
► Audit trail
► Transaction limits
► Scalability
► Security
► Regulation
► Hacking
► Standardization
Page 36
The changing perspective on Audit
Page 37
René Jongma Senior Manager
Risk Assurance
Data Analytics & IT
Phone: +31 88 407 12 95
Mobile: +31 6 21 25 27 79
Email: rene.jongma@nl.ey.com
Thank you for your
attention
top related