EY – Blockchain reaction: Tech plans for critical mass – EY

Blockchain reaction: Tech plans for critical mass

  • Share

Blockchain technology has the potential to streamline and accelerate business processes, increase cybersecurity and reduce or eliminate the roles of trusted intermediaries (or centralized authorities) in industry after industry.

Early experiments

Banks, traders, exchanges and regulators are involved in many pilot projects and have launched numerous industry consortia to investigate blockchain’s use.

In a Fresh York City neighborhood, a private experimental blockchain helps homeowners share solar-electric power generated on their rooftops without the local power utility’s involvement.

Why now?

The blockchain reaction will pull in different industries at different times with differing levels of disruption, bringing both chance and risk.

Understanding the nature of that pivot, and the tax, legal and policy questions it will raise, will take time and prep.

We anticipate critical mass in financial services technology in a 3- to 5-year time horizon, with other industries following quickly.

What if blockchains remake work, life and play the way the compass switched seafaring, internal combustion engines switched transportation or penicillin switched medicine?

One reason the blockchain reaction is racing toward critical mass swifter than previous disruptive technologies is that it is arriving in the midst of the digital transformation already sweeping through most sectors of the global economy.

Consequently, despite the obstacles still to be overcome, businesspeople and governments are preconditioned to recognize blockchain’s potential. Tech companies have already established much of the digital infrastructure required to realize blockchain business visions.

The “embedded finance” screenplay

In financial services, the very first round of blockchain pilots is exploring more efficient ways to provide today’s services, such as transferring equities or other financial instruments in blockchain environments with potentially quicker settlement and far lower transaction costs.

But the long-term blockchain vision is of markets that run by themselves, with finance embedded directly into the natural activities occurring within those markets. In such an environment, the finance industry will look very different than it does today.

Automotive ecosystem with embedded finance

One possible near-future “embedded finance” screenplay involves a blockchain hosting all-inclusive records of an automotive ecosystem. Ownership, financing, registration, insurance and service transactions could all be tracked together.

Such a blockchain would make it possible for a manufacturer of driverless cars, for example, to place its cars in a ride-hailing company’s fleet. Every time the car is paid for a rail, a blockchain wise contract with embedded financing supplies a revenue share to the manufacturer.

The manufacturer may never need to “sell” a car to a consumer; it may not need bank financing, depending on the long-term cash flow resulting from its share of every transaction entered into by its products.

Other blockchain screenplays

  • Embedded health
  • Eliminating digital rights theft
  • Fresh credit markets for low-cost assets
  • Pay-for-performance
  • Government tax enforcement
  • Industrial mash-ups
  • Industrial IoT

Why is it significant for companies to embark considering their place in a blockchain world?

Ask yourself: how will my company make money in a market where all transactions are semitransparent, secure and validated, industrial assets are collective among market participants, customers have even more information than they do today and regulatory compliance and tax collection occur in real time, at the moment transactions take place?

Prep sooner, not later

“Achieve readiness early” is perhaps the most significant lesson from the high price so many tech companies paid for being slow to join the cloud and mobile disruptions.

Engage tax team early

Companies attempting to operate at the speed of innovation will find that disregarding the tax implications of their investment and operational decisions until late in the game could force them into a last-minute rethink.

While the internet is a world-changing medium for information exchange, blockchain is “the very first native digital medium for peer-to-peer value exchange. Its protocol establishes the rules — in the form of globally distributed computations and intense duty encryption — that ensure the integrity of the data traded among billions of devices without going through a trusted third party. Trust is hard-coded into the platform. … [Blockchain] acts as a ledger of accounts, a database, a notary, a sentry and clearing house, all by consensus.” 1

one This definition is from “How the Tech Behind Bitcoin Will Switch Your Life,” Time, six May 2016, © two thousand sixteen Time Inc., by business technology guru Don Tapscott and his son Alex, a blockchain experienced. They also coauthored the book, Blockchain Revolution: How the Technology Behind Bitcoin Is Switching Money, Business, and the World

These are alliances that bring together a given sector’s industrial assets, instrumented with IoT technology, into sharing-economy-style digital marketplaces. Once instrumented and organized this way, industrial asset utilization should rise significantly, driving down cost for all market participants.

