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Industrializing the blockchain

EY Ops Chain is a unique offering that helps organizations simplify how they apply blockchain technology across the enterprise. With EY Ops Chain, blockchains expand beyond the finance function to rewrite the world of industrial collaboration by converging finance, IT and operations — creating new business and operating models.

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Industrializing the blockchain

  1. 1. EY Global Blockchain Summit San Francisco, CA April 26, 2017
  2. 2. Page 1 EY Global Blockchain Summit EY Ops Chain Where blockchain meets finance, operations technology and information technology
  3. 3. Page 2 EY Global Blockchain Summit ► Problems to be addressed ► Our vision: EY Ops Chain ► Our commitment and global investment ► New enterprise, new technology ► The new competitor
  4. 4. Page 3 EY Global Blockchain Summit ► Problems to be addressed ► Our vision: EY Ops Chain ► Our commitment and global investment ► New enterprise, new technology ► The new competitor
  5. 5. Page 4 EY Global Blockchain Summit EY Ops Chain is about making blockchains work for enterprise-scale markets and businesses. Origin of the technology Today: FinTech focus The future: trusted enterprise networks for value creation Source: http://bitcoin.i- rme.es/img/Bitcoin%20Logo%204096% 20PNG%20Forocoches%20(RME).png
  6. 6. Page 5 EY Global Blockchain Summit Traditional (pre-blockchain) systems are centralized and, consequently, represent a single point of trust, risk and failure. BankMerchant 2 Merchant 3 Merchant 1 Customer 2 Customer 3 Customer 1 Visa, MasterCard and American Express networks
  7. 7. Page 6 EY Global Blockchain Summit Once we leave the world of digital payments and assets, the process for completing transactions becomes even slower. Pull raw materials from inventory Product manufacturing Ship finished goods Receive purchase order Customer receipt of product Customer receipt of invoice Invoice and goods receipt matching Invoice generated for customer Payment sent to supplier Match payment and invoice Close transaction Create and send purchase order
  8. 8. Page 7 EY Global Blockchain Summit The lack of trusted intermediaries means that business operational systems are a far bigger mess than finance The world of business operations is awash in a flood of just-out-of-sync and nonstandard EDI and XML messages. The results are: 1. Islands of information 2. Data that never propagates past one node in the network 3. Information that always is slightly out of sync Logistics provider Storage and distribution center Retail partner Original equipment manufacturer Tier 1 Supplier Tier 2 Supplier
  9. 9. Page 8 EY Global Blockchain Summit The disconnected nature of untrustworthy systems manifests itself in the time required to fully close out transactions. 0 10 20 30 40 50 60 70 Credit Card Stock Trade Mortgage DSO F100 Daysrequiredtosettle Average settlement time by transaction type Source: EY Credit card Stock trade Source: http://blog.unibulmerchantservices. com/submission-clearing-and- settlement-of-credit-card- transactions Source: http://www.investopedia.com/terms/ s/settlement_period.asp Source: https://themortgagereports.com/194 87/how-long-does-it-take-to-close- a-mortgage-gina-pogol This chart was developed by EY based on readily available public data. Sources are included.
