Blockchain Boot Camp - Consolidated Presentation Materials - 20170425 - vCL4

Blockchain Bootcamp Day 1
April 27, 2017

Kickoff
Blockchain Bootcamp – Course Overview
The blockchain curriculum and bootcamps are designed to help practitioners understand blockchain
technology and to provide them the skills to take blockchain offerings and insights to our clients
Course Format
The Adaptive Challenge A two day live training featuring:
A deep dive into Blockchain technology and architecture
Functional and use cases in the Financial Services Industry
Blockchain technology has been called the “The Next Internet,” as it enables numerous, disruptive applications across industries
Participants will begin development on a Proof of Concept to get hands-on exp
Continue to work on the POC on their own time over a 6-8 week period
The project will require a time commitment of approximately 3-5 hours per week
Course Objectives
Explain the key concepts and common characteristics behind Blockchain technolo
Describe in detail the various architectural components of Blockchain stack, and
Recognize opportunities for our clients to implement Blockchain technologies to s
FSI Learning FOR INTERNAL USE ONLY © 2017 Deloitte Development LLC. All rights reserved.
Blockchain Bootcamp – 2 Day Agenda
MODULE TIME INSTRUCTOR(S)
DAY 1 – Blockchain Tech Deep Dive
Kickoff 8:30 – 9:00 am Dan Simmonds
Module 1: Blockchain 101 9:00 – 11:15 am Jean-Luc Verhelst, Yonathan Lapchik
Break 11:15 – 11:30 am
Module 2: Architecture 11:30 – 12:45 pm Dhananjay Goswami, Dan Simmonds, Jean-Luc Verhelst, Forrest Colyer
Break 12:45 – 1:15 pm
Module 2: Architecture (Continued) 1:15 – 3:15 pm Dhananjay Goswami, Dan Simmonds, Jean-Luc Verhelst, Forrest Colyer
Break 3:15 – 3:30 pm
Module 3: Ethereum 3:30 – 4:30 pm Unsok Tchoi
Day 1 Wrap Up 4:30 – 4:45 pm Connie Li
DAY 2 – Industry Specific Use Case
Use Case 1: Banking 8:00 – 9:30 am Eric Piscini, David Ortiz
Break 9:30 – 9:45 am
Use Case 2: Securities 9:45 – 11:00 am Dev Sahoo, Rahul Banga
Use Case 3: Insurance 11:00 – 12:15 pm Chris McDaniel
Break 12:15 – 12:45 pm
Follow-On Project 12:45 – 2:15 pm Dan Simmonds, Forrest Colyer
Day 2 Wrap Up 2:15 – 2:30 pm Wendy Henry
FSI Learning FOR INTERNAL USE © 2017 Deloitte Development LLC. All rights
Meet the Facilitators
Eric Piscini Rahul Banga
David Ortiz
Principal, Global Blockchain
Manager, FinTech & Consultant, AML Technologist
Leader
Innovation Lead
Christopher McDaniel
Specialist Leader, Life Institute Yonathan Lapchik Jean-Luc Verhelst
Lead Manager, Blockchain and Consultant, Monitor Deloitte
Innovation Product Manager Belgium
Wendy Henry
Specialist Leader, Federal Dhananjay Goswami Forrest Colyer
Technology Manager, Technology Lead for Analyst, Blockchain
US Blockchain Lab Technologist
Unsok Tchoi
Specialist Leader, Enterprise Dev Sahoo Connie Li
Architect Senior Consultant, Investment Analyst, Deloitte Digital
Management & Capital Markets
Dan Simmonds
Senior Manager, Innovation &
IT Strategy
FSI FOR INTERNAL USE © 2017 Deloitte Development LLC. All rights
Deloitte’s Blockchain Offering
1 Innovation and Ideation Strategy Development 2
• We identify relevant use cases to harvest the • We lead you to define “where to play and how
benefits of blockchain technologies to win”
• Our thought leadership, developed in • We drive business, technology, integration and
conjunction with our ecosystem of innovation talent strategy
and blockchain companies, enables you to
make sense of the broad innovation landscape • We develop strategies to pilot and implement
blockchain based solutions
• We track over 200 blockchain companies
• We define an iterative and flexible approach to
match the rapid changes in the ecosystem
4 Product Development Prototyping 3
• We mobilize our global practitioners to your • We accelerate prototyping by using our existing
organization to re-engineer business processes technology capabilities and industry experience
or design new ones
• We have prototypes up and running: Digital
• We bring our broad set of services, across Bank, Loyalty & Rewards and Smart Identity
compliance, technology, talent, operations and
tax, to effectively integrate your blockchain solution • We have over 30 prototypes in our library of
proofs of concepts
• We deliver as one team in collaboration with
external companies
23 30+ >800
Industries where we Use cases explored Global delivery Practitioners in our
have deep business and prototypes network with 9 blockchain community Ecosystem of technology and
process knowledge developed development teams from 40 countries innovation companies
(sampling)
Blockchain Explained - Video
Module 1: Blockchain 101
April 27, 2017

Agenda
Introduction
Blockchain
Cryptocurrencies
Consensus Mechanism
Keys to Transact
Wallets
Settlement of Transaction
Security and Challenges
Appendix
Introduction
Disruptive Digital Evolution
Information technology has disrupted many industries in the last decade
Why is FSI yet to be disrupted?
1
Why is FSI Yet to Be Disrupted?
Valuable and money cannot be copied in order to keep their value
Information is not transferred but copied
Money can not be copied
1
In the digital world (vs. the real world),
we needed intermediaries …
… until blockchain arrived!
1
The First Digital Answer: Bitcoin
The first application of blockchain technology has been Bitcoin
Bitcoin is to money what internet is to information

Today: Information Tomorrow: Value
• Permissionless communication + Permissionless value exchange
• Permissionless content creation
and fruition
1
Blockchain is Skyrocketing
Over the past 5 years, blockchain has evolved from cryptocurrency and payments to an
ecosystem of widespread digital automation
1
Blockchain
Permissionless vs. Permissioned
Protocols can be used to create open or closed blockchains
Open
Permissionles
• Anyone can freely and autonomously join the network so as to submit

transactions and take part in the validation process
No central authority
• There is no central counterparty, the network rules
itself Shared among participants
• No one owns the network, it is maintained only by its users
Closed
• Only specific and authorized actors (e.g., banks) can join the network so
Permissione
as to submit transactions and take part in the validation process

Central authority
• There is a control layer built into the network managed by one or
more central counterparties
Privately owned
• A central entity (e.g., consortia) owns, maintains and regulates the network
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Cryptocurrencies
First Application: Cryptocurrencies
1
Bitcoin
2
Bitcoin Blockchain Explorer
The bitcoin blockchain is pseudo-anonymous, transparent, and auditable by design
Each block is made of transactions

Blocks and transaction are visible in real-time
The history of transaction of each account is visible
2
Bitcoin History
Since 2008, bitcoin has known development and spreads out both in an exponential way
reaching a market capitalization of ~$10 billions
First steps of bitcoin Resilience to shocks Bitcoin survived to several shocks

Nov 2008: Satoshi Oct 2013: US government that may have compromised any
Nakamoto published closes Silk Road; BTC price fiat currency, since 2009 Market
Bitcoin white shrinks but rapidly recovers Cap
paper
Dec 2013: Chinese central bank
Jan 2009: Releasing of (biggest BTC market) forbid to Market
software: blockchain the Chinese FS to hold BTC Cap
is operative
2008 Feb 2014: MtGox, the biggest
BTC exchange, went bankruptcy ~$10
with over 850k BTC losses 200 201
billion
On average 250k BTC are
traded
2009
daily (~$90 mln) with a number
2010 2011 2012 2013 2014 2015 2016
First real Launch of Paymium is the Bitcoin shows period of high $1,2 billions of
payment in the first first EU exchange volatility but once Venture Capital’s
BTC (10k e-wallet with Payment stabilized overtakes investment in
BTC for two app for institution Western Union in terms Bitcoin and
of 200 201
pizzas) smartphone license daily transacted volume blockchain sectors
FSI LeSaornuirncge: historyofbitcoin.org; © 2017 Deloitte Development LLC. All rights

2
Consensus Mechanism
Hash Function: Input Change Sensitivity
Avalanche effect
Input I have a dream that one day this nation will rise up and live out the true meaning
of its creed: "We hold these truths to be self-evident; that all men are created
equal" Hash()
Output
3a5a4b63da589ddd8bbdeb42055bc317c4b42f12d6d24eb5766a69bee9059f76
Input
We have a dream that one day this nation will rise up and live out the true Hash()
Output meaning of its creed: "We hold these truths to be self-evident; that all men are
6e28531929bdf8f506046bfd07690e529b9e3c871e6937e494e066be989d953d
created equal"
Results
Inputs: 169 identical digits out of 171 =

98.8%
Outputs: 6 identical digits out of 64 = 9.4%
2
Data Structure Overview
The blockchain data structure is an ordered, cryptographically secure, back-linked list of
blocks of transactions
Block 1 Block 2
Header = previous block hash

Genesis block Previous block hash
Body = Data Data
Genesis block Blocks

The genesis block is the first brick of the blockchain
Blocks are made by two parts: the
It is hardcoded into the protocol header and the body
In Bitcoin it contains the words “The Times 03/Jan/2009
the header
Chancellor
contains
on brink
the previous
of secondblock
bailout
hash
for banks”
(fingerpr
the body contains data (e.g., transactions)
2
Hash Inputs: What is Inside a Block?
Field Description
Block version number (protocol in use)
Version
Reference to the hash of the previous block
Block structure
Root of the Merkle tree of the transaction
Previous block hash
Block size
Block time creation time
Block header Proof-of-work algorithm difficulty target for the block

Merkle root
Number used for the
Number of transactions proof-of-work
Timestamp
Transactions
Difficulty
The average block contains more than target
2000 transactions.
The maximum block size, as fixed in Bitcoin Core, is 1MB
Nonce
2
Mining the Block: An Example
Mining a block can be summarized as hashing the block repeatedly while changing the
nonce until the hash result matches a certain target
Trial and Error solving
Example It is impossible to estimate which nonce may match the target, the only way
is by Trial and Error:
The example tries to • Nonce 0 (satoshi nakamoto0) returns

hash the phrase 0e4340237f7aefd679766153807d1098b96e85147f65f5ad8246c460f33e467a
“satoshi nakamoto”
• Nonce 1 (satoshi nakamoto1) returns
using the SHA256 8619181884c017d9385f9b260e8572aa6fc0985e2f585fd08ed79a56f6dfeba6
The aim is to find a • …

hash result lower
than the target that
ba442d12d90a6f6295d38435c1a5527f8c95eb6fd2d939d301efc3780dcc3cdf
starts with 0000
00007fe3a555f471cc0f51dbec52ee7afcb179351e83fb84406b3f980d2d26a6
2
Mining Reward Halving
New bitcoins creation decreases geometrically over time, with a 50% reduction every 210,000
blocks (approx. four years)
Total Bitcoin supply

is fixed: 21 millions 3.37 … … … 0 Last BTC will be
Today 6.75
BTC mined in 2140
BTC
12.5
BTC
25
BTC
• Every 4 years the reward is halved

• Returns (Seigniorage) decrease pushing
miners with high marginal costs out of
business
50
BTC
More than 85% of total bitcoin

supply will be created by the end of
2020
2
Mining History: From CPU to ASIC
The fast growing of hash power is due to continuous improvements in mining hardware
The last evolution is hardware

Difficulty: probability to find the correct hash = 1/x
te: millions of TeraHash/Second (1018 hash per Second) designed to calculate only sha256 ha
Last Halving
The first hardware specifically p

FPGAs*
Fast recovery
Specific
General purpose
Soon miners discovered that GP

hashing
Difficulty
Hash Rate
In the beginning mining was

performed using CPUs, Common Perso
201 201 2016
Source: blockchain.info; *FPGA = Field Programmable Gate Array; **ASIC = Application-Specific Integrated Circuit
2
What if Two Blocks are Broadcasted at the Same Time?
It’s difficult to find two valid blocks at the same time, but what happens if two valid blocks
are broadcasted simultaneously?
1
After a new block is found, miners broadcast it and the other nodes simply accept the first they receive as
I’ve found a new block!
add to their copy of the ledger
Block 1A
Previous block hash
Transactions
Block 0
Block 1B
Last validated block
At this point in time no one knows

Previous block hash
Transactions
It depends on the next validated block
I’ve found a new block!