These are alliances in which one or more parties make use of assets or capabilities of another party to create fresh business value, without affecting the other party’s ongoing use of the assets or capabilities for their original business purpose.

Industrial mash-ups are fluid partnerships that substitute the “physical” vertical integration of an M&A or JV with an ecosystem of collaborating playmates to bring the fresh business idea to market. They make possible the pursuit of fresh ideas that would not be viable under traditional M&A or JV approaches.

Blockchains are essentially public or private distributed databases containing records of every transaction ever made among participants in a given network, encrypted into time-stamped blocks via a cryptographic hash function.

Each block’s hash result is a unique identifier and is incorporated into the next block for integrity verification. Blockchains further protect data integrity by distributing a utter copy of the database to each participant; revisions must be agreed to by a majority of participants.

Blockchain’s hash function plus its majority consensus treatment add up to a powerful fresh treatment to information security. “Blockchain shifts cybersecurity from depending on one to depending on many, and a large volume of people are much more trustworthy than any one individual,” says Paul Brody, Americas Strategy Leader Technology Sector. The treatment makes blockchains virtually tamperproof.

Ultimately, blockchain includes a technology called “wise contracts.” These are bits of executable code that act only if specific conditions within the blockchain are met. Combined with the blockchain elements already described, wise contracts can automate trusted activity among participants, such as payment transfers upon completion of a specific task, or partial payment for reaching an agreed-to milestone.

Blockchain came into the world as the technology that underpins the bitcoin virtual cryptocurrency. Blockchain was very first described in a two thousand eight paper published by Satoshi Nakamoto, the pseudonym used by the anonymous person or people who designed bitcoin. It was very first implemented in bitcoin’s original source code. Since then, perspectives on bitcoin have waxed and waned, the latter partly because of the way criminals and terrorists have used bitcoin. But blockchain has seen continuously growing interest in its widespread applicability.

EY – Blockchain reaction: Tech plans for critical mass – EY

Blockchain reaction: Tech plans for critical mass

  • Share

Blockchain technology has the potential to streamline and accelerate business processes, increase cybersecurity and reduce or eliminate the roles of trusted intermediaries (or centralized authorities) in industry after industry.

Early experiments

Banks, traders, exchanges and regulators are involved in many pilot projects and have launched numerous industry consortia to investigate blockchain’s use.

In a Fresh York City neighborhood, a private experimental blockchain helps homeowners share solar-electric power generated on their rooftops without the local power utility’s involvement.

Why now?

The blockchain reaction will pull in different industries at different times with differing levels of disruption, bringing both chance and risk.

Understanding the nature of that pivot, and the tax, legal and policy questions it will raise, will take time and prep.

We anticipate critical mass in financial services technology in a 3- to 5-year time horizon, with other industries following quickly.

What if blockchains remake work, life and play the way the compass switched seafaring, internal combustion engines switched transportation or penicillin switched medicine?

One reason the blockchain reaction is racing toward critical mass quicker than previous disruptive technologies is that it is arriving in the midst of the digital transformation already sweeping through most sectors of the global economy.

Consequently, despite the obstacles still to be overcome, businesspeople and governments are preconditioned to recognize blockchain’s potential. Tech companies have already established much of the digital infrastructure required to realize blockchain business visions.

The “embedded finance” script

In financial services, the very first round of blockchain pilots is exploring more efficient ways to provide today’s services, such as transferring equities or other financial instruments in blockchain environments with potentially quicker settlement and far lower transaction costs.

But the long-term blockchain vision is of markets that run by themselves, with finance embedded directly into the natural activities occurring within those markets. In such an environment, the finance industry will look very different than it does today.

Automotive ecosystem with embedded finance

One possible near-future “embedded finance” script involves a blockchain hosting all-inclusive records of an automotive ecosystem. Ownership, financing, registration, insurance and service transactions could all be tracked together.