  10. 10. Page 9 EY Global Blockchain Summit ► Problems to be address ► Our vision: EY Ops Chain ► Our commitment and global investment ► New enterprise, new technology ► The new competitor
  11. 11. Page 10 EY Global Blockchain Summit Historically, information and operations technology and enterprise finance have been loosely coupled, and often are out of sync. Information technology ► Master data management ► ERP ► CRM ► IT security Enterprise finance ► Payables ► Receivables ► Internal transfers ► Assurance and tax ► Working capital Operations technology ► Inventory ► Production ► Transport and logistics Loosely coupled with messaging and activity triggers
  12. 12. Page 11 EY Global Blockchain Summit With blockchains, we build systems that all together sell, build, deliver and pay for product. Information technology Enterprise finance Operations technology Customer information that always is up to date Procurement pricing that automatically adjusts when you meet volume thresholds End-to-end business operations that always are in sync Payments that are collected when carriers provide proof of delivery Goods that are insured automatically when they are loaded aboard a ship
  13. 13. Page 12 EY Global Blockchain Summit EY is putting blockchain technology to work in the enterprise to realize this vision. EY Ops Chain: three key components Assets Services Partners ► EY software assets ► EY process assets ► Third-party software ► Process consulting ► System integration ► Tax ► Assurance and audit ► Enterprise software ► Industry foundations ► Leading start-ups
  14. 14. Page 13 EY Global Blockchain Summit EY is focused on building assets and an ecosystem of partners across five key solution areas. Embedded finance Industrial solutions Operational enablers Enterprise IT integration Turning finance from a vertical into an embedded horizontal Industry-specific assets covering everything from power to media Core operations capabilities from logistics to asset management Cloud integration, system security and ERP connectivity Secure, scalable systems on every device, everywhere Solutions Internet of Things
  15. 15. Page 14 EY Global Blockchain Summit Industrializing the blockchain means making it simple to apply this technology to your business. ► Process maps for areas impacted by blockchain technology ► Software assets for jump-starting solution development ► Case studies and lessons learned from existing solutions and approaches ► Integration tools and guides for process and technology For each area, following is a set of assets that will make it easier and faster to get up and running. Solutions Embedded finance Industrial solutions Operational enablers Enterprise IT integration Internet of Things
  16. 16. Page 15 EY Global Blockchain Summit EY Ops Chain: industrializing the blockchain Where information and operational technology meet the blockchain Turning finance from a vertical into a horizontal Payments, settlements, asset management and securitization integrated into platforms, for example: ► Cars that insure themselves ► Parking meters that can securitize themselves ► Doors that get paid to open ► Sensors that get paid for data Embedded finance Industrial solutions Operational enablers Enterprise IT integration Internet of Things
  17. 17. Page 16 EY Global Blockchain Summit EY Ops Chain: industrializing the blockchain Where information and operational technology meet the blockchain Industry-specific solutions that take into account unique issues for each sector, for example: ► Distributed energy management in power and utilities ► Multiparty contract manufacturing in electronics ► Distributed asset management and finance in heavy industry ► Digital rights management and rights markets in media ► Medical services billing ► Clinical trial management Industry-specific assets covering everything from power to media Embedded finance Industrial solutions Operational enablers Enterprise IT integration Internet of Things
  18. 18. Page 17 EY Global Blockchain Summit EY Ops Chain: industrializing the blockchain Where information and operational technology meet the blockchain Secure, scalable solutions for core cross-industry operational challenges, for example: ► Decentralized autonomous organization (DAO) markets for cargo and logistics ► Enterprise-internal and DAO- based asset management ► Inventory management, ownership and finance ► Trade finance and cross-border logistics ► Quality control and monitoring for agriculture, pharmaceuticals and manufacturing Core operations capabilities from logistics to asset management Embedded finance Industrial solutions Operational enablers Enterprise IT integration Internet of Things
