T E C H N O L O G I E S D E M Y S T I F I E D :

THE POTENTIAL OF BLOCKCHAIN TECHNOLOGY

F O C U S : F I N A N C I A L S E R V I C E S

T A B L E O F C O N T E N T S

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1. Introduction to Blockchain 3

1.1 Problem and solution

1.2 Transactions today

1.3 The magic behind Blockchain

1.4 Shared ledger technology

1.5 Blockchain-related terms

1.6 Technical description

1.7 Blockchain explained in detail

1.8 Advantages of Blockchain

2. Timeline, Limitations & Application Fields 12

2.1 Timeline

2.2 Limitations

2.3 Application fields

3. Smart Contract Use Cases 16

3.1 Slock.it

3.2 Tallysticks

3.3 Everledger

4. Pioneers Discover Outlook 20

4.1 Future outlook

4.2 Pioneers

4.3 References

I N T R O D U C T I O N T O B L O C K C H A I N

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On the Internet, nobodyknows you‘re a dog…

An intermediary providing trust isrequired for every transaction.

Souces: Steiner, 1993; mymerchandservicesblog, 2017;

Today‘s problem The current solution

PROVIDING TRUST WITHOUT AN INTERMEDIARY

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I M A G I N E Y O U W A N T T O T R A N S F E R € 1 0 0 0 F R O M V I E N N A T O L O S A N G E L E S…

With Blockchain‘s shared ledger technology, the same transaction will take eight seconds. It has all the advantages of a simple cash transaction. Without any intermediary parties, € 1000 will end up in L.A. quickly, securely and transparently.

€1000

€950

Today this transaction would involve at least four intermediary parties and take at least three days. In the end, the recipient in L.A. receives only around € 950, because of costs associated with different intermediaries like brokers, foreign banks, issuing banks, confirming banks,

correspondent banks, domestic sellers, clearing houses and custodians.

Sources: Terribilini, 2015

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T H E M A G I C B E H I N D B L O C K C H A I NImagine Leo is sitting in front of you and hands you $100. This transaction isn‘t just fast, secure and transparent. There‘salso no intermediary and no additional costs are attached. Blockchain technology offers the advantages of a simple cashtransaction like this one, and makes it possible for all different kinds of transactions to occur online, with no limit to financialtransactions! Imagine a world in which you can buy a book without a retailer, sign a contract without a notary and vote foryour favorite political candidate - on your smartphone - with the assurance that your vote is immediately valid and secret.

§ Fast

§ Secure

§ Limited costs

§ Transparent

§ No intermediary

WHAT IS THE SHARED LEDGER?

Ledger is a record used to store any kind of transaction history,such as your bank account balance. Since ancient times ledgershave been used for trading and commerce, specifically toregister, record, transfer and approve contracts, assets,property and money by intermediaries.

In the past these ledgers were recorded manually on papyrus,clay tablets and vellum, and moved to paper, bytes andcomputers in the last century. Until now that has been the onlyimprovement…

With Blockchain technology, the first real transformation ofledgers is coming. For the first time, ledgers will be decentrallydistributed online so everyone can collaboratively createledgers and monitor transactions, instead of restricting thecreators to intermediaries like established organizations andbanks.

This will make every transaction far more transparent, secureand free, as no third party has to be involved. Transactions areapproved by the network, while remaining anonymous.

Souces: Deloitte University Press, Accenture Research

Currently third-party intermediaries are needed for transactions.

The shared ledger could allow direct transactions betweenindividuals and institutions, as well as micropayments.

Ledger

Custodian Custodian

Clearing House Clearing House

BrokerBroker

FirmFirm

Seller Buyer

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MOST IMPORTANT BLOCKCHAIN-RELATED TERMS

Souces: Moody‘s Investors Service, 2016; WEF & Deloitte - The future of financial infrasctrucutre, 2016

Hashing

Hyper-ledger

Miners

Cryptography

Digital Currencies

Distributed Ledger

Cross-industrystandard fordistributedledgers.

Provides proof thatrecords in the publicledger cannot bechanged. Any attemptto tamper is apparentimmediately.

Internet-based form of money (in the form of an online code) that

can be used like other currencies.

Book containing records of all

transactions by all users in a network.

Validate and approve transactions, connecting the blocks to a Blockchain.

Mathematicalscrambling (digital

fingerprint) used to boildown information, like

a PDF or DOC, into a code known as a hash.