Such a blockchain would make it possible for a manufacturer of driverless cars, for example, to place its cars in a ride-hailing company’s fleet. Every time the car is paid for a rail, a blockchain wise contract with embedded financing supplies a revenue share to the manufacturer.

The manufacturer may never need to “sell” a car to a consumer; it may not need bank financing, depending on the long-term cash flow resulting from its share of every transaction entered into by its products.

Other blockchain scripts

  • Embedded health
  • Eliminating digital rights theft
  • Fresh credit markets for low-cost assets
  • Pay-for-performance
  • Government tax enforcement
  • Industrial mash-ups
  • Industrial IoT

Why is it significant for companies to begin considering their place in a blockchain world?

Ask yourself: how will my company make money in a market where all transactions are semitransparent, secure and validated, industrial assets are collective among market participants, customers have even more information than they do today and regulatory compliance and tax collection occur in real time, at the moment transactions take place?

Prep sooner, not later

“Achieve readiness early” is perhaps the most significant lesson from the high price so many tech companies paid for being slow to join the cloud and mobile disruptions.

Engage tax team early

Companies attempting to operate at the speed of innovation will find that disregarding the tax implications of their investment and operational decisions until late in the game could force them into a last-minute rethink.

While the internet is a world-changing medium for information exchange, blockchain is “the very first native digital medium for peer-to-peer value exchange. Its protocol establishes the rules — in the form of globally distributed computations and strenuous duty encryption — that ensure the integrity of the data traded among billions of devices without going through a trusted third party. Trust is hard-coded into the platform. … [Blockchain] acts as a ledger of accounts, a database, a notary, a sentry and clearing house, all by consensus.” 1

one This definition is from “How the Tech Behind Bitcoin Will Switch Your Life,” Time, six May 2016, © two thousand sixteen Time Inc., by business technology guru Don Tapscott and his son Alex, a blockchain accomplished. They also coauthored the book, Blockchain Revolution: How the Technology Behind Bitcoin Is Switching Money, Business, and the World

These are alliances that bring together a given sector’s industrial assets, instrumented with IoT technology, into sharing-economy-style digital marketplaces. Once instrumented and organized this way, industrial asset utilization should rise significantly, driving down cost for all market participants.

These are alliances in which one or more parties make use of assets or capabilities of another party to create fresh business value, without affecting the other party’s ongoing use of the assets or capabilities for their original business purpose.

Industrial mash-ups are fluid partnerships that substitute the “physical” vertical integration of an M&A or JV with an ecosystem of collaborating fucking partners to bring the fresh business idea to market. They make possible the pursuit of fresh ideas that would not be viable under traditional M&A or JV approaches.

Blockchains are essentially public or private distributed databases containing records of every transaction ever made among participants in a given network, encrypted into time-stamped blocks via a cryptographic hash function.

Each block’s hash result is a unique identifier and is incorporated into the next block for integrity verification. Blockchains further protect data integrity by distributing a utter copy of the database to each participant; revisions must be agreed to by a majority of participants.

Blockchain’s hash function plus its majority consensus treatment add up to a powerful fresh treatment to information security. “Blockchain shifts cybersecurity from depending on one to depending on many, and a large volume of people are much more trustworthy than any one individual,” says Paul Brody, Americas Strategy Leader Technology Sector. The treatment makes blockchains virtually tamperproof.

Ultimately, blockchain includes a technology called “wise contracts.” These are bits of executable code that act only if specific conditions within the blockchain are met. Combined with the blockchain elements already described, clever contracts can automate trusted activity among participants, such as payment transfers upon completion of a specific task, or partial payment for reaching an agreed-to milestone.

Blockchain came into the world as the technology that underpins the bitcoin virtual cryptocurrency. Blockchain was very first described in a two thousand eight paper published by Satoshi Nakamoto, the pseudonym used by the anonymous person or people who designed bitcoin. It was very first implemented in bitcoin’s original source code. Since then, perspectives on bitcoin have waxed and waned, the latter partly because of the way criminals and terrorists have used bitcoin. But blockchain has seen continuously growing interest in its widespread applicability.

Related video:

Leave a Reply