evolution of blockchain to disrupt financial services industry · evolution of blockchain to...

Evolution of Blockchain to Disrupt

Financial Services Industry

July 21st, 2016

Nomura Research Institute, Ltd.

IT Management Consulting Dept., Systems Consulting Division

Note : The speed of development of the crypto currency/blockchain technology is very rapid, so it looks like Cambrian explosion. This presentation is the basic summary that seems to be probable at the moment, based on the information which is within the public domain.

Senior Consultant

Takahiro Hatajima

Please refrain from taking a picture of presentation slides

Copyright（C） Nomura Research Institute, Ltd. All rights reserved. 1

1. NRI Introduction

2. The Wave of Digitalization

3. The Blockchain Technology

4. The Practical Use Case of Bitcoin

5. The Use Case of Blockchain Technology– Financial Sector

6. The Use Case of Blockchain Technology – Non Financial Sector

Copyright（C） Nomura Research Institute, Ltd. All rights reserved.

1. NRI Introduction


Business Offering – Japan’s largest “Think Tank”

1. NRI Introduction

IT Solutions for:

●Securities

●IT Infrastructure

●Advanced Information

Technology

●System Management

●Management Consulting

●System Consulting

IT Solutions for

●Distribution

●Healthcare

●Manufacturing

and Service Industries

●Asset Management

●Banking

●Insurance


NRI Solution’s Client - A wide range of industries

1. NRI Introduction

Securities Business Clearing + Settlement systems, Asset management systems

Banking Business Internet banking, ATM operations, electronic money

Insurance Business Support processes at life insurance, non-life insurance, and online non-life

insurance companies, including policy management, sales support, etc

Distribution Business Work closely with international firms such as Seven Eleven in payments, supply

chain, wholesaling, etc.

Manufacturing and Service Industries Strategic supply chain system development supporting global production,

logistics, and sales

Healthcare Business Business strategy creation, compliance with regulations, transformation of sales

and operations

Fin

an

cia

l Secto

rN

on

-Fin

an

cia

l Secto

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NRI’s Recent FinTech/Open Innovation Activities

Research Reports

Events

• Financial IT Forum

• IT Innovation Symposium

• NRI Hackathon

Partnerships

• Join “Stanford Silicon Valley – New Japan Project”

• NRI accelerator program

Supporting Financial Institutions

• Seminars / Workshops for top management

• Creating Roadmap for digital banking

• FinTech Event management

POC

• Blockchain

• Robo-Adoviser ..

1. NRI Introduction

Next Page


NRI’s Blockchain PoCs

1. NRI Launches Study Investigating Future of Blockchain Technology for Securities (October 5, 2015)

Examined the feasibility of implementing blockchain in the securities industry.

2. NRI to Launch Second Phase of Proof-of-Concept for Blockchain Technology in the Securities Industry (April 7, 2016)

This project will be done in collaboration with Asia's leading exchange group, Japan Exchange Group, Inc. (JPX).

Along with JPX, the PoC will be supported by Nomura Securities, SBI Securities, Mitsubishi UFJ Financial Group and others.

3. NRI to Conduct Proof of Concept for Applying Blockchain Technology to Banking (December 16, 2015)

PoC for implementing blockchain technology with banking, in collaboration with SBI Sumishin Net Bank, Ltd. (SBI Sumishin).

One of the first studies to be conducted with an internet banking firm to independently examine ways to apply blockchain technology to banking infrastructure.

1. NRI Introduction


Digitalization will change the business world


Client IT Competitors

Digital generation

New lifestyle and culture

Smartphone × Cloud

Using services at anytime, anywhere

New competitors

Break traditional companies

Cloud services

Photos, music, books

Apps ID, Personal Data

One of important feature of digitalization is P2P services


Blockchain originally emerged as an infrastructure of Bitcoin

Crypto currency

Financial asset(e.g. Stock, bond)

Digital Asset（e.g. Ticket, commodity, artifact,

music, supply chain）



Current state of blockchain similar to the Internet in late 90’s

Use of the Internet ranges from email to search engine, e-commerce and banking.