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FSI Learning
What if Two Blocks are Broadcasted at the Same Time? (cont.)
It’s difficult to find two valid blocks at the same time, but what happens if two valid blocks
are broadcasted simultaneously?
2 3
Miners restart their race, some including the hash When a miner finds a new +2 block and broadcasts it
of one block (1A) in the new block they’re trying to the network the nodes will accept the longest
to validate and some the hash of the other (1B) chain, implicitly accepting the same +1 block (1A)
I’ve found a Block 1A Block 2A

new block! Previous block hash Previous block hash
Transactions Transactions
Block 0
Last
validate Block 1B
d block Previous block hash
Transactions
4
That chain is associated to the largest amount of work. The orphan block
(1B) will be dropped from the chain and all the transactions included will be
cancelled, including the Coinbase (that’s why it can be spent after 100 blocks)
Changes in Bitcoin Protocol: Hard Forks and Soft Forks
These terms describe compatibility breaking changes in the protocol, generally the network will
solve these issues organically, but hard forks can lead to permanent breaks
Soft forks restrict block acceptance rules in comparison to earlier versions:

•
• All blocks considered valid by the new version are also valid in the old version
Upgraded miners will have their blocks accepted by ALL the network
Soft• Old miners will have their blocks accepted by part of the network and they will have an i
Fork Example: reducing the type of transactions accepted
• type of upgrade, may require a soft or a hard fork

BIP implementation, depending on the
Hard forks changes are not compatible with earlier versions:

•
Hard Fork upgrades are in or out decisions as older versions will not accept the new blocks
If part of the network doesn’t upgrade, the chain can split in two forever. The longer the for
Hard Fork
Example: change the type of hash function used to link blocks, from SHA256 to
Keccak SHA-3
•
Keys to Transact
Cryptographic Digital Signature in Bitcoin
Every bitcoin transaction requires a valid digital signature to be included in the blockchain
Secret key Unlock related funds

Is used to sign transaction
Must be kept secret
Elliptic curve function
Public key Used to verify digital signature

Has to be shared
Not Quantum computing resistant
RIPEMD160 + SHA256 encoded in Base58
Address Generated from public key

Quantum resistant
Used to receive funds
3
Secret (Private) vs. Public Keys
Digital signature is based on Public Key cryptography, that uses a pair of keys
Secret Key One-way Public Key

Function
• is a randomly generated • is generated from the secret

alphanumerical string key using a one-way function
• has to remain secret • has to be shared
• allows to digitally sign • allows to digitally verify

transactions transactions
3
Cryptographic Digital Signature: The General Scheme
Digital signature is used for demonstrating the authenticity of a digital message or documents
Keep it secret!
Secret Key
Public Key
Share it!
Bob Alice
Message +
Bob Secret Key Bob Public Key
Digital Signature
+
Bob Public Key
Trudy
Wallets
Multitude of Wallets
Each wallet is a combination of multiple of the following features
Generate + Store + Transact + Validate
Non deterministic Hot storage Not multisignature Non-full node

OR OR OR OR
Deterministic
Cold storage Multi- signature Full nodes
Non- Hierarchical
Hierarchical
3
Genera Sto Build
Keys Generation Mechanism te re transacti
Wallet software can also be categorized based on their private keys generations mechanism
Main types Key features
Overview • Randomly generated unique private keys (e.g., paper

ys, usually implemented as structured files or simple databases of keys
Non
et can be categorized based ondeterministic
how they walletswallet)
generate keys • Need to store every private key generated
• Re-using of the same address and key-pair for multiple
transactions
• All generated keys are derived from a common seed

through the use of a hash function
Hierarchical deterministic wallets
• Keys are generated from the seed combined with a chain
code that allows to organize keys in a tree structure
• Generation of a new address for every transaction
3
Genera Sto Build
Keys Generation Structure Comparison te re transacti
Advanced wallets implement Hierarchical Deterministic private keys generation scheme
JBOK Private keys “structure” HD Private keys structure

Just a bunch of keys wallet Hierarchical deterministic wallet
4
Genera Sto Build
Main Wallet Types te re transacti
Different types of wallets are available based on their functionalities and on where keys are
stored
Illustrative only
Desktop Paper Mobile Online Hardware

wallet wallet wallets wallets wallets
Bitcoin Protocol Paper wallet is a Mobile app run Web-based wallets Hardware wallets
has a native simple piece of by online are accessible from are dedicated
wallet named paper with an companies any device and physical devices
Bitcoin-Qt, but address and a providing on- they are run by to manage keys in a
there are other private key print hand access to companies such as secure manner
desktop wallets on it as QR codes bitcoin funds Coinbase and
and the native Blockchain.info
wallet is not very
used today
Bitcoin Core
4
Where is My Private Key Stored?
Genera Sto Build
te re transacti
Wallets can be connected to internet or offline and keys can be stored by the owner by the
or
service provider that has to be trustworthy!
Illustrative only
Desktop Paper Mobile Online Hardware

wallet wallet wallets wallets wallets
Private key Private Private Private key Private key

stored … key key stored stored … stored …
stored … …
… on your … on … on
computer … on the service hardware
… on your
piece of provider device
mobile phone
paper servers
4
Bitcoin Core
4
Multi-signature Wallet
Genera Sto Build
te re transacti
Multi-signature wallets enable a particular kind of transaction that requires than one
more signature to be performed
Multi-sig wallet
Multi-signature Multi-sig wallets are based on multi-sig transactions and

allow to move funds only when the required number
of private keys sign the transaction
• Multi-sig transaction
requires at least M
signature from a total • They can guarantee higher level of security: if someone
of N keys to spend funds overheard a private key cannot move funds without the other
(M<=N) signature (except for 1-of-2)
• A multi-sig transaction is • They can be implemented both as simple deterministic and
known as M-of-N multi- hierarchical deterministic wallet
sig • They allow different business applications: a service provider
can act as a custodian of one private key in order to
improve transaction security and funds legitimate accessibility
even in case of a key loss
4
Genera Sto Build
2- of-3 Multi-signature Wallet te re transacti
Advanced wallet are implementing 2-of-3 Multi-signature in order to enhance security
2-of-3 Multi-sig wallet
Context
• Keys
One of the keys is stored in the regular user device, the
• There is a push in the second key is stored with the web wallet service, and the third
Bitcoin community key is kept by the user in a secure (offline) place
towards wallets that • Normal use
handle multi-signature Transactions are signed by both the local user key and the
transactions to avoid the wallet service key
single point of failure • Security
that the private keys in a The wallet service usually requires the user to authenticate, thus
wallet represent providing two-factor authentication to spend the funds.
However, the wallet service does not control the funds (cannot
spend and ask for ransom), it only prevents the user from
spending them unless properly authenticated
4
Settlement of Transaction
Transaction Structure: A General Transaction
The input could be the output of different transactions
Transaction A
From Alice to Charlie 4 BTC
4 BTC Alice Bob
New Transaction
2 BTC A From Alice to Bob
2 BTC A
2 BTC
C
3 BTC
Transaction B
From Trudy to Alice
A 1 BTC A
5 BTC 4 BTC
B
3 BTC A
2 BTC
T
4
Transaction Structure
Transactions are data structures that include the source of funds called transaction input and the
destination of them called transaction output plus other configuration fields
Transaction structure and content
Field Version Input Transaction Output Transaction

byte Locktime
counter inputs counter outputs
Length 4 bytes Variable Variable

1-9 bytes 1-9 bytes 4 bytes
bytes bytes
Specifies the Contain the Contain the

Purpose transaction Specifies the Specifies the
data structures data structures Locktime of
rule (currently number of number of
of the included of the included the transaction
version 1) inputs outputs
inputs outputs
Focus on
this later
There is not any specific field for fees in transaction. They are implied as the difference between
4
Merkle Tree
Transactions are stored inside a block using a Merkle Tree data structure
Merkle Tree
Transaction verification
Merkle root
• The big advantage is in transaction verification

Root Hash
• To verify that a particular transaction is in a hash(HAB+HCD)
block, it takes only log2(n) steps, where n is the
number of nodes in the tree
Example: verify if TxC is in the block

The node has to compute (given HD and HAB) HAB HCD
hash(HA + HB) hash(HC + HD)
• Hc
• HCD
• Root Hash HC HD
hash(TxC) hash(TxD)
and check the result with the Root Hash stored in the block
TxC
4
Hash Inputs: What is Inside a Block?
Field Description
Version Block version number (protocol in use)
Block structure Reference to the hash of the previous block

Previous block hash
Block size Root of the Merkle tree of the transaction
Block time creation time

Block header
Merkle root Proof-of-work algorithm difficulty target for the block
Number of transactions Number used for the

proof-of-work
Timestamp
Transactions
Difficulty target
The average block contains more than 2000 transactions.
The maximum block size, as fixed in Bitcoin Core, is 1MB
Nonce
4
A few considerations are to taken into account
Security
51% Quantu Losing Finne

Attac
Challenges m private y
k computer keys Attac
Scalability Integration Consensus Sociologic
Appendix
Exchanges
Exchanges can be seen as entry and exit points for the Bitcoin ecosystem. Leveraging on them
consumers can purchase Bitcoin with all major currencies
Exchange functioning
Main features
Wire Blockchain
transfer transaction
Exchange users
• A Bitcoin exchange works like transfer funds
a classic Forex exchange to the Bitcoin
Bank
Account Exchange Wallet
matching bid and ask prices exchange …
• Fiat currencies can be
deposited and withdrawn
via wire transfers in the user Bid Ask
… that matches
personal account
ask and bid
• Bitcoins are transferred to prices …
and from the exchange via
a blockchain transaction
Blockchain Wire
… and funds in the transaction transfer
traded currency
can be transferred
to bank account or Bitcoin Bank
Wallet Exchange
bitcoin wallet Account
5
Payment Processors
Payment processors offer a service that allows customers to buy goods using bitcoin and
merchants to receive fiat currency
Payment Processor functioning
Main features
Bitcoin payment
does not go
• A Bitcoin Payment Processor directly from
enables merchants to accept customer to
bitcoin payments both online merchant …
and in person (e.g., through
QR code scanning)
Blockchain
• The single transaction has a transaction Payment
… but it goes
fixed exchange rate Process
through a  z or
• The Payment Processor Payment
protects customer and Processor …
BTC
merchant from any
Exchang
volatility risk e Wire
… that transfer
exchanges
currencies and
Bank
transfers funds Account
to merchant
bank account
5
Bitcoin ATMs
• Bitcoin ATMs can be of two types: one-way operations and

two-way operations
• Both types can accept cash or not
• A Bitcoin ATM that doesn’t accept cash is nothing much
more than a device that connects you to a merchant (that
can also be an exchange or a payment processor) that sells
Bitcoin in exchange of fiat currency via credit card
charge, a PayPal transfer, etc.
• Cash withdrawal is still a major issue for Bitcoin, as any
transaction requires on average 10 minutes to be
confirmed and a single confirmation could not be
enough
• Bitcoin ATMs generally require the user to be
registered and approved after KYC procedures in
order to be compliant with AML
5
How Can You Easily Use Bitcoin?
Bob wants to send bitcoins to Bob gets Alice’s public
Alice via smartphone and opens key by scanning a
his Bitcoin wallet app QR code from her
phone
To pay her, he needs two

pieces of information: The app
• his private key manages the
• her public key transaction
behind an
easy user
interface and
sends it to the
network
The transaction is included
into a new block which is Miners verify that
broadcasted to the network Bob has enough
They will receive more
bitcoins
confirmations as new
blocks are added
Within 10 minutes Bob and

Alice
5
What is a Wallet is Used For?
Bob wants to send bitcoins to Bob gets Alice’s public
Alice via smartphone and opens key by scanning a QR
his Bitcoin wallet app code from her phone
To pay her, he needs two

pieces of information: The app
• his private key manages the
• her public key transaction
behind an
easy user
interface and
sends it to the
network
The transaction is included
into a new block which is Miners verify that
broadcasted to the network Bob has enough
They will receive more
bitcoins
confirmations as new
blocks are added
Within 10 minutes Bob and

Alice
5
Solutions for Scalability: Segregated Witness
SegWit stores signatures off the chain in order to make room for more transactions in the block
and avoid transaction malleability, allowing the creation of Lightning Networks
Key features
Segregated witness improves scalability by movin
SegWit BIP Signatures are hashed, organized in a Merkle Tree
Segwit outputs look like «anyone can spend» to o
Transaction Transaction malleability is prevented since witne
As-Is Transaction
The Segregated Witness proposal is based on a concept used in Blockstream's
SegWit Enables secure
sidechain Elementsoff chain transaction e.g., lig
In October 2015, Luke Dashjr described a method that would allow segwit to be implemented in Bitcoin as a soft fork that is back
Inputs Inputs
Outputs Soft fork

Outputs
Signatures
Room for more transactions
Signatur
Signatures
Separated signature data will be stored by full nodes only

Segwit activation
code
is included in Version
5
Off-chain Transactions: Pegged Sidechains
Pegged Sidechains is a technology aiming to created new blockchains interoperable with Bitcoin
The
• creation of a pegged sidechain will allow Bitcoins to be moved to these new sidechains, bringing new features to Bitco
This solution would allow the creation of dedicated chains for specific purposes and uses (e.g., p2p payments, asset tracking
Those chains are always linked to the main Bitcoin blockchain in order to be able to leverages its unparalleled security and
•
Idea
Currently the most prominent promoter of Sidechains is Blockstream, a company leaded by Adam Back, the inventor of Ha
Status Two-way pegged Sidechains need a Soft Fork in the Bitcoin protocol. This is required in order to introduce a new type of loc
This upgrade is not already scheduled
5
Off-chain Transactions: Lightning Networks
Lightning Networks is a solution aiming to create a general network of payment channels where
anyone can pay anyone else through a few hops between users
• The idea is to create off-chain payments channels between users (peers) funded using Bitcoins
• Peers can use a channel to transfer money without using the Bitcoin Blockchain: great for micropayments!
• Moreover, a user (Bob) may not have a payment channel open with another user (Alice), but both may have a
channel open with a third user (Carol). If so Bob would be able to make a payment to Alice through Carol
5 5 7
5 3
5
4
6
Idea 2
8
73
• Bob and Alice create a channel by broadcasting a • When they’re done they just have to broadcast the
funding transaction that locks two inputs (e.g., last multi-signed transaction (corresponding to
5 BTC each) into a multi-sig output the last balance), closing the channel
• In order to transfer Bitcoin they can sign and • A mechanism based on a series of transactions
exchange transactions that spend the prevent users to broadcast an different (more
multi- sig output updating the channel convenient) transaction: if someone cheats will
balance (e.g., 4 BTC to Alice and 6 to Bob) lost all its BTC! White
Paper
6
Off-chain Transactions: Lightning Networks (cont.)
In order to allow the creation of Payment Channels, the Bitcoin problem of transactions
malleability must be addressed
• In order to work properly, Lightning Networks protocol required some improvements in the Bitcoin protocol
• All the required evolution have been already put in place but the issue still to be solved is transaction
malleability
Transaction malleability Solution
• In BTC transactions are identified by a number, the transaction • The solution seems simple, the
ID protocol must restrict the possibility to
• Transaction ID is the Hash value of the transaction change the signature…
• One of the Hash inputs is the signature • But bitcoin developers came out with
an elegant solution: Segregated
Status • Signatures can be slightly modified by miners and be still valid Witness
(e.g., parameters can be written as 01 or 1 and still read as 1)
• SegWit addresses malleability by
• But a single different bit will change a lot the Hash output allowing Bitcoin users to move the
(puzzle friendly) and the Transaction ID malleable parts of the transaction
• It’s not dangerous for BTC as the transaction is not modified into the transaction witness, and
(sender, receiver, UTXO spent, value, etc. are the same) segregating that witness so that
changes to the witness does not
• But the possibility to change the Transaction ID is a problem for
affect calculation of the txid
applications that need to leverage on reliable Transaction IDs
in order to automate their processes (e.g., Lighting Networks)
Let’s see how on next slide