BlockchainTechnology

terms

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A MORE TECHNICAL DESCRIPTION OF BLOCKCHAIN

Technically, Blockchain is a shared, trusted public ledger that anyone can inspect but which no single user can control. A Blockchain contains all parties needed for a transaction. All participants keep the ledger up to date, as it can

be amended only by general agreement and certain rules. Blockchain Technology allows individuals to have trust and efficiency in the exchange of anything.

“Blockchain technology will do for transactions what

the internet did for information“ Ginni Rometty, CEO of IBM

Blockchain is based on distributed ledgertechnology, whichmeans the relevant data is distributed

among multiple users.

The blockchain is a book of records of all transactions that aregrouped into blocks.

After every transaction, another block, with

information about theprevious block, is added

to the chain.

The blockchain enablesthe exchange of information in a

synchronous and evenmanner.

Blockchain allowsdifferent parties in a network to complete

transactionsanonymously.

Souces: Economist – the promise of blockchain, 2015; Rometty – Sibos 2016

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THE TECHNOLOGY EXPLAINED IN DETAIL

Each transaction (PDF or DOC) isfed through a program that createsan encrypted code known as thehash value (digital fingerprint). Thetranscribed transaction is placed ina queue of pending transactions.

It must be verified that Alice really hasthe rights to fullfil the transaction. Thischeck is a cryptographic puzzle derivedfrom the block‘s header. Thecomputational power for solving thispuzzle is offered by so-called miners.

In case a malicious miner tries to submitan incorrect block to the chain, the hashfunction of that block and all followingblocks would change. All nodes in thechain would detect these changesimmediately and reject the block fromthe majority chain with the mosttransactions.

Miners compete among themselves tobe the first to validate the transactionand put it into the ledger. The first minerthat successfully validates thetransaction gets a financial reward. Atleast a third of all the participants in aBlockchain network should be miners.

Miners validate and connect the twoblocks by making incremental changes toone variable until there is a correct fit tothe previous block. The correct solutionwill then be published to the network soall the other miners can check if it iscorrect. Each node adds the block to thechain with the most blocks.

Blockchain allows securetransactions without a governingcentral authority. This is done byadvanced mathematics andcomputer science in the form ofcryptographic hash functions.

The transaction from Alice to Bob formsa block. Every block contains threeelements: a 256-bit-number (createdusing an algorithm) called the hash, ahash of the previous block, and theactual transaction with a timestamp andnonce.

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Alice wants to conduct a transactionwith Bob (could be transfer of data,money, contract, deed, medicalrecord, customer details, or anyother asset). This transaction is oftencodified in a digital format (forexample, PDF or DOC).

Souces: Deloitte University Press, 2016

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ADVANTAGES OF BLOCKCHAIN

Souces: DBS Group Insights - Understanding Blockchain Technology 2015

EfficiencyUsing the “if-this-then

that” logic of smart contracts can reduce error reduction and

increase speed.

TransparencyGet real-time insights into trades and transactions

rather than just receiving reports in different

formats at different times from different institutions.

TrustThe majority of participants

in a blockchain system need to approve the

transactions and agree upon which data is written,

altered or removed.

ResilienceThe larger the number of blockchain participants

the more robust the data is, as it can be seen as a

massively replicated database.

T I M E L I N E , L I M I T A T I O N S & A P P L I C A T I O N F I E L D S

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BLOCKCHAIN TIMELINE

October 2008: Bitcoin whitepaper by

the nom-de-plume Satoshi Nakamoto is

published.

May 2010:First Bitcoin purchase: BTC 10k for

a $25 pizza. Today BTC 10k is worth $10m! Bitcoin is known as the

first use case of Blockchain technology.

July 2014:Ethereum Project – a

Blockchain platform with the ability to build

decentralized applications – is funded by a crowd

sale.

September 2015:Major financial companies form R3 – a consortium of

over 40 institutions committed to exploring and

implementing Blockchain technology.

June 2014:LHVpank starts research

on Blockchain and its digital security with their

app “Cuber Wallet“.

September 2016:Over 40 financial service institutions have invested in a Blockchain or Bitcoin

startup since 2014.

September 2015:Visa, Citi, Nasdaq,

Capital One and Fiserv invest $30m in the Blockchain startup

Chain.com.

Souces: Oliver Wyman, 2016; MissQT Fintech, 2015; GEM Mann, 2016; CoinDesk – Blockchain Breakout? Will Keep Investors on the Brink, 2017; Deloitte – banking colloquium thought paper 2015

2018:WEC estimates that 80% of

all banks will initiate projects concerning distributed

ledger technology – the underlying technology supporting Blockchain.