Likewise, blockchain has a wide variety of potentials.

Lots of financial institutions has researched into use cases of blockchain globally.

Blockchain in Bitcoin act as a reconciliation system in settlement.

The fact that transactions on blockchain are recorded and verifiable could apply not only to crypto currency but also to general digital assets.

Internet Blockchain

Internet（TCP/IP）

EmailSearch Engine

ECRemittance

Blockchain

Currency(Bitcoin)

？？

Transaction recording and verification



Middleware Middleware

Blockchain is a foundational technology (like the Internet)

Internet Blockchain

User

Application

Internet technology

Hardware or network

Bitcoinwallet

？？？

User

Application

Blockchain technology

Hardware or network


EmailSearch Engine

ECRemittance


Misunderstanding about blockchain

Middleware


Bitcoinwallet

？？？

User

Application


Hardware or network

Blockchain is not …

Not an application Applications such as accounting,

reporting and analytics not included

Not an alternative to RDBMS RDBMS properties are not included such

as rich query, rollback

Not a framework Blockchain is not a tool to replace

existing systems or increase productivity

Not a batch application Blockchain only stores data in a form of

block and is not a system management software



Purchase at the exchange, and reserve in the wallet

Exchange

The account of exchange is different from the account of bank account. The bitcoin that you don't use for trading should be stored at your own bitcoin wallet.

Mobile Wallet

Hardware Wallet

Useful for payment because of QR code and portability.

Not powerful in security, so you shouldn't use for reserving the mass of bitcoin

i.e. breadwallet, Copay, mycelium

The way of storing the bitcoin on the specific terminal

You can reserve at the offline enviromnent and security level is high.

So this is for long-term reserve.

i.e. Trezor


Wallet

BTCBOX COINCHECK bitFlyer

Zaif bitbank


Streamium : Stream Live Video And Get Paid on a per-second basis

Decentralized trustless video streaming using bitcoin payment channels

Set the name of channel, bitcoin address for payment, how much you want to charge your viewers

Start broadcasting and earn bitcoins on a per-second basis

Private lessons (language, music instruments), Movies on demand, Consulting (one-on-one mentoring, troubleshooting)


https://streamium.io/


21 Bitcoin Computer : Build the Machine Payable Web

Embeddable bitcoin mining chip – Bitshare

Put bitcoin system into every phone and computer

Buy/sell the digital goods, and accept bitcoin on a commerce site

The 21 Bitcoin Computer enables developers to build bitcoin micropayment applications

21 Marketplace

The market place you can buy/sell 50+ APIs by bitcoin

API call paid on bitcoin micropayments

Example

▪ “Twitter Influence Ranking” is $0.0208 per call


https://21.co


5. The Use Case of Blockchain Technology– Financial Sector


Immutability and verifiability could help to reduce operational cost and risk, regulatory burden and fraud risk

No need for a trusted third party,Reducing manual process

Interbank orcross border settlement

Increase efficiency for clearing and settlements

Issuing assets and Transferring ownership

Reconciliation

Service execution for financial products

KYC/AML

Reporting

Other than above, costs for business continuity and disaster recovery plans could be reducedSource：research.greyspark.com/2015/blockchain-capital-markets-use-cases-2/

5. The Use Case of Blockchain Technology – Financial Sector


More efforts for verifying use cases have been witnessed in 2016 (1)

Bank of America

Money Transfer called “Crypto Wire Transfer”

▪Transfers money after exchanges money with crypto currency

UBS

Experiment with Loyalty Points called “KeyPoints”

▪ Simplifying loyalty program and providing additional functions for users

Goldman Sachs

Securities Settlement System called “SETLcoin”

▪Real-time trade execution and settlement can be achieved

▪Ownership of SETLcoin is transferred real-time



More efforts for verifying use cases have been witnessed in 2016 (2)

