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Demystifying Blockchain Codex2199 PDF
Demystifying Blockchain Codex2199 PDF
2
HOW BLOCKCHAIN WORKS
3
POTENTIAL FOR FINANCIAL SERVICES
We believe that through targeted approaches, many of which are being piloted today, banks can explore
blockchain’s potential and grab some quick wins using smart contracts in document exchange, record-
keeping, multi-signature and digital asset transfer.
Banking and Finance 45 financial firms.1 The “Open Focal points include:
Banks and financial Ledger Project” launched in
December 2015 by tech and • Enhanced security through
institutions are among cryptography and a tamper-
the first to sense the potential finance majors such as IBM, Intel,
resistant design, while
of blockchain. R3, a blockchain JP Morgan and the London Stock
eliminating the risk of a single
technology company devoted to Exchange “aims to build block-
point of failure. If a breach
research blockchain’s use in the chain technology that can bring
does occur, its location can
financial sector, leads a consor- a new level of automation and
be determined and isolated,
tium that already includes transparency to a wide range of
precisely and quickly without
services in the business world,
impacting the rest of the
including stock exchanges and
network.
other financial markets.” 2
• Simplification and cost
We believe that through targeted reduction, by removing the
approaches, many of which are need for intermediaries and
being piloted today, banks can automating process elements
explore blockchain’s potential and through smart contracts. The
grab some quick wins using smart shared infrastructure can help
contracts in document exchange, reduce costs within the bank
record-keeping, multi-signature and with other parties across
and digital asset transfer. In this the value chain.
way, blockchain can be applied
to help solve today’s efficiency • Transparency. With access
problems and also create new to blockchains, authorities
opportunities and business can see the specifics of
models. 3 transactions for themselves
instead of relying on the
veracity of banks’ reporting.
4
A smart insurance contract would pay out against the insurable event without the policyholder having
to a make a claim or the insurer having to administer the claim. This will essentially remove the cost
of claims processing and minimize fraud.
5
POTENTIAL FOR NON-FINANCIAL INDUSTRIES
Industry experts and blockchain evangelists Don and Alex Tapscott reference the tracking of immutable
records, such as property ownership in India and the trading/tracking of carbon emissions to address
global warming, as two potential ripe vines where blockchain can democratize information, protect
civil rights and help solve global challenges. Other examples abound.
Blockchain holds tre- transparency to the art market, Blockchain is poised
mendous potential for tracking the sale of art work and to disrupt the man-
industries such as the the payment of resale royalties.8 ufacturing sector.
entertainment indus- Manufacturing value
Creative projects that are cre-
try. It can transform everything chains are complex, multi-tiered
ated on blockchain technology
from proof of creation to owner- combinations of various types of
could be recorded upon creation.
ship, transfers of digital assets, organizations providing design,
Smart contracts can be embed-
rights management, micropay- sourcing, manufacturing, delivery
ded with licensing terms and
ments and creative collaboration. and service across multiple geog-
when consumers purchase music,
It can eliminate or reduce the raphies. Even a single component
for example, the royalties can
need for centralized registries of of a single product may involve
flow immediately to each of the
intellectual property. It can bring myriad possible transactions
participating parties. Blockchain
requiring a number of financial
can make the creation of proj-
and regulatory intermediaries,
ects such as a screenplay truly
each requiring its own contract
collaborative by logging each
and trust relationship among the
contribution.
parties. Blockchain quickly and
In their book, Blockchain inexpensively provides trust in
Revolution: How the Technology the identity and legitimacy of
Behind Bitcoin Is Changing any partner in any financial or
Money, Business and the World, trading relationship. This reduces
Don and Alex Tapscott refer- manufacturing cost and time to
ence the tracking of immutable reconcile transactions. It could
records, such as property own- also help to establish new busi-
ership in India and the trading/ ness relationships. For example,
tracking of carbon emissions since trust is built into a smart
to address global warming, as contract, new partner possi-
two potential ripe vines where bilities can flourish, fortifying
blockchain can democratize innovation and revealing new
information, protect civil rights business opportunities.
and help solve global challenges.
Other examples abound.
6
With the IoT, blockchains in manufacturing will automatically monitor prices, delivery times and other
conditions, and automatically negotiate and complete transactions in real time.