6
Questions?
6
Break
Module 2: Architecture
April 27, 2017

Agenda
Types of Blockchains
Components of a Blockchain Solution
Architecture of Blockchain
Knowledge Check
Development Process
Questions
6
What is Blockchain?
Fundamentally a digital ledger system for recording business transactions and events
Near real time

The blockchain enables the near real time settlement of recorded
transactions, removing friction and reducing risk, but also limiting ability to
charge back or cancel transactions.
Trustless environment
Blockchain technology is based on cryptographic proof, allowing any two
parties to transact directly with each other without the need for a trusted
third-party.
Distributed ledger
The peer-to-peer distributed network records a public history of transactions.
The blockchain is distributed and highly available. The
blockchain retains a secure source of proof that the transaction occurred.
Irreversibility
The blockchain contains a certain and verifiable record of every single
transaction ever made. This mitigates the risk of double-spending, fraud,
abuse, and manipulation of transactions.
Censorship resistant
The crypto-economics built into the blockchain model provide incentives for
the participants to continue validating blocks, reducing the possibility of
external influencers to modify previously recorded transaction records.
6
When is Blockchain the Right Fit?
There are a handful of requirements that, when met in part or in full, should indicate whether
blockchain will sufficiently address a client’s needs
Multiple Writers
One of the key draws to blockchain is that it
allows more than one entity to generate
the transactions that modify the database.
Shared Data Absence of Trust

By nature, blockchain is a Blockchain has the ability to mitigate the
structured repository of risk of mistrust between the entities
information that is shared across all writing to the database (e.g., one user
entities in the network. Blockchain will not accept the “truth” as reported by
allows for secure, controlled another user in the system) through
exchange between users. cryptographically-achieved consensus.
Transaction Interaction
Opportunity for Disintermediation
Blockchain offers the ability to
The consensus process and distributed nature
establish interaction or dependency
of blockchain networks allow for a lack of
between the transactions created
trusted intermediary or central gatekeeper
by different entities allowing for
to verify transactions and govern the system.
automation of business processes. Need for Transparency
Blockchain is immutable in nature, thus it
keeps a transparent, auditable record of
transactions and activity on the network
6
If Blockchain is the Right Solution, What Are Some
Potential Applications?
A blockchain solution can be initiated as a store or transaction record, but also serve as a fabric
for further innovation and value extraction
Description Examples
Low
• Digital certificate of ownership
Record Create an immutable record without reliance for physical assets
Keeping on a trusted third party (e.g., financial • Transaction validation of digital assets
clearing house, government) while improving • Financial accounts
efficiency of recordkeeping via automation
• Domestic and international remittance

Transfer Enable low-cost, near real-time value • Internal payments settlement
Degree of
of Value transfer without an intermediary, with the • Clearing and settlement of securities
ability to expand to transfer of assets • Exchange of low liquidity assets
beyond “money”
• Digital cheques / IOUs

Smart Program protocols to execute • Automatic financial instruments
Contracts transactions when a set of pre- • Parametric insurance contracts
determined conditions are met • Automated market making
High
6
Key Limitations
Blockchains have key limitations that make it tempting to skip over them when building
‘Enterprise Friendly’ systems
HOWEVER …
Long time needed to achieve consensus and write transactions to the The culmination of years of research
ledger in blocks (bitcoin – up to 1 hour, Ethereum – 12 minutes, etc.) in the industry has begun to address
these limitations related to
There is inherent latency in posting blockchain transactions that occurs blockchain. What once took several
during the consensus process, thus it is not ideal for real-time minutes or up to an hour to achieve
operations like a stock exchange for example, where instantaneous consensus can now be achieved in a
results are required matter of moments using more
efficient processes, and as a result,
External data is invisible to the blockchain, hence, use of integration the latency associated with
patterns and Oracles are required introducing risk to the system transactions in blockchain have been
reduced. The use of Oracles has been
significantly improved in both
Nodes carry out redundant processing for mining, Smart Contract efficiency and security. More efficient
executions, etc. which leads to wasted computing resources and protocols and more powerful
scalability issues hardware makes the scalability issues
more manageable.
All transaction data is visible openly on the immutable blockchain. This Façade contracts and transactions
inherent non-censorship doesn’t play well with several enterprise use protect the privacy of agreements on
cases or public sector use cases that need privacy the blockchain, thus making it
applicable to use cases that were
once out of reach.
Purist View vs. Non-Purist View
While there is parity between the purists who believe Bitcoin is the untainted, ultimate solution and those who believe more
closed, compromise-friendly systems are best, there is a large gap in thinking between the two
Public vs Private Both are based on the same concept of distributedPublic

ledgervs technology
Private
The network should always be public and open
The network should be private and protected for
enterprise use; customizable levels of permission
Block Size
Block size limited to 1MB to maintain the
“Bitcoin” “Blockchain” Block Size
Block size should be customized for the use case,
efficacy of mining and proof-of-work and the consensus protocol should be chosen to
match
Data Storage
Data Storage
The ledger should not have encrypted data stored
The ledger should be able to store metadata and
on it that could inhibit the consensus process
other encrypted information
Immutability Immutability
The ledger should be completely The ledger should be mostly immutable, but in cases
immutable and follow the rules of of fraud, etc. there should be the ability to roll back
consensus in enterprise applications
Smart Contracts Smart Contracts
The ledger should not natively contain the The ledger should natively contain the ability to code
ability to code complex logical agreements apart complex logical agreements that reconcile
from multisignature transactions automatically upon conditions being met
Open Source Open Source
The rules and protocols of the network should be in the The rules and protocols of the network should be in
hands of the users as a whole, not a central authority in the hands of a trusted authority, most of the time
order to reap the benefits of the technology being the enterprise(s) that host the blockchain
Consensus
Consensus
Proof-of-work, open mining system Modular, pluggable consensus based on use case
7
Enterprise Friendliness
“Open” “Federated” “Closed”
Public Blo Permissioned Blockchain lockchain
ckchain Private
Fully decentralize very •lowQuasi-decentralized;
trust hybrid approach
• Centralized– quires ‘high trust’
Fully transparent read,d send
– requires
transa participate in the process
• Consensus process controlled by
re entity
Blockchains are s economic incentiv cryptographic veri
preselected
No transaction re modification possi set of nodes (M out of N) ns are centralized
– Anyone can • Write
Possibility of collu • Read permission of the Blockchain
permissio ctions and to one entity
Slow confirmation restricted to participants ns restricted to
consensus
Limited privacy pr anyone can read t • Read
• Options for the public to do limited
Low cost for trans permissio
queries lized authority
participants
ecured by
• Participants can agree to• rule the centra has agree to rule
Onlychanges,
es and
transaction reversals and modification ction reversals
the capability
to n
• Low chance of collusion
fication
changes, sible
• Near-real time confirmation of
transa
transactions
versal or and mation of
ble
• Greater degree of privacy
modificatio • protections
No collusionas
pos only preselected entities are allowed to protection as the
read
sive actors the block chain y can control who
• Real-time ead which part of
•confir
Transaction costs agreed totransactions
of transactions by the
consortium
otections – • Greater privacy ts dictated by one
he Blockchain centralized
 Majority of Do you really

Corporate Solutionnseed blockchain?
7
Who Should Have Access, and To What Extent?
Decisions on access and publishing rights are supported by network structure (i.e., Distributed,
Decentralized, Centralized) and often, enterprise solutions fall somewhere in between these
options
1 2
Who can view Who can publish to the blockchain?
the blockchain?
Permissionless Permissioned Public Private
Anyone on the internet Inaccessible to public Anyone with node software can Maintainer decides who can
has full read access internet, with ability to limit read and publish any data publish, with ability to limit
access publishing rights
Ideal Use Case at node level
Ideal Use Case Ideal Use Case
• B2C relationship Ideal Use Case
• Low trust • System users are equal • Many users with distinct
• Transparency is beneficial • B2B relationship participants needs
• Network control not • Data sensitivity • Generally moderate trust • Trust in system operators
needed • Autonomy in solution in system is inherently higher
development beneficial
• Complex IT maintenance
acceptable
7
Leading Platforms
There are several blockchain platforms that are leading the charge in bringing the technology to
market
Bitcoin SETL Chain Corda
Digital Asset Holdings

Ethereum Hyperledger Symbiont
Multichain
Monax Nuco Ripple
7
Not All Blockchain Platforms are Created Equally
Here are some of the common blockchain platforms and key considerations to understand before
choosing to adopt them
Platform Key Considerations POCs
Bitcoin – First decentralized • Open source; no implementation/operational support • Regulatory
peer-to-peer payment • Rich ecosystem with active developer community Timestamping
network that is powered by • Standalone system, not integrated with existing systems • Lender BOT
its users with no central • Proof-of-work based consensus mechanism • Room booking
authority or middlemen
Chain – Software designed to • Open source; paid enterprise version comes with 24/7 operational • Financial Services –
operate on, and participate support Asset based
in, permissioned blockchain • Highly scalable and interoperable with existing systems; integrates
networks
with Java, Ruby and NodeJS
• Federated consensus (M of N signs) mechanism
Ethereum – Public Blockchain • Open source; informal support by developer community • Insurance FNOL
focused on the development of • Robust developer community with fully functional SDKs • KYC Utility
decentralized applications – or • Allows easy integration with existing legacy infrastructure • Smart Lending
“dapps”
• Proof-of-work based consensus mechanism
Hyperledger – Permissioned, • Open source; informal support by developer community and IBM • B2B or B2C
shared ledger that is being • Not a finished product yet; continues to develop with the robust Transactions
developed in an open-source
developer community • Smart Contracts
environment managed by
several groups, most notably, • No research available yet on integration with legacy infrastructure
IBM • PBFT Byzantine consensus mechanism
7
Components of a Blockchain Solution
The Key Components of Blockchain APPLICATION
SERVICES
NETWORK AND
PROTOCOL
Application Layer INFRASTRUCTURE

010
Customer interaction, 10
business logic, and user
interface design User Interface Logic Application Integration Programming Languages
Services Layer
Blockchain services to enable
operation of the application
and connection to other Multi-signatures Trackers Oracles Wallets Smart Contracts Digital Assets
technology
Event Application Distributed Distributed Connectors Digital

Managers Server File Store Databases Identity
Network and
Protocol*
Network participation Permissionless
requirement, base protocol,
and method of consensus
Permissioned Bitcoin Ethereum Proof Proof Byzantine Gossip

Sidechains
of Work of Stake Fault Tolerant
Infrastructure Layer
Blockchain as a service (BaaS)*
or in-house infrastructure to
operate the nodes Compute Storage Network Virtualization Mining as a Service
* Many BaaS providers move up in the reference architecture to offer network and protocol and services layer solutions
Note: The representation is not meant to be exhaustive (e.g., Ethereum and Bitcoin are not the only protocols and the represented consensus mechanisms are also not exhaustive)
7
What are Smart Contracts? APPLICATION
SERVICES
Smart Contracts are a revolutionary technology enabled by blockchain that NETWORK AND
PROTOCOL
allows multi-party agreements to be encoded and automatically reconciled INFRASTRUCTURE
virtually
Computer code stored on the blockchain that can trigger

the automated execution of a desired action under
Smart specified circumstances
Contracts
1 2 3 4
FORMATION NEGOTIATION PERFECTION CONSUMMATION
Digital contract draft Iteration on terms Final terms Contract execution

created; individual terms between interested parties, cryptographically signed triggered upon digital proof
each coded as Blockchain ending in final agreement by both authorized that conditions have been
script signatories, and met; automatic transfer
contractual obligation of obligations between
immediately starts counterparties
7
7
Components of Smart Contracts APPLICATION
SERVICES
There are several underlying elements required to enable smart contract functionality NETWORK AND
PROTOCOL
INFRASTRUCTURE
Programming Languages
Used by developers to write applications
that implement the self-enforcing business logic
embodied in smart contracts; commonly used
languages include Solidity (Ethereum), Rust and Java
0101
1010
Oracles Events and Logs

Trusted external data sources that are Communication facilitation between
referenced by the smart contract to obtain the blockchain and user interface during
information relevant to the conditions the transaction mining process
8
What Role Does Consensus Play? APPLICATION
SERVICES
Consensus is a core issue in system design, particularly as the scheme functions NETWORK AND
PROTOCOL
in an increasingly trustless and distributed environment INFRASTRUCTURE
Byzantine Generals Problem Consensus Algorithms

A reliable distributed network
Consensus algorithms seek to
address the Byzantine Generals
Problem by creating methods that
enable consensus to be
Proof ofreachedProof of
Work Stake
Byzantine
Fault Gossip
must be able to handle an attack Tolerant
from nodes that provide conflicting
or inaccurate transaction information
to other nodes in the network
8
Architecture of Blockchain
Example N-Tier Architecture for a Traditional
Application
USER INTERFACE Front End application
Business
Middleware & Workflow Management • Built using HTML5
Security Plug-ins • How the user interacts with the system
…
12…
WebBusiness ServicesLogic
Directory Services
n API / Middleware
• Optional API Layer (Java / NodeJS etc.)
• Allows the front end to communicate with the back end
Infrastructu
SQL SQL Data Layer
Database Database • SQL Database housing data for the application
• Accessed on demand by the application
Traditional Model
In a traditional application, the application’s front-end accepts interactions from the user that triggers action in the
business layer of the application. Those actions push or pull data into/out of the database for use by the application.
8
Example N-Tier Architecture for a Blockchain
Application
Front End application
Application Layer USER INTERFACE External Data Store • Built using HTML5 / JS app stacks. Leading options: AngularJS,
ReactJS …
LB • Wallet: Web3JS, Truffle, eth_lightwallet ...
au
ye
Business
si • Test Frameworks: Mocha, Chai, PhantomJS
Middleware
Middleware & Oracles
& Workflow Management
Securi rne
s
Workflow ty s
Management Plug-
API / Middleware
External Data Store
Module n ins • Optional API Layer (Java / NodeJS etc.)
Module 1 Module 2… 12… n
Web Business … • Libraries: Web3JS, Truffle ...
Blockchain Abstraction Layer