  19. 19. Page 18 EY Global Blockchain Summit EY Ops Chain: industrializing the blockchain Where information and operational technology meet the blockchain Multiple cloud and ERP systems that deliver the broad set of back- office and inter-enterprise service integrations in order to build, run, and integrate blockchain solutions and leverage best-in-class services from providers such as: ► BlueMix ► Predix ► Cisco ► Azure ► SAP Cloud integration, system security and ERP connectivity Embedded finance Industrial solutions Operational enablers Enterprise IT integration Internet of Things
  20. 20. Page 19 EY Global Blockchain Summit EY Ops Chain: industrializing the blockchain Where information and operational technology meet the blockchain Blockchains on nearly everything, from anywhere, to deliver: ► Secure, scalable device management ► Distributed systems that resist distributed denial of service (DDOS) attacks ► Commerce, service and integration on any device ► Machine learning and blockchain integrations on any device ► Low power, low storage solutions Secure, scalable systems on every device, everywhere Embedded finance Industrial solutions Operational enablers Enterprise IT integration Internet of Things
  21. 21. Page 20 EY Global Blockchain Summit Leveraging EY’s global reach and the breadth and depth of our service lines ► Automated securitization ► Secondary markets ► Consumer financing ► Smart contracts that calculate and pay value- added tax (VAT) ► Blockchains that are “born” compliant ► Hyperledger or Ethereum? ► Public or private chain? ► Key management strategy ► Integration with legacy IT ► Business process transformation ► Productivity gains ► Tamper-proof audit trails ► Instant financial close ► Smart contracts that hold up in court ► Value chain transformation ► Secure collaboration ► New business models End-to-end thinking from finance, to tax, to industry processes Joined up and delivered by professionals in more than 200 countries Finance Tech Tax Process Industry Legal and audit
  22. 22. Page 21 EY Global Blockchain Summit Integration of tax, assurance and regulatory compliance is a key differentiator for EY. The creation of immutable records that span multiple entities creates unique opportunities to radically simplify tax, regulatory and audit challenges. Headquarters Foreign subsidiary Distribution partner Safety regulator Tax authority Internal audit ► Build controls into smart contracts ► No ability to violate or cover up actions ► Track profits and transfer pricing across the world ► Verified marketing payments ► Inventory and sellout visibility ► Instant close ► Global visibility► Product history ► Supplier history ► Automatic payments ► Automatic filing
  23. 23. Page 22 EY Global Blockchain Summit The EY Ops Chain ecosystem: curated partners Combining heavyweight enterprise champions and aggressive newcomers Enterprise software leaders Leading-edge start-ups Industry foundations
  24. 24. Page 23 EY Global Blockchain Summit ► Problems to be addressed ► Our vision: EY Ops Chain ► Our commitment and global investment ► New enterprise, new technology ► The new competitor
  25. 25. Page 24 EY Global Blockchain Summit We are guided by a set of key principles to help prioritize our relationships and development work. Key principles for EY investment in blockchain 1. Blockchain technologies are not a fix-all. Solutions should be driven by business requirements. 2. New technologies have the biggest impact when applied to new workloads and previously unresolved problems. 3. An open-source foundation is essential for any platform that will involve the secure, inter- enterprise transfer of value.
  26. 26. Page 25 EY Global Blockchain Summit Blockchains aren’t for everyone and they aren’t for every solution: a five-point test 1. Are there multiple parties in this ecosystem? ► Blockchains are more secure with more parties in the network. Single-participant networks are not especially secure. 3. Is it critical to have a tamper-proof permanent record of transactions? ► Blockchains create permanent records that cannot be edited or deleted. 4. Are we securing the ownership or management of a finite resource? ► Core logic in the system is designed to prevent double counting of assets and record ownership and transfers. ► Blockchains are transparent by design, wherein ownership or control of assets is public and transparent by design. Does this ecosystem benefit from improved transparency?5. ► Blockchains improve trust between participants by providing multiple points of verification. Is establishing trust between all of the parties an issue?2.