With blockchain sitting outside the There are enduring concerns tied to Automated execution, and
corporate firewall and managed by many the volatility of bitcoin and everything the potential to simplify
different and unconnected parties, the connected to it.12 B2B payments13 and resolve
cyber criminal no longer has a single issues surrounding cross-
target to attack. Potentially, blockchain is border payments can also
immune to all of the conventional cyber mean a ceding of control by organiza-
threats that corporations worry about.10 tions. For example, a policyholder does
However, software bugs, not have to rely on the insurer’s decision
colluding attacks by verifying to cover damages. The insurer will pay
nodes, etc. can crash before claims managers even know
blockchains permanently.11 about the claim.
Putting software “on a blockchain” is an Blockchain is not a guarantor of There will likely be
inconvenience, justified only in cases authenticity. “When people talk about a cultural resistance —
involving a global public ledger.14 single source of truth, they should really to machine-to-machine
be talking about a single, mutually transactions in
agreed, version of record, but being manufacturing,
careful that this is for example.
not over-sold as
“truth” or “fact”.”15
Blockchain is still a work in progress, It has the potential to cause Working with legacy systems during
making it hard to predict its course, significant economic upheaval the transition will be a challenge.
potential roadblocks, snags, etc. resulting from the disintermedia- Organizations will need test and deploy
tion of banks and other financial blockchain technology that coexists
institutions, and the with existing systems —
transformation of how rip-and-replace isn’t
business is conducted an option. Systems
across industries. The integration
potential ramifications of challenges will
disintermediation could naturally be quite
be extensive. formidable.
8
NAVIGATING THE CHALLENGES
As is typical with disruptive technologies, we recommend first executing proofs of concept to
understand its potential and limitations, rather than measuring early deployments on their return on
investment.
9
ADDITIONAL RESOURCES
Visit the Blockchain section of our website for additional insights.
10
FOOTNOTES
1
http://www.forbes.com/ 6
https://dailyfintech. 13
ibid
sites/laurashin/2016/04/05/ com/2016/01/14/what-does- 14
http://www.truthcoin.info/blog/
microsoft-partners-with- the-future-hold-for-blockchain- limits-of-blockchain/
blockchain-consortium- and-insurance/
r3/#794c7bb1158c
15
https://bitsonblocks.
7
http://www.coindesk.com/ net/2016/05/19/just-because-
2
http://www.the-blockchain. blockchain-p2p-insurance- its-on-a-blockchain-it-doesnt-
com/2015/12/17/ models/ mean-its-true/
linux-foundation-to- 8
https://artlery.com/
oversee-new-blockchain-
16
https://www.cognizant.com/
project-with-ibm-intel-cisco-
9
https://www.cognizant.com/ content/dam/Cognizant_
jp-morgan-london-stock- content/dam/Cognizant_ Dotcom/article_content/
exchange-group-and-more/ Dotcom/article_content/ Services/Blockchain-in-
Services/blockchains-smart- Banking-A-Measured-
3
https://www.cognizant.com/ contracts-driving-the-next- Approach-codex1809.pdf
content/dam/Cognizant_ wave-of-innovation-across-
Dotcom/article_content/
17
https://www.cognizant.com/
manufacturing-value-chains- content/dam/Cognizant_
Services/Blockchain-in- codex2113.pdf
Banking-A-Measured- Dotcom/article_content/
Approach-codex1809.pdf
10
https://dailyfintech. Services/Blockchain-Instead-
com/2016/01/14/what-does- of-Why-Ask-Why-Not-
4
ibid the-future-hold-for-blockchain- codex1973.pdf
5
http://iireporter.com/how- and-insurance/
blockchain-will-fit-in-the- 11
ibid
new-on-demand-insurance-
ecosystem/
12
http://www.cutimes.
com/2016/01/27/blockchain-
weighing-the-pros-and-cons
11
About Cognizant
Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process services,
dedicated to helping the world’s leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.),
Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise,
and a global, collaborative workforce that embodies the future of work. With over 100 development and delivery centers
worldwide and approximately 255,800 employees as of September 30, 2016, Cognizant is a member of the NASDAQ-100,
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Codex 2199