Services Layer
Blockchain
I • Ethereum Node – ethereum/testrpc, Geth, Go-Client etc. run in
Smart Contracts nf mining / non mining mode
ra
Partner • Blockchain – Ethereum
s IT Systems.
• Smart Contracts: Solidity, Dappsys
Infrastructu
Smart Contract Templates, Application Framework tr
SQL Database SQL uc
Network and Protocol
DevOps and Toolchains
Blockchain Node • Build and Dependency Management: Webpack, Grunt / Gulp,
Bower, npm
• Deployment containers: Docker containers
Infrastructure Layer
Legacy Infrastructure
• Code Reviews and Static Analysis: Phabricator, JSLint, PlatoJS
• Data Storage: Traditional RDBMS, NoSQL dbs, IPFS, BigchainDB
8
Blockchain Abstraction Layer?
High Level Architecture Blockchain Abstraction Layer Explained
Distributed ledger/blockchain technologies are still new and the

platform landscape is dynamic and rapidly evolving. Its easy to end up
with a throwaway application without appropriate design
considerations. Deloitte’s design best practices avoid costly platform
locks with an Abstraction Layer.
With BAL Without BAL
• Platform Agnostic
• Tight Coupling with
• Easy upgradability to
underlying platform
better platforms of future
• Difficult to maintain
• API Enablement
• Low chance of
• High Reusability and
Production Readiness
Repeatability
• Low Reusability
8
Knowledge Check
Myth or Not?
Myth 2: Myth 4:
Myth 1: Account keys Myth 3: You must replace
Blockchain Data need to be self All nodes are legacy systems to
is always true managed created equally enable blockchain
Reality: Blockchain data is Reality: For most enterprise Reality: There are several Reality: Integration strategies
only immutable. It is not applications, central different types of nodes can help blockchain apps
guaranteed to be accurate. administration of keys works across the various styles and integrate and work alongside
Once a transaction is out better than forcing keys configurations of blockchain, legacy apps. This allows for
recorded, it is extremely on every individual device for example, there are both reuse and flexibility in rollout
difficult to modify or delete it. that’s used to access the mining and lite nodes in roadmaps. Blockchain puritans
However, if false data were system. This limits the surface Bitcoin blockchains that differ might consider this as ‘Data
to get in, it would be a hassle area for any potential in virtually every way. Mining Poisoning’ but this approach is
to get that rectified too attacker. nodes drive the consensus perfectly valid for most
mechanism, while lite nodes enterprise friendly
are mainly there to transact architectures
and push transactions. Keep
this in mind as you consider
architecture for a blockchain
solution!
8
Knowledge Check:
What Purpose Does Blockchain Serve in an Application?
Let’s take a few minutes to discuss.
8
How Does Blockchain Manage Load and Redundancy?
Let’s take a few minutes to discuss.
8
Break
Development Process
Technical Architecture – Ethereum Blockchain
The depth of blockchain integration can play an increasing important role in use case definition
Architecture alternatives
• Potential architecture alternatives,
with increasing blockchain impact
• Blockchain front end
Full-blown
• Possibility to design the solution
Blockchain blockchain
with direct user
with modular activation of layers infrastructur access, including
self- management of
Blockchain as • Traditional front keys
integrity end with controlled • Integrated
Traditiona • Traditional user access blockchain based
l architecture as back-end, with
• Blockchain back-
end
• Standard front- foundation of the blockchain) to act as transaction
end the service signer
web application • Ethereum blockchain as
• Inclusion of
• Traditional server blockchain layer for foundational layer, with
• Central data base additional security node integration, virtual
(e.g., hash machine to execute
pointers written in contracts, and oracles
9
no signing possibility
• Full
blockchain
data layer
(Ethereum)
9
Blockchain Solution Development: Guiding Principles
We have identified the following guiding principles to determine and build the right solutions for
our clients
1 Industry Solution is highly fit for the 5 Security Full control over data sharing and
Relevant purpose based on deep payments visibility along with industry-leading
expertise encryption security measures
2 Future Blockchain Abstraction Layer 6 Modularity System components are separated

Friendly (BAL) makes the system more functionally and developed as
flexible and adaptable, allowing for independent modules with clean
pairing with different distributed interfaces to allow for easier
ledger platforms with no impact to upgrades as the system evolves
other parts of the system to address future business needs
3 Enterprise Customers receive a personalized 7 Data Design the distributed ledger

Friendly product and experience based on Standards solution in adherence to the
Solution configurable preferences within and relevant Data Standards and
the platform Principles Principles
4 Scalable Balanced on-distributed-ledger and

off-distributed-ledger development
for optimum scalability
9
Blockchain Application Development Process
Select based on Virtual Machine, Utilize best

Requirements Server, and practices and
Cloud Selection design patterns
Select
Blockchain Finalize Establish Itemize Stand up Start
Platform application infrastructure requirements and environment Development
stack with needed for organize into for Cycle
other layers of environment concrete use cases development
environment that will guide
and legacy development based
infrastructure on best practices
9
Our Solution: Conceptual Technical Architecture
Technologies shown here are representative and recommendations and the Application stack for the
solution will be defined in the discovery phase of the project
Web Front End Application

The solution uses an n-tiered model with a Business Layer, Blockchain
Layer and Integration Layer decoupled by a Blockchain Abstraction Layer
for higher modularity and to avoid platform dependence Web Front End (AngularJS, HTML5, CSS) Business Layer
• UI client built with Angular for rich and responsive front end
• NodeJS / Express for middleware for modern RESTful APIs Middleware API (NodeJS) MongoDB
• MongoDB for front end data caching to support higher application
performance
Blockchain Abstraction Layer helps in decoupling the underlying

blockchain platform from the business layer of the system for better
Platform isolation. This layer is a fast and scalable NodeJS application Blockchain Abstraction Layer
(NodeJS, Express, Blockchain client SDK)
that connects to the blockchain via the platform specific SDK
Blockchain Layer Integration Layer

Infrastructu
Blockchain Layer typically consists of: Oracles are specialized services that Smart
Contracts can use for accessing data, apps
Node
Node Instance) Node Instance

Nodes: Nodes are the ‘gateway’ or ‘access point’ to Node Instance / services external to the blockchain
blockchain data. They implement the consensus
mechanism for updating the blockchain data.
Extern
Oracles al
Oracles
Virtual Machine: VM provides capability to execute Smart Contract Factory Smart Contract
DBs
Smart Contracts independently at each node and
blockchain is updated only after the nodes agree on
Contract
the execution result

Smart
Smart Contract Smart Contract
9

Select Establish
Blockchain Finalize Itemize Stand up Start
infrastructur
Platform application stack requirements and environment Development
e needed
with other layers organize into for Cycle
for
of environment concrete use cases development
environmen
and legacy that will guide
t
infrastructure development based
on best practices
9
Blockchain Apps: Potential Deployment Options
Blockchain Apps can be deployed on Cloud and On Premise infrastructures. Here is a brief
comparison of both the approaches
Cloud On Premise
• Easier and faster rollout to participants • Ability to have increased custom security with Hardware
• Offers more flexibility by lowering the risk of key Security Modules (HSM)
Pro
POC aspects – fungibility, platform dependence • Easily aligned with regulatory compliance
• Long term cost benefits • Familiarity with existing systems / hardware will allow
for quicker start up
• Additional security will need to be built around • Higher onboarding effort

shared infrastructure • “All or Nothing” approach to POC aspects
Con
• Impact to regulatory compliance will need to be • More expensive in the long term
evaluated • Maintenance and upgrade considerations for software and
• Additional training may be required hardware in future
Participant 1 Participant 3 Participant 1 Participant 3
Participant 2 Participant 4
Participant 2 Participant 4
9

Select Itemize
Blockchain Finalize Establish Stand up Start
requirements and
Platform application stack infrastructure organize into environment Development
with other layers needed for concrete use for Cycle
of environment environment cases that will development
and legacy guide
infrastructure development
based on best
9
Design Patterns and Best Practices
Blockchain Apps can be deployed on Cloud and On Premise infrastructures. Here is a brief
comparison of both the approaches
One of the more troubling aspects Smart Contracts rely on data to Similar to the concept of an API,
of blockchain comes surprisingly validate the conditions encoded in the Blockchain Abstraction
from one of its biggest benefits; the agreement, but that data needs Layer (BAL) is an integration
immutability. Often, clients want to to be both valid and securely broker between the business layers
conceal the details of contracts or transmitted to ensure the accuracy of the system and the blockchain.
transactions from those in the of the system. This is where The BAL helps in decoupling the
network that are not members of Oracles come in; Oracles gather core business logic from the
the agreement, but by nature, data using “listener” programs that underlying technology
blockchains serve as open respond to data requests made by infrastructure. In today’s scenario
immutable ledgers of all entries to Smart Contracts. These are an where blockchain technologies are
the network. The way we get essential feature for any blockchain evolving rapidly, being platform
around this is by setting up façade solution. agnostic allows for increased
contracts that act as a non- flexibility and removes barriers for
confidential placeholder on the technology adoption.
network rather than showing the
contents of the actual agreement.
9
Façade Contracts
1
Oracles
1

Stand up environment for development

Start Development Cycle
Select
Blockchain Finalize Establish Itemize
Platform application stack infrastructure requirements and
with other layers needed for organize into
of environment environment concrete use cases
and legacy that will guide
infrastructure development based
on best practices
1
Example Toolchain
Build and Dependency Management
Code Development Code Review and Static Analysis Deployment Feedback
Analyze Backlog
Jenkins
AngularJS Phabricator
Truffle
NodeJS Grunt Jenkins
Web3JS
Solidity Phabricator
Git
Geth
Rally Docker Rally
Workstation
To
Images Webpack
JSLint Docker Containers
Karma
PhantomJS
Mocha Bower
Chai
PlatoJS
npm
Data Storage
(Traditional
RDBMS, NoSQL
DBS, IPFS,
1
Questions?
1
Break
Module 3: Ethereum
April 27, 2017

Agenda
What is Ethereum?
Ethereum Design
Ethereum Applications
Enterprise Ethereum
Demo
FSI Learning FOR INTERNAL USE ONLY FOR INTERNAL USE ONLY © 20176 Deloitte Development LLC. All rights 106
reserved.
What is Ethereum?
What is Ethereum?
• “Crypto-law”—Crypto- “A universal computer”— “The Next Internet”—

social-contract that is shared “super” computer trustless internet based
digitally enforced that can be used to build on decentralization
any program without reliance on central
authority to navigate
content (e.g., DNS)
Transparent
Autonomous DAO Efficient
Uncorruptable
FSI FOR INTERNAL USE FOR INTERNAL USE © 20176 Deloitte Development LLC. All rights
1
What is Ethereum, really?
• Ethereum is a platform for decentralized and truthful applications that run on a
global, peer-to-peer network without any administrators or a single point of failure
– Public economic consensus via proof-of-work (eventually proof-of-stake)
– Abstraction power of a stateful Turing-complete virtual machine
– Allow application developers to more easily build applications that benefit from the
decentralization properties of a blockchain
– Ethereum applications have zero downtime and anyone can create them: it is
permissionless innovation
– Avoid the need to create new blockchains for every each new application, e.g.,
Bitcoin sidechains
August
Early
00 01 02 03 04
July
Frontier Homestead Metropolis Serenity
1
Ethereum Design
Account Based Blockchain
Bitcoin • A user's "balance" in the system is thus the total

Transaction based value of the set of coins for which the user has a
ledger private key capable of producing a valid signature
• Transactions spend one or more coins and creates
Transaction one or more new coins
• In the UTXO model:
Are
input – Can provide higher degree of privacy—Users can
Blockchain
input state
unspent use new addresses per transaction to obfuscate
balances and ownership
– State is determined by the sum of transactions
Balance = Σ (my utxo)
1
Account Based Blockchain (cont.)
Ethereum • A user's "balance" in the system is stored in

Account based ledger an account
• An account in Ethereum can be an externally owned
Transaction account (EOA) or a contract account that contains
code
input
• Ethereum accounts can also store arbitrary data,
Account allowing for multi-step contracts and long-
has running contracts
funds?
• Transactions credit/debit accounts and can also
Blockchain state run code in the account
• In the Account model:
– Balances and account state can be tracked
Balance = balance(my account) more easily
– Support for long-running Smart Contracts
and intermediate state
1
Block Hash in Bitcoin
Bitcoin (80 bytes) • Bitcoin blockchain block header has a
single Merkle tree
Block version number (protocol in use)
Version (4)
• Supports simple light client protocol
Reference to the hash of the previous block
Previous block hash (32) (Simplified Payment Verification)
Root of the Merkle tree of the transaction
– Light clients can download only the
Block time creation time block headers to verify a transaction
Merkle root (32)
Proof-of-work algorithm difficulty– Can
targetonly prove
for the block that a transaction is included
Number used for the in the blockchain; does not provide any
Timestamp (4) proof-of-work additional state information
Difficulty target (4)
Nonce (4)
1
Block Hash in Ethereum
Ethereum (500 bytes)
• Ethereum blockchain block header What are Patricia
contains three specialized Merkle
Reference to the hash of the previous block trees?
Parent Hash
Block number
Patricia trees: Patricia trees are
Number more complex Merkle
– Transactions
Merkle Patricia trie of the transactions and other information in the block trees
Transaction Hash
– Receipts • Supports data that
needs to be
Uncle Hash
– State frequently updated,
Stack Hash • More advanced light client e.g., the account
balance and nonce
Proof-of-work algorithm difficulty targetprotocol
for the block
Coinbase • New roots can be
Block time creation time – Is the transaction included in quickly calculated after
State Root the block? (Transaction tree) an insert, update, or
Data field to add arbitrary information
edit without
Difficulty Number used for the proof-of- work – Does the account exist and what recomputing the entire
is the balance? (State tree) tree
Timestamp
• Storage efficient
– What events have been
hash map
Extra Data generated by the account in (key/value)
the last 30 days? (Receipt tree) • Can be used to hold
Nonce (4)
state
1
Ethereum Virtual Machine (EVM)
• EVM allows anyone to execute arbitrary code in a

trustless environment in which the outcome of an
execution can be guaranteed and is fully determistic
• Code is executed in the Ethereum Virtual Machine
(EVM) using Smart Contracts
– In theory, EVM is Turing Complete, e.g., can
execute any algorithm of arbitrary complexity
– In practice, the algorithmic complexity is limited by
gas
• Smart Contracts are written in a higher level language
(Solidity, Serpent) and compiled into a low-level, PH
EVM
stack- based bytecode (“EVM code”)
1
Smart Contracts
Smart Contracts are EVM code + Persistent Storage What can Smart Contracts do?
• Smart Contracts are the programs that
run in the EVM
• Smart Contracts have access to:
– The value, sender, and data of
the incoming message
– Block header
• Smart Contracts can store data in
three different spaces:
– The stack (temporary)
– Memory, an infinitely expandable
byte array (temporary)
– Contract’s long term key/value
storage (persists)
• Smart Contracts can return a byte array
of data as output (not that useful) or
send asynchronous events (can be
useful)
• Smart Contracts live forever in the
blockchain unless “suicide” function
1
Gas
• Gas is the internal pricing for running a transaction or
contract in Ethereum
• For every instruction in a contract, there is
an associated cost which is paid by the user
• When a user executes code through a
transaction some cash must be reserved to pay
for the code execution
• Code is run to completion or until the maximum gas
for the block is exhausted
• Without the concept of gas, DoS attacks would be
relatively simple to execute by running complex
programs that run infinitely (“halting problem”)
• Gas is also used to pay a fee to the block validators
• If a transaction or sub-call “runs out of gas”, it is
fully reverted (to preserve atomicity), though the gas
is still treated as fully consumed (to prevent DoS
attacks)
1
Ethereum State Transition
From a technical standpoint, the ledger of a blockchain can be thought of as a state
transition system that takes the current state, applies transactions, and outputs a new
state.
State S State S’
bb75s980: 100 ETH

abc34s30: 100 ETH
Transactions 1..n
Transaction (New Smart Contract)
bb75s980: 101 ETH Transaction (Transfer of Value)

