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April 28, 2018
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• A blue-sky vision and why you should care
• Blockchain basics, myths and realities
• Blockchain validation
• The ICO phenomenon
• Prominent use cases
• Conclusion & Q&A
Principles behind building real blockchain networks
• Heterarchy (versus hierarchy)
• Transparency (via a distributed or shared
• Tribes (manifested by startups)
• Network effect
• Trust framework
Anti-centralization Networked consensus
Phil Windley, “Coherence and Decentralized Systems,” April 24, 2018,
Origins of the permissionless Bitcoin blockchain:
The pseudononymous 2009 “Nakamoto” paper
Smart Contracts are software-driven, automated rule-
based agreements that require limited human interaction.
The program checks if a pre-defined condition has been
fulfilled and subsequently executes the embedded logic.
Their outcomes only take affect if there is network
consensus for their effect.
Enabling this concept with Blockchain greatly reduces the
dependency on third-party validation and automates certain
functions; therefore leading to process efficiencies and cost
Users define the terms
and trigger events of
their contract(s) and
Value Transfer &
Events trigger contract
execution according to
Devices are inter-
connected through the
blockchain for users to
verify the information
Upon consensus, the
contract terms are
with third-party APIs
are utilized for inter-
Accounts are settled
and the information is
2013: Smart Contracts = Business logic and rules for blockchains
Self governing and self
contracts will react
automatically to external
Smart contracts can only
change data state if there
is network consensus for
Every node on the
network has a replicated
and in sync copy of the
cannot be deleted
Because smart contracts
allow manual processes
to be pragmatically
defined processing times
are significantly reduced
Smart contracts perform
the function(s) of the
there is no need for them
saving time and cost
Manual tasks can be
taken care of by smart
What are the key benefits?
1 2 3 4 5 6
What are they and how do they work?
A blue-sky vision for blockchains and smart contracts
From simple smart contracts to border-crossing
“Blockchain is just
With the help of a blockchain, participants in the network can confirm transactions without the
need for a trusted third party intermediary.
Reality: Blockchains can be currency independent
Is the “someone
in the network”
That’s a question
How a blockchain works
What does a permissioned blockchain do? A food
supply chain example
Proof of work is the
only viable way to
on a blockchain.
Reality: Proof of work is being augmented, if not
replaced, by more energy conserving consensus
Proof of stake
Proof of work
Blockchain availability concerns: How do stewards
keep their networks up and running?
From Monax, “Agreements Network” white paper, 2018
Key takeaways: Blockchain-related concepts and
“To be able to trust
data, you have to
put it on a
Blockchains are hardly the only immutable data stores, and
you may not need a decentralized data store at all.
Other immutable data stores log events for full history,
auditability and recordkeeping too--and are faster and cheaper
“Blockchain will be
the next internet.”
need views of common
take actions that need to
be recorded and change
participants need to
trust that the actions
that are recorded are
reduce cost and
reducing delay has
transactions created by
depend on each other
Reality: Blockchains are only a fit when these
Maturity and related inhibitors
• Young Technology: May not
operate at scale without
compromising on security,
speed or cost
• Cost: Hard to convince low
• Proper Incentives: Potential
participants will need to be sold
on the value of the platform
• Consensus Needed:
Participants must come to group
agreement on platform and
standards acceptable to all
• Interoperability: Ability to
integrate with participant existing
client systems and processes
• Architectural Role: How will
blockchain eliminate, replace, or
work with current technological
“If you want to
protect your data,
put it on a
Reality: Protecting data requires more than
blockchains, including off-chain options
Microsoft’s blockchain-as-a-service stack Azure cloud computing stack
33PwC’s Digital Services
Understanding the ICO
Initial coin offerings are making headlines. What they are, how they work,
and what you need to know about these blockchain innovations.
What if you could raise millions of dollars in capital
for a startup without giving away any equity? One
option could be via ICOs, where tokens are offered
to willing purchasers. It's a complex and rapidly
evolving market. Here is a sense of how ICOs work
and the initial regulatory response.
Initial coin offerings:
Bubble or breakthrough?
Learn more about this
34PwC’s Digital Services
At a glance
An initial coin offering (ICO) is a form of
fundraising that harnesses the power of
cryptocurrencies and blockchain-based trading.
Similar to a crowdfunding campaign, an ICO
allocates tokens instead of shares to early investors
in a business.
These tokens typically do not represent actual
ownership in the company, but they often provide
access to an ecosystem and can be traded on an
It's not just hype: ICOs raised over US$5 billion
in 2017 in nearly 800 deals, according to CB
Insights. Blockchain equity funding by
comparison was a mere US$1 billion in 215
deals for the same period.1
ICO versus blockchain
equity funding to Q417
35PwC’s Digital Services
• ICOs represent a new option for raising capital.
• The funds involved are typically much greater
than the funds in basic crowdfunding campaigns.
• ICO issuers can be creative with their
• Strong interest in cryptocurrencies has triggered
attention in ICOs by both buyers and sellers.
36PwC’s Digital Services
• A token received in an ICO does not grant equity rights.
• ICOs are often unregulated; investors and issuers need to beware.
• Hackers have already breached ICOs and stolen funds.