J.P. Morgan

Trial project for loan sales

▪ Settlements involve a lot of complicated and manual process with various parties

Deutsche Bank

Completed Corporate Bond Platform Test

▪Issuance and Redemption of corporate bonds with smart contracts

▪Automatic coupon payout

DBS & Standard Chartered

Experiment in trade finance area

▪Simplify document exchange such as L/C and B/L



Barclays launched PoC using R3’s distributed ledger, Corda

Corda is a distributed ledger developed by R3 which allows to record, manage and synchronize agreements among financial institutions

Barclays showed Corda’s demo at Barclays Accelerator Demo Day in London in April 2016

Barclays demonstrated a prototype which shows lifecycle of interest-rate swap

Prototype for investment banks’

application

【Developing Firms】• Barclays Investment Bank• R3CEV• University College London• ISDA• Société Générale• TechStars（Barclays’s fintech accelerator partner）



Japanese financial institutions have started PoCs

SBI Sumishin net bank

Apply blockchain technology to banking infrastructure with Mijin and NEM

Shizuoka bank / ORIX

Cross border money transfer and various settlement service with Orb

Mizuho Financial Group

Syndicate loan with Microsoft Azure BaaS

Custody operation for international

Fukuoka Financial Group

Point exchange and various settlement service

Japan Stock Exchange

For low transaction markets

MUFG

Issuance, transfer , sales and redemption of bills


※ In chronological order


6. The Use Case of Blockchain Technology– Non Financial Sector

Value exchange platform Trading card game Sharing economy Music distribution Transacting local energy with neighbors

Value certification platform Proof of existence in precious items Healthcare infomation platform


Value exchange platform

Spells Of Genesis : Trading card games using bitcoin and blockchain

To manage game items using blockchain.

Users can store their card into a wallet and trade them on blockchain of bitcoin.

Slock : Sharing economy using smart contract of blockchain

Slock provides “ smart lock” that smartphone can control.

Slock creates new sharing economy using Blockchain and IoT.

Ujo : P2P music platform based on blockchain

To raise transparency and effectiveness in the music industry by using blockchain.

To solve the problem regarding to copyright and others.

“Tiny Human” of Grammy winners Imogen Heap have been released on Ujo.

TransactiveGrid : To sell a electric power between neighborhood residents in Brooklyn

Token for recyclable energy can be traded.

Users can get recyclable energy not through Duke Energy(US) or National Grid(UK)

Ecosystem that energy and money is circulated in a local community.



Value certification platform

Chronicled : Blockchain for preventing fake productions. Existence proof in the sneakers collection

Chronicled is focusing on circulation of valuable items.

A chip is attached valuable item, and blockchain is connected to it.

They are trying to establish the consortium with some major retail brands in order to get a good position of a management company for valuable items

Gem Health Network : Blockchain for healthcare

Share information of healthcare using blockchain.



7. Conclusions


Conclusions (1/2)

Blockchain itself is an infrastructure A shared, distributed and decentralized data store which has immutable

single truth of value with no central intermediary

At present, Bitcoin is the No.1 ‘killer application’ for Blockchain Let’s try using bitcoins

▪ Purchasing or receiving bitcoins from others

Use bitcoins instead of cash, Suica/Edy

▪ Micropayment , M2M payment, etc.

Exploring Blockchain use cases other than bitcoin Why blockchain? What’s the business model?

Expect to see wholly new businesses emerge, not just the replacement of existing systems by blockchain


Conclusions (2/2)

Use Case: Finance Big impact. But high confidentiality needed

▪ Proprietary platform for specific applications such as R3 Corda

Cautious development needed

▪ Impact of bugs is huge (Distributed, Multi parties, No-rollback)

Use Case: Non-Financial Lightweight, low confidentiality value exchange systems

▪ eg. Token for loyalty points

Platform of new economy, eg. ‘sharing’ economy

Adoption Challenges Maturity of the technology (i.e., scalability, privacy)

Lack of engineers

Regulation (Compatibility of user convenience & security)

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