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L I M I T A T I O N S O F B L O C K C H A I N T E C H N O L O G Y

Block sizeThe limited block size of 1MBrestricts the number of possibletransactions per second. Alarger block will, on the otherhand, increase the time takenuntil each block is verifiedbefore it can be added to theBlockchain.

ScalabilityMore computational powerand stronger hardware isneeded to solve thecomplicated mathematicalproblems of everytransaction. It is expensiveto operate with largerblocks.

StandardsTo use Blockchain on anindustrial scale, there mustbe certain industrystandards as well as legaland governanceframeworks to improverobustness, overallperformance and security ofthe technology.

Diverging interestReplacing existing financialinfrastructure will require timeand investment. With competinginterests between differentparties, it will take time to findcommon ground for collectiveaction.

Souces: World Economic Forum- the future of financial infrastrucutre, 2016

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BLOCKCHAIN APPLICATION FIELDS FINANCIAL SERVICES

SMART CONTRACTS: A protocol specially created to program agreements between different parties, granting autonomous and correct execution. Blockchain technology validates that the conditions in the contract are met and then executes automatically according to pre-defined criteria.

KYC: Using Blockchain technology for KYC means helping institutions get to know their customers better with identity management, digital citizenship and IDs, assessing their financial counterparty risk without further due diligence.

TRADE FINANCE & PAYMENTS: Blockchain acts as a ledger for payments between branches and cross-border payments. Trade Finance solution of Blockchain to automate and speed up the mandatory letter of credit process.

CLEARING & SETTLEMENT: Ranging from micro transactions and insurance to cross-border

payments, Blockchain helps financial institutions to transfer money with less costs. It will also simplify

currency exchanges.

AUTOMATED COMPLIANCE: Blockchain could improve compliance procedures, improve

regulatory efficiency, and provide faster and more accurate reporting that draws on

immutable data sources.

DIGITAL ASSETS: Ownership of assets can be stored online and can transform

businesses such as custody banking.

PROGRAMMABLE MONEY: Blockchain can automate transactions and payments only after certain conditions are met.

DATA STORAGE: Blockchain can be used as a decentralized database that is highly

robust, since it is not dependent on any specific node.

Souces: World Economic Forum- the future of financial infrastrucutre, 2016

U S E S C A S E S

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Smart Contracts

IN BRIEF: Slock.it is a highly-innovative company producing and building distributed contracts and decentralized companies. Rent, sell or share anything without any middlemen involved. With Slock.it it is possible to connect the Blockchain to the physical world.

PRODUCT/TECHNOLOGY:

USE CASE:§ Slock.it digital padlocks help to sell or rent anything

secured by a lock. § Slock-powered doors can provide access to rental

apartments. § Rent out bikes, issue insurance and receive payment in

one single step while opening bike locks. § Any developer can build applications on Slock.it.

KEY FACTS:§ Slock.it received significant publicity in 2016 around

their announcement to build the first fully-decentralized investment fund, raising interest of $150m in funding.

§ IoT Stars Finalist 2016§ FYFN IoT Awards Winner 2016§ Postcapes Editor’s Choice Award Winner 2016§ Partnership with Ubuntu, Samsung, Microsoft, Safeshare

Global, RWE, IPFS

Smart Contracts

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IN BRIEF: Tallysticks is a Blockchain-based software solution that is private, cost-effective and secure. It facilitates invoice payments and automates invoice reconciliation in a timely manner to increase profitability. It is an immutable record-keeping framework that establishes a trusted practice amongst transaction participants and permissioned third parties. The goal is to record when, how and if payments, invoice issuances and reconciliations were performed.

PRODUCT/TECHNOLOGY:

USE CASE:§ Helps to identify and avoid duplicate invoices and

double payments, reducing error-related costs. § Automated invoice reconciliation software and

immutable recordkeeping helps to meet regulatory guidelines and reduces operating costs.

§ Military-grade data encryption eliminates the incentive for hackers to steal sensitive invoice-related payment data.

§ Prevents employees from manipulating and stealing data.

§ Electronic invoice processing and reconciliation software platform reduces invoice costs.

KEY FACTS:§ Tallysticks was selected to participate in the Barclays

Accelerator powered by Techstars in London, out of a pool of around 700 startups.