GAS Validate
abc34s30: 99 ETH
Transaction (Execution of Code)

GAS Execute
EVM
APPLY(S, TX) -> S’

118
Ethereum Ethereum Clients
Geth
Ecosystem Swarm (Go)
Parity
(Rust)
Ethereum Projects Whisper cpp-

eth
Web3
Mist
IPFS
Truffle
Ethereum
Services Oracles Meta
Mask
Ethereum Tools
Embark
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INTERNAL
USE ONLY
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Development LLC. All
rights reserved.
Enterprise Ethereum
Overview
Issues with Public Public Ethereum vs Enterprise Ethereum (Permissioned

Ethereum in the Enterprise Distributed Ledgers)
• Low Transaction Throughput— Public Enteprise
~15 TPS
• Anonymity—Unknown actors may Examples Ethereum Hydrachain, Qurom,
not be acceptable due to Enterprise Ethereum
regulations (www.ethalliance.org)
• Data Privacy—Data on the Members Can be anonymous Legally accountable
public blockchain is visible to
everyone TPS Low High
• Support for Off-chain assets—
Consensus Proof-of-Work Practical Byzantine
Public blockchains cannot legally
Fault Tolerance (PBFT)
be used to host off-chain assets
or Voting
• Legal vulnerability—Public
blockchain based on Proof-of-Work
are vulnerable to the Sybil attack Transaction Finality Potentially reversible Irreversible
and transaction reversal which
limits their ability to be used as an
1
Architecture
Trusted Organization
Validator nodes are run in a
Organizations broadcast transactions and synchronize blocks with the validator nodes.
trusted third party that is
responsible for verifying
transactions and creating blocks.
Time ordering
server
Organization A Organization B
Instead of using Proof-of-Work
a Time Ordering server is
responsible for aggregating and
ordering transactions and
initiating block creation.
1
Ethereum Applications (Ðapps)
Overview
Ðapp Definition Ethereum Ðapp Tools
Tool Description
An HTML/Javascript
web application using Web3 Main JavaScript SDK to use when you want
a Javascript API to JavaScript to interact with an Ethereum node
communicate with the API
blockchain. Typically JSON RPC This is the low level JSON RPC 2.0 interface to
the application interacts interface with a node. This API is used by the
with a program running Web3 JavaScript API.
in the blockchain virtual Solidity Smart Contract compiler into Ethereum byte code
machine, e.g., Smart
Truffle Development and testing framework for
Contract.
Ethereum
Mist Official Ethereum browser and wallet
MetaMask Browser based client for Ethereum
Embark Development and testing framework for
Ethereum
1
Ðapp Application Stack Build a web application that interacts
with Ethereum through the web3
JavaScript API and RPC.
1 Create a Smart
Contract using Solidity
and compile using
Mist or Browser
Mist Browser
Solidity.
1
Web Browser
3
Truffle Meteor Embark
web3
1
HTTP
Ethereum Applications JSON RPC
Enterprise Application Architecture

Ethereum Node 2
Private keys are manag

Hardware
API Security Module
Load balanced application

servers host containerized
APIs.
Hardware
Security Module
Multi-sig transactions increas
RPC
Contracts
IPFS Smart
1
O
r
a
c
l 2
e
S
e
r
v
i
c
e
s
1
Demo
“Private Ethereum” PrivateDNetNode1 (PC)
TCP 30303
EthereumDNetNode1
HTTP
RPC
EthereumDNetNode2
Mining has been automated on this node us
AWS
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Ethereum Demo
“Timestamper”
Timestamper Smart Contract
• Stores the a hash with an address as proof of creation

• Leverages the fact that each block in the
blockchain contains a timestamp
• Smart Contract language features:
• Struct – used to define an entity
• Storage – uses an array to store the
timestamp data (uses gas)
• Event – events can be used to track
Smart Contract usage
• Self Destruct – provides a way to remove
the Smart Contract program and free up
space
• Global Variables – Smart Contracts have
access to global variables such as ‘msg.sender’
which is the address of the transactions sender
• Global Functions – Solidity provides some
global functions such as ‘sha256’ that
calculates the hash of a string
• Error handling – the ‘throw’ command will
throw an exception
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DEMO
Questions?
End of Day 1
Blockchain Bootcamp Day 2
April 28, 2017

Blockchain Bootcamp – Course Overview Reminder
The blockchain curriculum and bootcamps are designed to help practitioners understand blockchain
technology and to provide them the skills to take blockchain offerings and insights to our clients
Course Format
The Adaptive Challenge A two day live training featuring:
A deep dive into Blockchain technology and architecture
Functional and use cases in the Financial Services Industry
Blockchain technology has been called the “The Next Internet,” as it enables numerous, disruptive applications across industries
Participants will begin development on a Proof of Concept to get hands-on exp
Continue to work on the POC on their own time over a 6-8 week period
The project will require a time commitment of approximately 3-5 hours per week
Course Objectives
Explain the key concepts and common characteristics behind Blockchain technolo
Describe in detail the various architectural components of Blockchain stack, and
Recognize opportunities for our clients to implement Blockchain technologies to s
Blockchain Bootcamp – 2 Day Agenda
MODULE TIME INSTRUCTOR(S)
DAY 1 – Blockchain Tech Deep Dive
Kickoff 8:30 – 9:00 am Dan Simmonds
Module 1: Blockchain 101 9:00 – 11:15 am Jean-Luc Verhelst, Yonathan Lapchik
Break 11:15 – 11:30 am
Module 2: Architecture 11:30 – 12:45 pm Dhananjay Goswami, Dan Simmonds, Jean-Luc Verhelst, Forrest Colyer
Break 12:45 – 1:15 pm
Module 2: Architecture (Continued) 1:15 – 3:15 pm Dhananjay Goswami, Dan Simmonds, Jean-Luc Verhelst, Forrest Colyer
Break 3:15 – 3:30 pm
Module 3: Ethereum 3:30 – 4:30 pm Unsok Tchoi
Day 1 Wrap Up 4:30 – 4:45 pm Connie Li
DAY 2 – Industry Specific Use Case
Use Case 1: Banking 8:00 – 9:30 am Eric Piscini, David Ortiz
Break 9:30 – 9:45 am
Use Case 2: Securities 9:45 – 11:00 am Dev Sahoo, Rahul Banga
Use Case 3: Insurance 11:00 – 12:15 pm Chris McDaniel
Break 12:15 – 12:45 pm
Follow-On Project 12:45 – 2:15 pm Dan Simmonds, Forrest Colyer
Day 2 Wrap Up 2:15 – 2:30 pm Wendy Henry
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Use Case #1: Banking
April 28, 2017

Value Drivers for Blockchain Technology in Banking
Leveraging blockchain technology’s core features promises to dramatically improve various
foundational aspects of banking operations
Simplification of operations
Reduces the manual effort and heavy operations required to perform reconciliations of transactions between banks, regulators,
and 3rd parties
Real time monitoring and compliance

Enables real time monitoring of financial activity on the network, greatly reducing audit effort and ensuring compliance
Real time settlement

Utilizing Blockchain enables direct transactions between participants, thus disintermediating third parties that support
transaction verification / validation and accelerates settlement
Counter party risk reduction and better liquidity management

The real time nature reduces locked-in capital and provides transparency that reduces counter-party risk and enables better
cash management. Agreements can also be codified as “smart contracts” to ensure fulfilment of obligations
Reduced Fraud
Transparent and immutable data on blockchain, and access to full transaction history will reduce fraud and help with reliable
and fast decisions over disputes and payouts.
Platform for Future Innovation

Real time transactions and settlement mechanism opens up opportunities to build new functionalities and products like micro-
payments, real time cross border transactions, etc.
1
Adoption of Blockchain in Banking
Banking industry is one of the first adopters of blockchain and is heavily investing in the
technology
Key Use Cases Blockchain and bitcoin

90+ central banks 80% of banks
Cross- startups have received over
border engaged in
• No correspondent banks
KYC predicted to
• Minimal documentation • Lower Regulatory Costs
Regulatory • Increased transparency
• Lower transactions costs
paymentsBlockchain
• Quick re-KYC
Processes •initiate
$1bn in VC investments and
Reporting • Improved compliance
• Payment transfer in No document forgery
funding from major banks /
discussions
seconds Blockchain projects
financial firms
• T+0 settlement • Lower Regulatory Costs
Syndicated Trade
• Faster consensus • Improved Record Keeping
Loans process Finance
• Faster Turnaround time
• Minimal tied up capital
Barriers to Adoption
Legal /regulatoryFinancial risk acceptance
B&S subject to federal, stateConcerns over possible and international regulationsbreach
On-boarding and financial Data security and privacy
stakeholders Integration with legacy systems
losses Convincing various stakeholders aboutSecurity
their concerns
loopholes
overinsecurity
Blockchain
andyet
getting
Integration
to bethem
explored
with
onboard
complex legacy syste
1
Use Case 1
Cross Border Payments
Current State of Cross Border Payments Ecosystem
Cross border
Non-bank digital payments volume
Customer Shift in trend entrants are business to
business and
$155
demands from batch disintermediatin
for a payments to g the existing
consumer to
consumer and on a
Trillion+
frictionless immediate banking rise 1
payments real time payments
experience payments ecosystem ~8% Global average total
cost of sending
remittances
Banks are the

Increasingly
most expensive 11.12%
Customer Increased channel to send
global nature
demands for security and money at an fee
of businesses average of
transparenc end to end
demanding
y, payment
support for
rich meta-
predictabilit tracking for 2-7 Is the average
settlement time for
data transfer
y and
certainty in
regulations and
risk days cross border
payments and varies
by corridor
1
Availability of new technologies like Blockchain that are enabling changes in the payments landscape
1 https://remittanceprices.worldbank.org/sites/default/files/rpw_report_june_2016.pdf
1
The Payments Flow …
Sender’s Correspondent Bank Respondent
Bank Transfers Funds Completes Settlement Bank Transfers Funds
TRADITIONA
to Correspondent Bank with Respondent Bank to Recipient’s Bank
Sender Initiates Recipient

Payment Receives Funds
L
Via Payment Processing System Via Payment Processing System

~8% AVERAGE FEE (e.g., ACH, SWIFT) (e.g., ACH, SWIFT) 2–7 DAYS
(Charged to Customers)1 AVERAGE
Payments Pass through a Series of Middlemen – Driving Risk, Costs and Delays
33–42% COST 5–10 SECONDS

REDUCTION Info. Exchange via Direct Bank- AVERAGE
Funds Exchange via Velocity of Money4
BLOCKCHAI
(on Total Int’l Volume) 3 to-Bank Messaging Gateway Blockchain Network

N
Sender Initiates Includes Currency by Trusted Market

Conversion Makers Recipient
Payment
Receives Funds
1
Payments Transmitted over Blockchain-Based Rails – In Fiat and Crypto-Currencies
1
World Bank, Remittance Prices Worldwide (March 2016) | 2Deloitte analysis | 3Ripple,The Cost-Cutting Case for Banks - The ROI of Using Ripple and
XRP for Global Interbank Settlements | 4Vendor (Ripple/Stellar) platform average; Settlement of funds is handled outside of the blockchain network
1
Use Case 2
KYC
Kyc Is A Long And Expensive Process For The Banks
The main pain points related to the KYC process: high costs, process length and low
automation
24 days are required on average to

on-board a new client
Many banks still use a paper- Financial institutions spend on average
Manual and Paper-based Process $60m a year on KYC procedures
based system for compliance
processes An average of 68 employees work on KYC opera
Annual spend on KYC
$ millions
The customer is often required to give 100 83

80 8080 78
Back and Forth Process the same information on a number of 60
different occasions 40
3830 Average = $60m
20 27
0
The number of checks is very high, GERUKHKUSA SING RSA AUS

High Number of Checks moreover the same checks are performed
over and over
Sources: Thomson Reuters 2016 Know Your Customer Survey, ItProPortal.com, Deloitte Analysis, Press Clipping
Blockchain Based KYC Solution
A Blockchain can be used to allow a safe and secure sharing of information among financial
institutions, guaranteeing data integrity, immutability and complete auditability
Needs for a shared platform
Safe Data Sharing  Digital proofs guarantee the order and the
Data sharing must happen in a safe Distribute content of transactions and data
environment, with access control d ledger  Public distributed ledger
procedures
Data Integrity  Prevents double spending, fraud,