  27. 27. Page 26 EY Global Blockchain Summit EY research and development Blending deep subject-matter experience with skills in math and science Development, computer science and math skills Business process, tax and audit knowledge ► Mathematics ► Cryptography ► Information theory ► Physics ► Machine learning ► Biometrics ► Business process design ► Direct and indirect tax ► Tariffs, tax and trade duties ► Audit ► Regulatory reporting Working collaboratively across EY Blockchain Labs in New York, London and Trivandrum to develop and provide solutions for imbedded finance, tax, audit and industrial applications
  28. 28. Page 27 EY Global Blockchain Summit A global network of research labs and delivery centers New York Financial Services Innovation Center London Blockchain Global Research and Development Lab Trivandrum Global Service Center EY wavespace™ Innovation Centers with blockchain skills EY Blockchain Labs San Jose San Francisco Paris Zurich Warsaw
  29. 29. Page 28 EY Global Blockchain Summit EY has invested significantly in intellectual capital during the last year around the business applications of blockchain. EY blockchain point of view EY blockchain: health care point of view ► EY’s point of view white paper discusses blockchain as it infiltrates finance, health care and a host of other industries. “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.” CoinDesk highlights EY’s public blockchain work in Best of 2016 ► “From the original pitch, we had high hopes for this submission – and it didn't disappoint … EY tends to tread softly and carry a big stick, and the piece was a reminder of how much thought work it has ongoing behind the scenes – even as it eschews PoCs and PR. At a time when many institutions still dismiss bitcoin and other open blockchains, EY's salvo was a rare entry that championed collaboration and open-mindedness.” ► This EY point of view white paper that “demonstrates how blockchain technology supports a distributed network of payers and improves processes for maintaining and sharing provider data … Leveraging a shared infrastructure can provide new efficiencies to payers and providers and ultimately impact labor costs, reconciliation efforts, auto-adjudication rates, and overall member experience.” Source: http://www.ey.com/Publication/vwLUAssets/ey-blockchain- reaction-tech-companies-plan-for-critical-mass/$FILE/ey-blockchain- reaction.pdf, P. 10 Angus Champion de Crespigny, EY Source: http://www.ey.com/Publication/vwLUAssets/ey-blockchain-in- health/$FILE/ey-blockchain-in-health.pdf, P. 4 Executive Summary Source: Article by Pete Rizzo, http://www.coindesk.com/coindesk-2016- review-blockchain-best-stories, CoinDesk, Jan 17, 2017
  30. 30. Page 29 EY Global Blockchain Summit EY is building a sizable portfolio of our own blockchain assets to complement third-party solutions. EY Identity Management ► Distributed identity management EY Blockchain Navigator ► Administration user interface for blockchain tools In production In development, pilot and proof of concept for clients Supply chain management ► Enterprise procurement ► Contract manufacturing ► Bill of materials management ► Commodity pricing ► Contract management ► Invoicing and payments ► Spend auditing ► Asset provenance Media ► Digital rights markets Tax ► Cross-border VAT ► Trade tax and duty Automotive ► Fractional vehicle ownership Assurance and audit ► Bitcoin exchange audit tools and process ► Confirmations blockchain Enterprise IT ► Database connectors ► Security management and access logging ► Master data management ► ERP integration and sync ► EDI-to-blockchain sync Financial services ► Trade settlement ► Asset exchanges ► Embedded payments ► Autonomous marketplaces with artificial intelligence ► Marine insurance Life sciences ► Production traceability ► Clinical trial collaboration Health care ► Payor management Energy ► Distributed smart metering Pilot and proof of concept assets in use for clients
  31. 31. Page 30 EY Global Blockchain Summit ► Problems to be addressed ► Our vision: EY Ops Chain ► Our commitment and global investment ► New enterprise, new technology ► The new competitor
  32. 32. Page 31 EY Global Blockchain Summit The enterprise has changed beyond all recognition, but the approach to enterprise information technology hasn’t. From vertically integrated … … to ecosystem partner ► River Rouge plant for Ford ► Vertically integrated, end-to-end car manufacturing ► Source: Wikipedia ► Foxconn’s Shenzhen factory complex ► Assembly only, depending on a huge global network of suppliers ► Source: The Telegraph
  33. 33. Page 32 EY Global Blockchain Summit Transaction processing is the foundation of enterprise computing, but it needs to be reinvented for the ecosystem era Transactional data Workflows Analytics Optimization Orders Payments Inventory Shipments Employees Billing address
  34. 34. Page 33 EY Global Blockchain Summit There is a name for what blockchains do: transaction processing The blockchain: It’s technology that’s been around since the 1960s. CICS in 1966 Source: https://www.theregister.co.uk/2016/05/19/acronis_testing_blockchain_for_backup
  35. 35. Page 34 EY Global Blockchain Summit Congratulations We just reinvented technology from 1966.