• When it comes to the taxation and legal status of ICOs many gray areas still exist.
• The US Securities and Exchange Commission (SEC) notes that tokens or coins "that are offered
or sold may be securities." As securities, they must be registered before sale and are subject to
US federal securities laws.2
• Some startups offer "utility" tokens (provide access to an ecosystem) instead of security tokens
(provide economic exposure).
• ICO deals are more and more frequent, and one major challenge is discovering and learning
enough about them for due diligence purposes.
• The ultimate ecosystem or promised product may not come to fruition.
37PwC’s Digital Services
How an ICO works
An ICO is a limited period in which a company offers a predefined number of tokens to investors.
After weighing the risks and upsides, Company X decides that an ICO is the most
viable way to raise funds.
Company X fine tunes how the tokens can be used in the ecosystem.
Company X formally launches an ICO campaign, explaining the goals of the
project, the team's experience. and the problem they are solving. As with an IPO,
an initial price is set (either in traditional currency or, more often, in
cryptocurrency). A pre-sale period often takes place.
Third-party services have emerged that can aid with KYC/AML, token
development, ICO marketing, and more.
38PwC’s Digital Services
How an ICO works (continued)
An ICO is a limited period in which a company offers a predefined number of tokens to investors.
On the date of the ICO, the company issues tokens to the participants. Like an IPO or a crowdfunding campaign. ICOs are open for a limited time. Many
have soft or hard caps on the amount that can be raised.
Following the ICO, the team will continue building the promised product using the
39PwC’s Digital Services
Initial regulatory response
Regulators have expressed divided responses to ICOs, ranging from total bans to support for the activity as
long as it's regulated. As a result, ICO activity has been migrating to countries such as Japan, which has
taken steps toward legalization.
China imposed an outright ban on "token fundraising" in September 2017,3
declaring that the activity constitutes "an illegal issuance of securities“
associated with financial crimes such as fraud and pyramid schemes.
Similarly, South Korea banned token offerings at the end of September
2017,4 asserting that these offerings, "regardless of technical terminology,“
violate the country's capital market law. Additionally, the country's Financial
Services Commission plans broader reviews of cryptocurrency company
practices through the end of the calendar year.
Russia's central bank revealed its intention beginning in October 2017 to
block5 all cryptocurrency exchange websites operating in the country
entirely. President Putin pointed out that cryptocurrencies can serve as
a vehicle for money laundering, tax evasion, and terrorism, according
The governments of Canada, Hong Kong, Singapore, Switzerland, and
others, in similar fashion to the US, have asserted that at least some coin
offerings will be subject to securities laws. The European Securities and
Markets Authority (ESMA) also echoed this sentiment.
Taking a different tack entirely, Japan recognized7 bitcoin as legal tender
in May 2017 and has since authorized 11 cryptocurrency exchanges.
Tokyo-based exchange Coincheck said in October that it was reviewing
ICO proposals it received from hundreds of Chinese startups after China
imposed its ban.
● Designed a solution that
leveraged a cloud-based
predictive analytics and
shared workflow to improve
cash flow and data integrity
across the Order to Cash
● Performed a strategy
assessment to identify
potential use cases. Evaluated
potential partners and
Product Design and
● Assessed technology architecture
and design features of cross
border payments program
leveraging blockchain. Proposed
third party vendors, partnerships
and go-to market strategy
● Designed and developed a
proof of concept for a central
bank, to explore the use of
resilient distributed ledger
technology for settling
Supply Chain Pilot
● Built a pilot that would allow
a pharmaceutical company to
attest to provenance / chain
of custody of prescription
drugs in order to prevent
Trade Finance Pilot
● Collaborated with large
software company and bank
to build a standby letter of
credit proof of concept, taking
a multiday, 15+ step process
to 5 steps with near real-time
Example use cases we’ve helped clients with
Issue: Bank recordkeeping and reconciliation friction
Trend in identity toward controlling your own IDs
Unwarranted and fraudulent bot traffic forces
advertisers to overpay and makes customer
data more difficult to track
Ghost Sites lead to advertisements getting
placed on non-existent or incorrect sides. The
opposite can also occur for many publishers
Lack of trust in the supply chain limits the
data that is shared, reducing the ability to
make informed business decisions
Blockchain solutions have the ability to address the major pain felt across the industry
Through the use of an ad network registry, a
blockchain network could prevent fraudulent
players from entering into the advertising
By tagging digital assets as well as creating
an ad network registry, blockchain can track
exactly where an advertisement is placed and
determine if that location is legitimate
By pairing distributed ledger technology
with cryptographic security, blockchain can
enable enhanced data sharing without the risk
Current Industry Concerns
Potential Blockchain Solutions
Ad tech supply chain problems
Conclusion: Opportunities and challenges
• Targeted, smaller footprint
commercialization in financial services
• Substantial transaction friction reduction
• Strong demand for product safety, supply
chain transparency and efficiencies
• Organizational and industry boundary
crossing and new levels of collaboration
• Autonomous capability symbiotic with AI’s
• The reality of the adoption S curve
• The lagging legal and regulatory
• The complexity of the business ecosystem
• The installed base of business
technologies, processes, and procedures
• Competing but less advanced offerings
• Uncertainty surrounding best practices