Not and abuse
Data must be non-tamperable by any reversibl  Altering of transactions impossible
participant or by unauthorised
Blockchain e
fraudulent users
features can  No central point of failure
Auditability & Tracking of Changes Censorshi
address p
 Fail-proof and attack-proof
 Every transactions is saved
Any change must be traceable and
recognisable, the full history of data those needs resistant
must be stored
 Cryptographic proof does not require
No trust between parties
Privacy & Confidentiality
central  No centralized supervision
The shared database must allow data
authority
encryption to preserve participants
and clients privacy  Cryptographic functions guarantee the
Crypt security of the network
o  Kept a proof related to every transaction
secur
Use Case 3
Regulatory Reporting
Challenges with Regulatory Reporting
101
011
OPERATIONAL INEFFICIENCY DATA MANAGEMENT COMPLEXITY & CHANGE COST CHALLENGES
Manual keying from core systems to Questionable

reporting tools
data quality Increasing requirement for granularity
Increasing
with look-
FTE
through
cost burden
and advanced
on fund adm
anal
Reliance on MS Excel as reporting tool Changing requirements of domestic and
Largeregional
scale IT
regulators
costs relating to improving
Potential for data manipulations
Quarterly and month- end workload pressures High cost of change with legacy applications
Adverse affect on the cost: income ratio
Data errors due
High-cost, low value and non differentiating process to manual keying
Time consuming extraction, reconciliation, and report generation
Blockchain for Reg Reporting: Regchain
Blockchain technology can enhance the overall ability to meet reporting requirements and solves
many of today’s operational challenges whilst ensuring the integrity of data
“RegChain”, a blockchain based platform which streamlines the traditional regulatory reporting processes by acting as a
central repository for the safe storage and review of large volumes of regulatory data. The technologies chosen for RegChain
were Ethereum and IPFS
• Data integrity - Due to blockchain hashing capability, data that is entered on the blockchain is extremely difficult to alter.
RegChain enables the logging and recording of transactional and positional data securely using the blockchain to ensure data
integrity
• Reliability - Blockchain does not have a central point of failure and is better able to withstand malicious attacks. Disaster recovery
is inherently built into a blockchain as standard due to all parties having a copy of the ledger.
• Storage & Speed - The blockchain provides for near real time updates of data across nodes. This facilitates faster sharing and access
to data with entities such as a regulator.
• Analytics - By providing a single source of accurate and immutable data the blockchain, a repository of transactional and fund data, can
be used to develop greater analytics. A singular view of each participants positions across all asset classes can be made available assisting
in overall management.
• Automation - Smart contracts enable automatic execution of reporting requirements and auditing any changes made to the data
by authorized parties
Use Case 4
Loyalty
What is Ailing Loyalty Rewards Programs Today?
Paucity of uniform management systems across loyalty and rewards programs, which may
confuse customers and several other inefficiencies result in lack of customer activity
Low
Loyalty and rewards Time delays
client
programs are not
realizing full
potential Low Accoun
Across all industries, only 50 percent of redempti t
those eligible for loyalty programs were Reasons
active members (in 2016). And of those
50 percent, a full one-fifth had never
redeemed their rewards.
High transaction and
Impact on system management and
businesses customer acquisition costs
Unclaimed rewards
Affects customer Customers who do
are accounted for
loyalty to a not make
as liabilities on
company’s brand redemptions are
company balance
more likely to
sheets
defect
1
Why Could Blockchain Be the Remedy?
Blockchain, as a distributed ledger with a fundamentally new way to transact and maintain
records in a secure, trustless, digitized, interlinked network, will eliminate many inefficiencies.
Blockchain-based loyalty networks
Connects a disconnected Reduces cost

world
Instantaneous and secure Cost savings should be
creation, redemption, and identifiable on three major levels
exchange of loyalty reward points —system management,
across programs, vendors, and transaction, and customer
Enables a frictionless system Makes the process near real

Blockchain time
Customers’ ability to access and A transaction can be recorded and
manage loyalty points is accessed by multiple involved
practically frictionless, allowing parties in near real time.
them more control of their points
Creates unique
Provides a secure
business
environment
An immutable and time- opportunities
stamped distributed database
entry makes every transaction
Reward applications Loyalty tokens Loyalty network
easily traceable, yet
1
Large loyalty rewards program
providers have unique opportunities
to offer value-added services to
other businesses.
1
Questions?
Break
Use Case #2: Securities
April 28, 2017

Agenda
Key Challenges in Securities Landscape

Securities Trade Lifecycle
Use Cases
Use Case 1 Blockchain Based Private Trading Exchanges – LINQ
Use Case 2 Smart Contracts
Use Case 3 Settlement
Questions
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154
Securities firms are confronted with increasing challenges due to technology market
infrastructure inefficiencies, technical constraints and ever changing regulatory landscape
Efficiency Cost
• Dependencies on third parties lead to
• multi-day transaction times
1 • Macro cost pressure due to
commodification of securities trading
• Complex Middle and Back processes 2 and settlement leading to low
associated with trade matching, error margin
correction and settlement • Significant investment to cater to
• Multiple non aligning proprietary constantly changing regulatory
ledger databases are hard to needs
reconcile leading to manual rework
• Failed trades lead to ripple effect in
unwanted costs in middle and back
office processes
Challenges for
players in
Risk Management
• Increased systematic risk –
securities Technology
• Limitations in straight through processing
credit and liquidity, due to and extensive manual intervention
challenges in liquidity sourcing
• Legacy systems lack of complete migration
• Increased exposure to counterparty resulting in rework
settlement risk and fraud due to limited
verifiable information about counterparty • Need for simplification and efficient
processing of transaction settlement
• No proper automated audit service
4 • Recruitment and talent retention is
• Need to improve security and anonymity of constantly challenging due to lack of

highly sensitive data in shared access
environment 3 culture of innovation
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reserved.
The key challenges are distributed across the trading lifecycle
Front Office
Middle and Back Office
7. Reporting
1. On-boarding 2. Execution & Clearing
3. Margin 4. Collateral 5. Settlement 6. Books & Records
& Recon. 8. Lifecycle Mgmt.
9.Servicing
1
1 234 12 12341234 123 23
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Securities Trade Lifecycle Optimization using Blockchain
Multiple functions across the Front, Middle and Back Office can be optimized using Blockchain
Front Office Middle and Back Office
7. Reporting
3. Margin 4. Collateral 5. Settlement 6. Books & Records
9.Servicing
Mandatory Generate Generate

Sales & Portfolio Post / Receive Aggregation Credit Fees and
Clearing Ledger Regulatory
Prospecting Valuation Collateral / Netting Event Billing
Determination Entries Reports
Client Compute
Trade Receive data Collateral Post to Generate Rate Cash
Information Settlement
Pricing from CCP Transformation Ledger Client Reports Resets Payments
Capture Cycle
Portfolio / Reference
Perform Due Limit Auto Debit / Update Pre- Reconcile Generate
Basket Data
Diligence Check Credit Balances settlement Balances CCP Reports
Rebalancing Management
Trade Booking Reconcile
Create Client Calculate Collateral Restructuring Client
& Clearing Settlement with
Accounts IM / VM Optimization Event Management
Give-up Custodian
Trade Margin Reconcil

Clearing Netting e with
CCP
Statement
Generation
Functions that can be optimized using Blockchain
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Benefits of Blockchain Realized in Securities Trade Lifecycle
Blockchain application will significantly reduce repetitive paper-driven manual processes, risks
and operational costs leading to faster and secure trade processing
Faster KYC/AML checks on shared ledger

Secure, verified digital identity Reduced margins/ collateral
Fasterrequirements
clearing and settlement De-duplication of servicing processes
Reduction in paper based manual processes Improved trade accuracy due to replicated
Flat ledger
accounting leading to richer data sets
7. Reporting
3. Margin 4. Collateral5. Settlement 6. Books & Records
9.Servicing
Transparency and verification of assets

Mutualization of static data Immutable recording of trade transaction
Automated reporting through smart contracts
Reduced credit exposures
Real time match of transactions
1
Use Cases
Use Cases For Our Discussion
We will cover the following use cases of Blockchain applications in various capital market
functions
# Capital Market Functions Use Case Description
Blockchain technology offers API for management of

Blockchain Based
unregistered securities, robust foundation to support a
1 Private Trading
wide variety of asset types and enables data provenance
Exchanges
and protection from double spend
Blockchain has the potential to significantly reduce

2 Smart Contracts friction in contract fulfillment by enabling a new
innovation – “smart contracts”
Utilizing Blockchain can result in greater trade

3 Settlement accuracy and shorter settlement processes potentially
leading to significant cost savings for FIs
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162
Use Case 1
Blockchain Based Private
Trading Exchanges
NASDAQ Private Market Exchange
Private market exchange has a complex operating structure and in need of simplification significantly
NASDAQ announced launch* (in 2013) of Private Market to meet the specialized needs of today’s private companies.
• A private company marketplace to let growth-stage companies tap institutional investors for capital and employee liquidity
• Provides a comprehensive set of solutions for other private market services - facilitate shareholder liquidity, manage
equity in a controlled manner, manage stock ownership and tender offers
Current State Challenges
• Auction based order matching eco-system • Improve efficiency and bring transparency among sellers
• All positions validated from a registrar and buyers
• Trade details is verified among clients, exchange and • Introduce interoperability among existing networks
brokers via batch transmission of trade details by • Remove significant friction in handoffs of information
the exchange • Multiple intermediaries come into play in any single trade
transaction
• Siloes of information exists with significant effort in
interconnectedness of the information holder
Traditional Private Market Exchange Structure
Seller Broker The Depository Broker Buyer

Trust Company
(DTC)
1
*http://ir.nasdaq.com/releasedetail.cfm?releaseid=745594
1
NASDAQ – LINQ: Blockchain Based Trading Exchange
Decoding Blockchain based Exchanges with a Case-in-point (LINQ)
How It Works Advantages
• Assets are issued onto a network that spans across • Improved and advanced security
organizations • Instant and direct value is achieved round the clock
• Entities control asset movement by directly • Flexible, digital rails enable user-friendly apps and
interacting with network’s ledger interoperability
• All transactions are enabled and secured by • Eliminates clearing, reconciliation, errors; a single
cryptography source of truth provides perfect auditability
LINQ Functionalities
The solution developed in partnership with Chain.com enabled private companies to digitally represent share ownership using
Blockchain based technology
• Robust user interface and underlying infrastructure provides value added services including ledger visibility,
contract management, investor communication and order management
• LINQ API enables management of unregistered securities including issuance, allocations, corporate actions, auctions, transactions
and settlement through integration with paying agent
• Blockchain Enabled Ledger provides data provenance, immutability, protection from double-spend and distribution of record
keeping
LINQ Based Private Exchange Structure
Seller Buyer
LINQ API and Blockchain Enabled Ledger
1
Use Case 2
Smart Contracts
Smart Contracts
Smart contracts are self executing contracts, capable of automatically enforcing the obligation without an intermediary
Smart Contracts
• A smart contract is a software that executes commercial transactions and/or enforces legal agreements in a manner
that eliminates the need for intermediaries and their associated transaction costs.*
• A smart contract is triggered when a pre-programmed condition is met, and the contract gets executed on its own
• Smart contracts have far reaching cross-industry applications (e.g., financial services, real estate, supply chain, etc.)
How Do Smart Contracts Work?
A blockchain is permissioned when its participants are pre-selected or subject to gated entry based on
satisfaction of certain requirements or on approval by an administrator. A permissioned blockchain may
use a consensus protocol for determining what the current state of a ledger should be, or it may use an
administrator or sub-group of participants to do so
Permissioned
A blockchain is permission less when anyone is free to submit messages for processing and/or be involved
in the process of reaching consensus. While a permission less blockchain will typically use a consensus
protocol to determine what the current state of the blockchain should be, a blockchain could equally use
some other process to update the ledger.
Permissionless
A consensus protocol is computer protocol in the form of an algorithm constituting a set of rules for how
each participant in a blockchain should process messages and how those participants should accept the
processing done by other participants. The purpose of a consensus protocol is to achieve consensus
between participants as to what a blockchain should contain at a given time.
Consensus
1
Implementing Smart Contracts on Blockchain Platform
Standard contracts could be coded into autonomous scripts on Blockchain to define terms of a contract, that could be
amended & recorded in immutable manner
Smart Contract Lifecycle
1 2 3 4
FORMATION NEGOTIATION PERFECTION CONSUMMATION
Digital contract draft created; Iteration on terms between Final terms cryptographically Contract execution triggered upon
individual terms each coded as interested parties, ending in final signed by both authorized digital proof that conditions have
Blockchain script agreement signatories, and contractual been met; automatic transfer of
obligation immediately starts obligations between counterparties
automatically transfers the obligations between counterparties. These contracts are triggered automatically either on basis of agreed interval
1
Smart Contracts Use Case for Securities
Simplification of capitalization table management for private companies can be enabled by smart contracts, while also
reuniting record ownership with beneficial ownership of publicly traded securities, reducing cost, and counterparty risk.
operational risks created by intermediaries
Current State Future State
Issuer
Issuer
Title Cede & Company

Custodian Sub-Custodian
Smart Contract
Custodian Sub-Custodian
Investor Investor
Current Challenges Smart Contract Benefits

• Paper-based, manual • Digitized end-to-end workflows due to
corporate registration processes securities existing on a distributed
• Companies that fail to keep their ledger
corporate registrations up-to-date • Trade date plus zero days
require clean-up and certificate of (T+0) securities settlement
good standing before issuing securities cycles
• Intermediaries increase cost, • Facilitates automatic payment of
counterparty risk and dividends and stock splits, while enabling
latency more accurate proxy voting
• Removes counterparty and
1
Market Example • The transaction was centered between the seller, the buyer and their
• In October 2016, around a shipment of cotton from respective banks.
Commonwealth Bank of Texas to Qingdao in China, • In addition, the trade also included a
logged and verified using physical supply chain trigger to
Australia (CBA), Wells Fargo
and Brighann Cotton blockchain confirm the geographic location of the
announced the completion of a • The trade involved an open goods in transit
trade transaction using a account transaction, mirroring • CBA and Wells Fargo will continue to
combination of blockchain, a Letter of Credit, executed work with consortiums like the R3
smart contracts and the through a collaborative workflow project to further develop the use of
internet of things on a private distributed ledger blockchain technologies
*Source -https://www.cryptocoinsnews.com/smart-contracts-12-use-cases-for-business-and-beyond/
1
Use Case 3
Settlement
Settlement
To ensure fulfilment of obligation, the current Settlement process is long and complex. All necessary activities to guarantee
settlement can be carried out on the distributed ledger on ‘T + 0’ day
Traditional Model Blockchain Based Model
T + 0 Trade Validation Client Exchange Broker T+0

