Blockchain: disruptive innovation for banking and beyond Dennis de Vries KPMG Blockchain Services Netherlands lead Amsterdam, 26 May 2016
Introduction Dennis de Vries • • •
Joined as Senior Manager Audit for Banking Innovation leader blockchain KPMG NL (2015) Lead of KPMG Blockchain Services NL (2016)
• • •
14 years internal audit 5 years business manager First ING blockchain reseacher in 2014
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25 years of cycling across the world 50+ trips to over 35 countries
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Agenda
1. WHAT IS BLOCKCHAIN? 2. WHY DOES BLOCKCHAIN MATTER?
3. THOUGHTS ON IMPACT FOR LEGAL
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What is Blockchain?
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Disruptive combination of 4 concepts CRYPTOGRAPHY
PEER-TO-PEER NETWORK
OPEN SOURCE PROTOCOL
SHARED LEDGER
– Digital currency
– Decentralised & distributed network architecture
– Source code open to review by anybody
– Public record of all transactions
– No central governing body
– Fixed parameters can not be changed without having the majority of CPU power
– Use cryptography to control creation and transfer of money – Proof-of-work concept
Value transfer via the internet…
– Nodes linked by software …without a trusted third party…
…based on open source protocol…
– Essential element to avoid double spending problem
…completely transparant
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Bitcoin specific design features Open source protocol • Origin: Concept published by Satoshi Nakamoto (identity remains uncertain) in 2008, software launched in 2009 • Open source: entire source code is open to review by anybody • Stability: changes to protocol only after consensus of group of core developers • No owner: no controlling body governing bitcoin
Currency parameters • Finite number: 21 million bitcoins to be created until 2140 through mining. Currently 12 million bitcoins available. • Predictable pace: every 10 minutes 25 bitcoins are rewarded. • Deflationary by design: finite number and steady pace of creation aims at long-term deflationary character
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Prime example of Bitcoin use case‌
2.5
1.2b
4k
146k
years
transaction volume
sellers
buyers 7
Considerations on parties in a Bitcoin transaction Bitcoin core transaction processing infrastructure
Bitcoin developers: Maintain the bitcoin protocol forming the basis for the infrastructure
Payer
Bitcoin facilitators
Bitcoin exchange: Facilitate transfer of traditional currency into bitcoins and vice versa.
Miners: Validate transactions in order to earn bitcoins and transaction fees
Recipient
Bitcoin wallet companies: Simplify bitcoin activities for participants
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Considerations on parties in a Bitcoin transaction Client identification
Transaction screening
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Agenda
1. WHAT IS BLOCKCHAIN? 2. WHY DOES BLOCKCHAIN MATTER?
3. CURRENT STATE OF PLAY
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Payment infrastructure comparison
traditional banks
vs
cryptocurrencies
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Domestic payment flow
Client
Client Facing layer
Product System
Transaction Processing
Clearing
Transaction Processing
Product System
Client Facing layer
Merchant
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Process flow international payment
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Payment infrastructure comparison
traditional banks
vs
cryptocurrencies
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Process flow cryptocurrency
Client
Client Facing layer
Mining
Client Facing layer
Merchant
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Summary analysis Banks
Cryptocurrency Open during weekdays from 07:00 to 17:00 hours
Availability
24/7/365
Batch processing
Processing
Real time
Settlement
Real time Transaction validation time protocol dependent (Bitcoin 10 minutes)
1 day settlement for Euro, 3 days settlement for non-Euro Transaction engines from 1970/80s Bank specific, non standardized
IT architecture
Guarantee instead of true payment No immediate access to money
Merchant perspective
Up to 3%, paid by the merchant Requires bank account
Cost of payments Access
Global uniform standard Immediate payment Minimal, close to free Requires internet
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Key themes in blockchain 2016 Continued venture capital investments
Consortia formed for industry cooperation
• The DAO • 21 inc • Digital Asset Holdings • Blockstream
• R3 • Digital Asset Holdings • Hyperledger
World’s leading IT vendors positioning
• IBM • Microsoft
New industries awaken to blockchain
• Banking • Securities • Insurance • Government • Healthcare • Music industry
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Agenda
1. WHAT IS BLOCKCHAIN? 2. WHY DOES BLOCKCHAIN MATTER?
3. THOUGHTS ON IMPACT FOR LEGAL
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Alec Ross, former innovation adviser to Hillary Clinton during her term as U.S. Secretary of State
Source: http://searchcio.techtarget.com/feature/Blockchain-technology-to-disrupt-financial-legal-fields
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Source: http://www.coindesk.com/london-law-firm-to-digitise-contracts-using-bitcoin-technology/
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Source: http://blogs.findlaw.com/technologist/2016/02/how-will-blockchain-technology-change-the-practice-of-law.html
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Simplifying contract disputes
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Thank you
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