Industrializing the blockchain

EY Global Blockchain
Summit
San Francisco, CA
April 26, 2017

EY Global Blockchain Summit
EY Ops Chain
Where blockchain meets finance, operations technology and information technology

► Problems to be addressed
► Our vision: EY Ops Chain
► Our commitment and global
investment
► New enterprise, new technology
► The new competitor

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

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

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

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

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.

► Problems to be address
► Our vision: EY Ops Chain
► Our commitment and global
investment
► New enterprise, new technology
► The new competitor

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

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

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

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

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

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

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

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

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

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

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

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

The EY Ops Chain ecosystem: curated partners
Combining heavyweight enterprise champions and aggressive newcomers
Enterprise
software
leaders
Leading-edge
start-ups
Industry
foundations

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.

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.

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

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

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

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

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

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

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

Congratulations
We just reinvented technology from 1966.

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.

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

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.

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.

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

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

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

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

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

Key contact
Paul Brody
EY Global Innovation Blockchain
Leader
+1 415 894 8046
paul.brody@ey.com
Twitter: @pbrody

Thank you!

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

Industrializing the blockchain

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