Decentralized System
TradeAsset
• Trade execution confirmation between client and broker Counterparty 1ValidationVerification Counterparty 2
• Trade sent to matching service for comparison
Matching, Affirmation & Confirmation Escrow Settlement

T+1 Exchange Central Counter Party Broker
• Trade sent to central counterparty (CCP)

• CCP confirms trade details with brokers • Broker and client agree and reconfirm trade details as posted on
• Problem trades returned for correction their ledgers
• Counterparties can request verification of asset availability from their
T + 2 Settlement Central Counter Party custodians
Custodian
Instructions • Counterparties can confirm details of trade, request and present
proof of asset ownership to each other
• Trades that are not compared are dropped • Assets can be deposited in blockchain based 3rd party escrow for
• Contracts compiled and sent to clients delivery upon receipt of promised assets
Asset verification, trade confirmation and settlement can be done near instantaneously on the blockchain
without the need for intermediaries. Public proof of ownership means faster verification of settlement capability
Solution Under Development– Utility Settlement Coin
UBS is leading a team of four of the world's biggest banks developing a system to enable financial markets to make
payments and settle transactions quickly using blockchain technology
UBS and Clearmatics launched the concept in September 2015 to validate the potential benefits of USC for capital efficiency, settlem
Initial Milestones
The project was initially incubated as part of the UBS Crypto 2.0 Pathfinder Program, UBS's initiative for research and experimentation o
The successful conclusion of this first phase paved the way for the introduction of additional partners: BNY Mellon, Deutsche Bank, IC
UBS has developed a ‘Utility Settlement Coin’ (USC), which is a digital cash equivalent of each of the major currencies
Key Features backed by central banks, such as the dollar or euro, rather than a decentralized new digital currency such as bitcoin
USC would be convertible at parity with a bank deposit in the corresponding currency, making it fully backed by cash assets at a cen
Blockchain works as a tamper-proof shared ledger that can automatically process and settle transactions using computer algorithms
“As today's settlement and clearing is a process involving many institutions, it's vital that we collaborate with our peers
to develop viable alternatives to current models, creating new digital capabilities for the financial services industry”
– Paul Maley, MD, Deutsche Bank
*Source -http://www.reuters.com/article/us-banks-blockchain-ubs-
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Use Case # 3: Blockchain for Insurance
April 28, 2017
Agenda
Overview of Blockchain for Insurance
Use Case Examples
Deloitte Capabilities
Overview of Blockchain for Insurance
Why Blockchain is Relevant to Insurance?
Blockchain can transform and automate several key insurance processes
Automatic execution of underwriting Efficient and accurate reporting:

and claims: Underwriting and claims Blockchain’s reliance on to immutability
handling can be executed automatically of data sources results in faster and
by “smart contracts” that dramatically more accurate reporting due to
improve accuracy, increase speed, and complete, consistent, timely, and widely
reduce costs available data
Improved customer onboarding: Real-time transaction settlements:

Blockchain can facilitate a fast and simple All transactions between insurance
customer onboarding process. It enables companies and their intermediaries
know-your-customer (KYC) data to (e.g., independent agents) can be settled
remain secure yet easily accessible near real-time
Automatic fraud detection and

reconciliation: Blockchain technology can
be leveraged to automatically detect
fraud, perform reconciliation, and resolve
disputes; all without human intervention
1
Blockchain Key Benefits
All Blockchains have several unique and valuable characteristics that can unlock significant
business value via captured efficiency gains, top line growth, cost savings, lower risk, and an
enhance customer experience
Representative
Benefits
Efficiency Quicker settlement of Enable instant carrier
1. Near Real Time claims with real-time to carrier interactions
Gains processing
Transaction route
compressions and instant
2. No Intermediary money transfer
Increase in quotes Improved data sources
Top Line generated and policies can enhance services
Attract new business and
Growth issued through expedited (e.g., real-time reporting),
renewals due to improved
quoting and binding leading to improved sales
customer satisfaction (faster
processes and retention
Blockchain onboarding and digital
verification)
Diminished role of Minimize call center
The Internet of Value” Cost
Savings
intermediary (e.g.,
Frictionless evaluation of
interactions
insurance agents) due
3. claims through smart
to inherent trust of
rib
Distuted Blockchain
contracts that lower costs
Ledger and reduce process time
Significant reduction in Minimize errors associated
Risk fraud (e.g., identity) and with manual processes
Real-time compliance
Management increased security due to
auditing and reporting
immutability
4.
Irreversibility Transparent Enable client self fulfilment
Customer calculation of
Improved customer
through process and account
Experience premiums due to digitization
5. experience by binding
public nature of ledger
Censorship Resistant digital records related to
client interaction to their
digital identities over
distributed ledgers
1
Flagship Model: Cross-Industry Approach
The flagship model: cross-industry impact approach involves partnering with the industry to support the building of a
flagship foundation for each market area, that can then have numerous applications built atop of it.
Components
1
Flagship Prototypes – Build 3 2 Industry Consortium – Consortium
3
Solution Provider Alliance – Solicit
cross-industry, high-value Flagship will be sponsored/led by industry a group of solution providers who are
Prototypes, One for P&C, L&A, and associations that is made up of already or want to be in the
Reinsurance. These prototypes multiple Carriers & insurance blockchain space. Create
would be built in a foundational Distributors/Reinsurers. There would an architectural map of how solution
model, with additional use cases be a participation fee for Carriers & providers can work together to create
rolled out against the base for future Distributors/Reinsurers. offerings on behalf of Deloitte.
revenue.
Process
Industry Consortiums Solution Provider Alliance Flagship Prototypes Follow-On Work
Add-On Use Case

Add-On Use Case
Add-On Use Case
P&C Carriers P&

C
Industry Associations
Blockchain Vendors Add-On Use Case Add-On Use Case

Add-On Use Case
Distributors
L&A Carriers
Property & Casualty
L&
A Add-On Use Case
Add-On Use Case
Add-On Use Case
L&A Vendors Reinsuranc e Vendors
Distributors
Life & Annuity Carriers
P&C Vendors Reinsuranc Add-On Use Case

Add-On Use Case
Add-On Use Case
Reinsurers
Traditional Vendors e
1
Reinsurance
1
Flagship Model Blockchains
Product Distributed Ledger

• Contains Product Profiles
• Illustration Information
• Approved Marketing Information
• License & Appointment Requirements
• Product Training Requirements
• Product Training Materials
Sales Channel Distributed Ledger

• Contains Sales Agent Transactions
• Compliance Records
• License & Appointment Records
• Training Record
End Client Distributed Ledger

• Client Transactions
• Client Electronic Attachments
• Client Policy Information
• Client Disclosures and Compliance
Documents
1
Flagship Model – Use Cases and Benefits
Use Case Examples
Use Cases for Deep Dive
In this section, we will present blockchain-enabled solutions for the following use cases
# Use Case Description
Facilitating Life & Annuity options for stakeholders on Blockchain

can automate manual processing by providing cross industry
1 Life and Annuity
access to all stakeholders (End Client, Sales Agent, Distributors)
and ensures security through Blockchain Architecture
Facilitating Reinsurance processes on Blockchain can

automate back-office processing through smart contracts,
2 Reinsurance
improve fund collateral and financial processing via wallet
functionality and automated invoice generation
1
Use Case Deep Dive Framework
Use case deep-dives that follow a standardized format were conducted to strike a balance
between the possible and practical in order to consider how insurance might be transformed by
Blockchain
Use Case Deep-Dive Structure
Current-state process Future-state process Benefit analysis

description description and
identification
Our Goals
1 Educate the community 2 Highlight key 3 Support existing
on the key Blockchain conditions that must be conversations to
value drivers through met to implement implement Blockchain and
business- process-level Blockchain solutions in initiate new discussions
use cases insurance elsewhere
1
1. Life and Annuity
Use Case Summary

Facilitating Life & Annuity on Blockchain can automate manual processing by providing cross industry access to all stakeholders (End Client, Sales
Agent, Distributors) and ensures security through Blockchain Architecture
Current State Process
The Depository Trust &

Life & Annuity Carriers Clearing Corporation Distributors Sales Force
(DTCC)
End Clients
1
1. Life and Annuity
Future State Process
The Depository Trust &

Life & Annuity Carriers Clearing Corporation Distributors Sales Force
(DTCC)
Allows real time

Communication
Potential disintermediation Allows real time s and statusing
of intermediaries and real- Communications , with end clients
time sharing of information statusing and
between carriers and oversight of sales
distributors force
End Clients
Allows
transparency
of new
business,
exchanges and
post-issue
transactions,
disclosures and
status Blockchain
Applicabilit
y
1
2. Reinsurance
Use Case Summary

Facilitating Reinsurance processes on Blockchain can automate back-office processing through smart contracts, improve fund collateral and
financial processing via wallet functionality and automated invoice generation

Marketing Placement Premium Accounting
Develop Treaty Develop Reinsurance
Reinsurer Marketing (Retro) Placement Prepare Premium
List Submission Invoice (Assumed)
Perform Reinsurer Develop draft contracts Process Premium

Security Review and negotiate terms Payment (Ceded)
Create final contract Process Reinstatement

and sign the contract Premium Payment
Calculate and Process

Fund Claims Payment Treaty Premium
Collateral Adjustments & then
Reinstatement Premium
1
2. Reinsurance
Future State Process
Marketing Placement Premium Accounting
Develop Treaty Invoice can be prepared

Prepare Premium
Reinsurer & transmitted via wallet
Invoice (Assumed)
Marketing List functionality to bill the
reinsured for premium
Develop due
Reinsurance For ceded reinsurance,
(Retro) Placement Process Premium the wallet must respond
Perform Reinsurer
Payment (Ceded) to an invoice for ceded
X
Security Review
premium due to send
premium to the
Develop draft contracts
retrocessionaire
and negotiate terms
Generate RI smart contract from the
Create final contract Process Reinstatement
smart contract template; populate with
placement terms and conditions and sign the contract Premium Payment
All contract participants are bound to
On treaties with premium
the contract via a digital signature
adjustment provisions,
Calculate and Process triggering events kick-off a
If applicable, the contract is Fund Claims Payment Treaty Premium request for adjustment
funded via wallet functionality Collateral Adjustments & then information. Premium
with a collateral account for adjustments are calculated
Reinstatement Premium
payment of claims according to the treat terms
and invoices are generated
1
Impact on Benefits
Simplified and/or automated processes: Integrated data sources: Blockchain facilitates

through a smart contract, activities such as money the integration of various data sources from
settlements, subsequent payments, the collection trusted providers with minimal required manual
and storage of claims data, and new policy review
applications are benefited through increased
automation Streamlined payment process: in most
cases, the smart contract will facilitate the
Enhanced customer experience: through the payment automatically without effort from the
streamlined transfer of loss information from back office and with fewer costly intermediaries
insured to insurer, Blockchain eliminates the need
for brokers and reduces claim processing times
Reduction in Operating Costs: Blockchain
can drive reductions in operating costs through
Reduction in fraudulent claims: the insurer will
process simplification, faster processing time,
seamlessly have access to historical claims and
paper to electronic
asset provenance, enabling better identification of
suspicious behavior
Real-Time Compliance, Auditing and
Improved Risk Profiling: Risk profiling becomes Reporting: Agent compliance information has
more accurate as risk assessments are based on lead to better risk management procedures and
trusted and verifiable data sources that are increased security
integrated seamlessly from providers
1
Deloitte Blockchain Capabilities for the
Insurance Industry
The Blockchain Deployment Journey
Deployment Adoption Options
Clients need to evaluate where they want to be on the continuum in the context of Blockchain
adoption
Blockchain Deployment
Continuum
Go All In
4 Blockchain becomes the
standard platform; actively
engage regulators;
intermediaries are eliminated
from mainstream operations
3
Actively
Invest
Degree of
Adopt Blockchain as the

solution for specific use cases;
engage with regulators as
2
Actively needed; ecosystem remains
1 Engage
largely unchanged
Do Nothing
Wait for the market to establish Participate in consortiums and
standard platforms and use working group. Actively
cases before implementing and participate in industry proof-of-
implement only if mandatory concept opportunities
Degree of adoption
1
Blockchain Deployment Continuum
In the insurance blockchain space there are both revenue and strategic benefits to our Flagship
Approach.
Stage 1: Stage 2: Stage 3: Stage 4: Stage 5:
L&A L&A L&A Industry P&C Developing P&C Industry Standard
Initial Developing Standard P&C Reinsurance Reinsurance Developing
• L&A Advisory Board • L&A Initial Use Cases
Initial Initial • P&C exclusive provider
• L&A Consortium • L&A Strategy Map • RE: Initial Use Cases
• L&A exclusive • P&C Initial Use Cases
• L&A Platform Built for additional Use • RE: Strategy Map for
provider • P&C Strategy Map for
Cases • P&C Advisory Board additional Use Cases add’l Use Cases
• P&C Consortium • RE: Advisory Board
• P&C Platform Built • RE: Consortium
• RE: Platform Built
Strategic Industry
Maintenance Fees on Foundation & Use Cases Developed

Use Case Development Fees
Consortium Membership Fees
1
Revenue Generations
1
Deloitte Capabilities
Utility Engineering Consortium

Deloitte Deloitte Carrier/Distributer Consortium Steering C
Eminence in market space Eminence in market space Decides data that goes into distributed ledger
Utility Oversight Decides carriers/distributor admittance into consortium
Source for building cross-industry distributed ledgers
Leadership role in managing consortium Decides use cases to pursue
Source for building use cases atop distributed ledgers
Access to distributed ledger
Ongoing revenue stream from utility managementSource for providing maintenance for entire platform
Access to deep data accumulated over time Infrastructure & Blockchain Vendors Access to use cases when developed
Other Industry Organization Eminence in market space Carrier/Distributer Greater Consortium
Eminence in market space Information on use cases to come
Access to distributed ledger
Access to use cases when developed
s
Other Industry Organizations
Greater adoption of standards
Sub-contractor to Deloitte for Infrastructure
builds and maintenance
Vendors
Industry Vendors Blockchain Vendors
Eminence in market space