§ Voted a top 100 European FinTech startup§ Part of the EY Startup Challenge 2016§ Won three Blockchain Hackathons

Smart Contracts

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IN BRIEF: Everledger is a fraud detection system based on Blockchain. Their product is a permanent ledger for any asset, which carries a unique identifier difficult to replicate or destroy. In other words, they offer transaction history verification of valuable items and make it harder to trade them illegally.

PRODUCT/TECHNOLOGY:

USE CASE:§ Diamond certification and tracking of transaction history

of the traded item. Where does the diamond come from, who bought it, where did the money go?

§ Once the items are registered into Blockchain, the entry can’t be changed, which provides the multiple stakeholders in the supply chain a clear history of the product, ensuring authentication and reducing the risk of fraud.

§ Verification for insurance companies, owners, claimants and law enforcement.

§ Verification for any valuable item, carrying a unique identifier difficult to destroy or replicate.

KEY FACTS:§ Originates from Barclays Accelerator§ 2016 Fintech 50 list of businesses transforming financial

services in Europe§ FT ArcelorMittal Boldness in Business Awards 2016§ Best Blockchain Company: European Financial

Technology Awards, 2016§ Winner of the BBVA Open Talent Competition, 2015§ Awarded Best in Show at the Fintech Finals, Hong Kong,

2015§ Meffy Award, 2016

Smart Contracts

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P I O N E E R S D I S C O V E R O U T L O O K

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P I O N E E R S D I S C O V E R F U T U R E O U T L O O K

Outlook 2020In the year 2020 an estimated 2.87 billion

people will be using a smartphone, and therefore have a supercomputer in their pocket. No bank account

Around 2 billion people worldwide don‘t have a bank account. These could be brought into the financial system with the use of Blockchain technology.

Property registry70% of all people worldwide who own land

have just a tenuous title to that land. With Blockchain this problem could be solved

completely.

Internet of trustBlockchain protects identities and offers a way to fulfil transactions without any intermediaries and therefore forms the foundation of a free society.

Car ownership & insuranceFractional and part-time ownership of autonomous cars will become a future Blockchain use case. Car insurance premiums will be automatically adapted according to drivers‘ behavior.Government

Blockchain code will be pressed into use for citizens to cast votes via smartphone, tablet or

computer, in order to generate immediate verifiable results. Dubai has announced a

strategic plan to see all government documents secured on a Blockchain by 2020.

Souces: McKinsey – How blockchains could change the world 2016, Statista.com, PWC - Making sense of bitcoin, cryptocurrency and blockchain 2016

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FROM IDEATION TO IMPLEMENTATION

1. Ideation

Encourage an entrepreneurial mindset and define innovation

opportunities.

2. Intelligence

Discover startups, technologies and trends

relevant to you.

3. Prototyping

Collaborate with startups and create first product

prototypes.

4. Pilot

Develop a pilot and really kick-start your innovate

project.

5. Implementation

Launch the new product and start scaling up!

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M A K I N G C O R P O R A T I O N S B L O C K C H A I N P I O N E E R S

Startup-innovation blueprint & roadmap

Potential startups and new tech

Initialstartup-collaboration &

prototype

Establishedstartup-collaboration &

pilot

Established business case & roll-out

Out

com

es

Pioneers Discover developed 5 phases of innovation to help you implement Blockchain technology into your corporation.

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P I O N E E R S D I S C O V E R : U S P4 reasons why we are the ideal partner

1. WE HAVE THE NETWORK

Our brand and community of startups, investors and corporations are here at your advantage.

2. WE DELIVER TANGIBLE RESULTS

Our personalized services are designed to turn ideas into real products.

3. WE PICK DIAMONDS

We guarantee the best match through digital assessment and personal interviews.

4. WE ARE STARTUP & CORPORATE EXPERTS

Our team of consultants offer unrivalled insights and expertise covering all industries.

We help corporations implement innovation through the potential of startups and their technology.

A team of corporate innovation and startup specialists.

70+collaboration projects on an

international scale.A network of 13,000+ high-

potential early-stage startups.

Covering 7 major industries, grouping them into ecosystems.

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Happy to help!Feel free to contact us in case you havequestions about Blockchain technologyand how your company might benefitfrom it!

Harald FederspielConsultant

harald.federspiel@pioneers.iowww.pioneers.io/discover

Technology needs visionaries to make it fly.Be Bold. Be a Pioneer.

pioneers.io/discover

@pioneers @pioneersfestival pioneers.io