  36. 36. Page 35 EY Global Blockchain Summit Blockchains are transaction processing for the ecosystem era. Synchronized records, no intermediary ► Every participant in the network has up-to-date information. ► Units of measure and other items are standardized across all participants. Shared governance with private data ► Governance of the system is shared, but data always can remain private.
  37. 37. Page 36 EY Global Blockchain Summit Traditional computing models centralize processing work. ► Highly efficient because it drives up workload of very expensive processors (or at least they used to be) ► Thin-client approach to computing
  38. 38. Page 37 EY Global Blockchain Summit Source: http://www.mkomo.com/cost-per-gigabyte-update 1985 July 10 MB drive $710.00 $71,000.00 per GB 2014 March 3.0 TB drive $99.99 $0.03 per GB The economics of computing are changing because compute power is now, effectively, free.
  39. 39. Page 38 EY Global Blockchain Summit Blockchains are a breakthrough in cybersecurity. As the networks get bigger, the environment gets more secure. Traditional systems have a single point of failure. With a blockchain, you must control more than 50% of the computing power in the network to take control. As a result, as you add more nodes to the blockchain, it gets harder to hack.
  40. 40. Page 39 EY Global Blockchain Summit When you add it all up, this amounts to an entirely new way of thinking about computing. Modern era Expensive computing Postmodern era Free computing High-trust environment Centralized internet Low-trust environment Distributed internet
  41. 41. Page 40 EY Global Blockchain Summit ► Problems to be addressed ► Our vision: EY Ops Chain ► Our commitment and global investment ► New enterprise, new technology ► The new competitor
  42. 42. Page 41 EY Global Blockchain Summit Command and control enterprises are now competing with self-organizing marketplaces. ► Only a few preferences can be expressed and managed by a top-down model. ► Top-down models tend to treat all participants in largely the same manner. ► Individual staff cannot easily have different work hour models, timing, or varying periods of work intensity. Supply Demand Optimization algorithm
  43. 43. Page 42 EY Global Blockchain Summit Bitcoin allowed a bunch of strangers to work as an integrated digital financial system. Decentralized group acting like an integrated banking entity If it works for banking, why not let it work for other industries? Source: http://bitcoin.i- rme.es/img/Bitcoin%20Logo%204096% 20PNG%20Forocoches%20(RME).png
  44. 44. Page 43 EY Global Blockchain Summit The future of digital markets ► Marketplace models allow everyone to manage their own preferences and requirements. ► Incentives and goals shape the behavior of the participants and help drive them toward the same overall productivity targets. ► Marketplace models also allow enterprises to smoothly blend internal and external resources. ► Some participants are machines, some are people, some are based on rules, and some are based on artificial intelligence. People plus DAOs asset pools and machine learning all interacting
  45. 45. Page 44 EY Global Blockchain Summit Blockchains are the best way to integrate disparate networks of people and systems to create economic value. The building blocks Wallets Keys Contracts Ledgers The features Identity and discovery Provisioning and access Economic exchange Data storage and reporting
  46. 46. Page 45 EY Global Blockchain Summit Key contact Paul Brody EY Global Innovation Blockchain Leader +1 415 894 8046 paul.brody@ey.com Twitter: @pbrody
  47. 47. Page 46 EY Global Blockchain Summit Thank you!
  48. 48. EY | Assurance | Tax | Transactions | Advisory About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. © 2017 EYGM Limited. All Rights Reserved. EYG no. 04033-173GBL 1705-2288253 ED None This material has been prepared for general informational purposes only and is not intended to be relied upon as accounting, tax or other professional advice. Please refer to your advisors for specific advice. ey.com

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