Develop applications in conjunction with use cases
Industry Vendors
23+ 800+ 20+ 2

Ecosystem of Industries where knowledge Practitioners in from 40 Global delivery network
technology and we have deep our Blockchain countries
innovation companies business process community
1
Use cases and prototypes Blockchain
developed labs in New
York and
Dublin,
Ireland
1
Appendix
Current Trends in Insurance Industry
There has been a recent increase in blockchain investments by the insurance industry
2015 saw record high investments in insurance tech startups • Consortiums are being developed for the L&A, P&C, and
Reinsurance sectors.
$2.6B 43% • Deloitte is developing the first ever reinsurance proof of concept
In VC investment to insurance Increase in strategic tech for Allianz
tech startups globally in 2015 investments by corporate insurance
investors from 2014 • Began work on multiple Blockchain proofs-of-concepts that
focus on improving back office efficiency
US early-stage investments in insurance tech are moving beyond
health to other lines, including commercial and life • China’s second biggest insurance company, Ping An Group, has
become the first Chinese member of the R3 consortium
• Uses Blockchain to permanently record claims so that insurers

38% 30% 49%
and reinsurers can accurately divide the costs between them
62%
70%
51% Client Prioritization
2013 2014 2015
Health Insurance Tech Non-Health Insurance Tech
“Investors weigh in on crowdsourcing, regulation, and

appetite for innovation and M&A in the insurance tech
industry… insurance firms have largely pursued L&A P&C
exploratory
investments in Blockchain and bitcoin startups.”
9 of our 18 L&A clients and 9 of our top 21 P&C clients emerged as the top
– CB Insights
1
candidates for targeted engagement for our
blockchain market offering
1
1. Claims Processing
Use Case Summary
Facilitating claims management for insurers on Blockchain can automate back-office processing through smart contracts, improve assessment
through historical claims information and reduce potential for fraudulent claims

Claim Claim
Loss Event Claim Settlement & Approval &
Response Assessment
Reserve Payment
Estimates settlement,
Conducts preliminary Reviews payment
assesses for referrals,
Loss event occurs assessment regarding requests and
approves and updates claim
complexity and severity claim settlement amount
reserves
Receives claim Determines coverage, Escalates the claim to Re-evaluates claim

Receives claim from broker / assesses damage and specific unit for based on new loss data /
directly from
further event, and adjusts claim
agent on behalf liability, and gathers investigation and payment (optional)
insured of insured documentation handling (optional)
Supervisory Disability &
review Medical
mgmt.
Confirms receipt of claim Initiates payment
and gathers additional SIU / Fraud Litigation
information investigation mgmt.
Claim
Subrogation
2
reassignment
Triages the claim to the
right adjuster for further Closes the case after
insured confirms
receipt
claim handling processes
of claim payment
Confirms claim
settlement with
insured
2
1. Claims Processing
Future State Process with Blockchain

Loss Event Estimates
Claim
settlement, Claim
Response Claim
X
Settlement
assesses for & Approval &
Assessment
referrals,
Reserve and Payment
Conducts Reviews payment

Loss event occurs Determines
preliminary requests and approves
coverage, assesses claim settlement
assessment
damageregarding
and amount
liability, and gathers
Receives claim Receives claim Re-evaluates claim
directly from from broker / Escalates the claim to based on new loss data /
n
insured agent on specific unit for event, and adjusts claim

behalf of further investigation payment (optional)
insured Assessment Blockchain and handling
automated via automatically (optional)
Confirms receipt of utilizes Supervisory Disability &
Proces
business rules
claim and gathers within smart available data review Medical mgmt.
additional information contract (e.g., sources to Initiates payment
coverage terms) assess the SIU / Fraud Litigation
s
claim and investigation mgmt.
calculate the
Claim
X
loss amount
Subrogation Closes the case after
Triages the claim to reassignment
the right adjuster for insured confirms receipt
further claim handling of claim payment
Confirms claim
Loss information is submitted by the insured or settlement with
smart asset (via sensors or external data If the claim is approved, payment to
Blockchain insured
sources if the asset is technologically capable), the insured is initiated via straight-
triggering an automated claim application Applicability through-processing using smart
contract, and then case will be
2
closed automatically
2
Additional High Priority Use Cases
The following use cases have been identified as high priority for the insurance industry. Please
not that this is not intended to be an exhaustive list. There are over 70 identified relevant use
cases.
Client Fraud Identity Claims

On-boarding Underwriting
Prevention Management Processing
P2P Micro- Loyalty

Usage Based Reinsurance
Insurance insurance Programme
Insurance
2
Deloitte’s Own Journey With Blockchain
Deloitte Journey
• Decided to actively pursue Blockchain opportunities and adopt Blockchain as the
solution for specific use cases
Decide where to play • Developed 30+ use cases and prototypes
• Recruited more than 600 Practitioners from 30 countries to an internal Blockchain community
• Developed an expansive global ecosystem of thoughtful marketplace alliances

Set up a across Blockchain platform and software vendors, incubators, and accelerators
Blockchain
ecosystem
• Developed multiple prototypes across multiple industries: Claims, Digital Bank, Loyalty
Develop ability & Rewards and Smart Identity
to prototype • Accelerated prototyping by using Deloitte’s existing technology capabilities and
industry experience and developing partnerships with fintech startups
• Developed proprietary technology stack including a “fabric layer” that integrates

Establish data, analytics and applications to convert patterns and insights
methodology to • Adopted an agile process which promotes quick iterations, early / opportune decision
points, frequent releases, and highly inclusive scrum team dynamics
prototype
2
How We Go To Market
We collaborate with our ecosystem to bring the best resources, making Blockchain real for our
clients
Expansive Experienced Eminence Make It Real

Ecosystem Deloitte is an established Accelerate implementation
Bridge domain expertise, thought leader within the of Blockchain solutions for
innovation expertise and Blockchain community clients
market relationships
Deloitte has an expansive global Deloitte reinforce its position as a thought Deloitte continues to leverage industry and
ecosystem of thoughtful marketplace leader through the development of Blockchain expertise, existing prototypes,
alliances across Blockchain platform and insightful white papers and public knowledge of client environments, and
software vendors, incubators, and communications, while simultaneously ecosystem of alliances to be the leader in
accelerators playing a sponsorship role in large rapid cycle innovation helping clients vision
Blockchain events become reality
23+ 800+ 20+ 2

Ecosystem of innovation have deep process e
Industries
technology and companies business knowledg
where we
2
Practitioners in our Blockchain
Global delivery network Use cases Blockchai
community from 40 countries
with 9 development and n labs in
teams prototypes New York
developed and
Dublin,
Ireland
2
Opportunities Across Value Chain
Blockchain technology has wide applicability across the insurance value chain
Opportunity for Blockchain
Low Medium High
Core Insurance Capabilities

Marketi Acces Sales
Product Policy Underwriting Policy Lifecycle Claims Management
ng & s &
Management
Market Product Underwriti 3rd Quote & Claims Claims Assessment Claims
Marketing Website Sales Policy Issue Endorsements
Assessme Manageme ng Party Illustrations Strategy for Processing Referrals Sourcing
Channel / UW
Produ Policy Application Payment Renewals Claims Claims Reserve Litigation Reinsurance
Distributio Contact Product Service Assessment
ct Pricing Submission Management Management Investigation Management Management Recoveries
n Center Launch Quality &
Other Reinsuran Policy / Claims

Policy Rating / Cancellations / Catastrophe Exposure
Channels ce Application Negotiation & Claims Audit
Quoting Terminations Management Management
Management Settlement
Policy & Claims

Business Analytics Corporate
Related
Services
Busines Sourcing
Profitabil Finance HR Utility Billing Preventi
s & Vendor Legal
ity & Manageme Capabiliti Managem ve Loss
Performan Managem
Produc Business
Supp Logistic Reactive
t Reporting Treasury Licensing IT Premium
ort s& Loss
Predicti Strategy Audit
Claims
Busines Reward Complian Enterprise IT
Predicti Disbursemen
s Managem ce Risk Manageme
ve ts
2
Client Prioritization – P&C
9 of our top 21 P&C clients emerged as the top candidates for targeted engagement for our
Prioritized Clients
5
4.5
American F amily AIG
4
Munich-A merican rty
Sta te Auto Libe
Zur
3.5 ich
State Farm Nationwide
3
USA A
Degree of
Mutual CSAA Allstate

2.5 Country
(Country Financial) Chu bb
Hart ford
2
Group
QBE Loe ws (CNA Financial XL
Corporation
1.5 )
First A merican Argo
Top Candidates: AIG1,
1 Hamilton American Family1,
Chubb, Liberty, Munich-
0.5 American1, Nationwide,
State Auto, State Farm,
0 Zurich
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Financial Fit DPW
1
Positive net reinsurance premium (FY15)
2
Client Prioritization – L&A
9 of our 18 L&A clients emerged as the top candidates for targeted engagement for our
Prioritized Clients
5
Allian Me ife
4.5 z tL
AXA
John Hancock /
4
Ma life
nu
3.5 Aegon
Prudent ial
3
Degree of
Afla
2.5 Genworth Unum TIAA
c N York Life
Lin coln
2
1.5
C Phoenix (Nassau Principal
N ) Northw l
Rei urance Top Candidates:
ns Group
1 Aegon1, Aflac, Allianz,
AXA1, John Hancock /
0.5 Manulife1, MetLife1,
New York Life1,
Prudential1, TIAA
0
0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
Financial Fit DPW
1
Assumed >$0.5 billion of reinsurance premium in FY15 (Life, Annuities, A&H, excluding supplemental)
2
Deloitte Blockchain Offering
We have the ability to provide comprehensive solutions from innovation and ideation all
the way through product development
1 Innovation and Ideation Strategy Development 2
• We identify relevant use cases to harvest the • We assist our clients in defining “where to play
benefits of blockchain technologies and how to win”
• Our thought leadership, developed in • We drive business, technology, integration and
conjunction with our ecosystem of innovation talent strategy
and blockchain companies, enables you to
make sense of the broad innovation landscape • We develop strategies to pilot and implement
Blockchain based solutions
• We track over 200 blockchain companies
• We define an iterative and flexible approach to
match the rapid changes in the ecosystem
4 Product Development Prototyping 3
• We mobilize our global practitioners to client sites • We accelerate prototyping by using our existing
to re-engineer business processes or design new technology capabilities and industry experience
ones
• We have prototypes up and running: Digital
• We bring our broad set of services, across Bank, Loyalty & Rewards and Smart Identity
compliance, technology, talent, operations and tax,
to effectively integrate Blockchain solution • We have over 20 prototypes in development
• We deliver as one team in collaboration with

external companies
2
Engagement Approach of the Prioritized Clients
Research of publicly Blockchain Skeptics On The Fence Early Adopters
available Periodic check-in to gauge Active showcasing of current Active pursuit to demo
information interest and appetite further blockchain opportunities and Deloitte’s blockchain capabilities,
POCs and network
engagement progress
suggests the P&C P&C P&C
following initial • QBE • AIG • American Family1
breakdown of our • XL • Chubb • Liberty1
engagement • Nationwide • Munich-American1
approach for our • State Farm • State Auto
• Zurich
prioritized clients
L&A L&A L&A
• CNO • New York Life • Aegon1
• MetLife • Allianz1
• AXA1
• John Hancock / Manulife1
• Prudential1
2
The engagement approach classification will be further refined based
1
Has reinsurance arm
on feedback from the respective prioritized clients’ LCP
2
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Attendance Check-In I Poll Everywhere
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Blockchain Bootcamp
PARTICIPANTKEYWORD
363892
• it you missedtime as a participant, replace the word "all" with the total minutes missed (ex. "12345missed X mins")
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Step 3: Type 22333 in the TO field Step 3: Log in* with a registered email address Step 4: Enter KEYWO
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Step 4: Enter your KEYWORD as messa ge Step 3: Click Respond to Poll
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Ste p 5: Click Submit response
T ro ub leshoo tin
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Blockchain Boot Camp - Consolidated Presentation Materials - 20170425 - vCL4

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Blockchain Bootcamp Day 1

April 27, 2017

4 Product Development Prototyping 3

April 27, 2017

Security and Challenges

Why is FSI yet to be disrupted?

Information is not transferred but copied

Money can not be copied

… until blockchain arrived!

Bitcoin is to money what internet is to information

• Anyone can freely and autonomously join the network so as to submit

as to submit transactions and take part in the validation process

Each block is made of transactions

The history of transaction of each account is visible

First steps of bitcoin Resilience to shocks Bitcoin survived to several shocks

FSI LeSaornuirncge: historyofbitcoin.org; © 2017 Deloitte Development LLC. All rights

Inputs: 169 identical digits out of 171 =

Header = previous block hash

Body = Data Data

Genesis block Blocks

Block header Proof-of-work algorithm difficulty target for the block

Trial and Error solving

The example tries to • Nonce 0 (satoshi nakamoto0) returns

The aim is to find a • …

Total Bitcoin supply

• Every 4 years the reward is halved

More than 85% of total bitcoin

The last evolution is hardware

The first hardware specifically p

Soon miners discovered that GP

In the beginning mining was

At this point in time no one knows

It depends on the next validated block

I’ve found a new block!

I’ve found a Block 1A Block 2A

Soft forks restrict block acceptance rules in comparison to earlier versions:

• type of upgrade, may require a soft or a hard fork

Hard forks changes are not compatible with earlier versions:

Secret key Unlock related funds

Elliptic curve function

Public key Used to verify digital signature

RIPEMD160 + SHA256 encoded in Base58

Address Generated from public key

Secret Key One-way Public Key

• is a randomly generated • is generated from the secret

• has to remain secret • has to be shared

• allows to digitally sign • allows to digitally verify

Generate + Store + Transact + Validate

Non deterministic Hot storage Not multi- signature Non-full node

Keys Generation Mechanism te re transacti

Main types Key features

Overview • Randomly generated unique private keys (e.g., paper

• All generated keys are derived from a common seed

Keys Generation Structure Comparison te re transacti

Advanced wallets implement Hierarchical Deterministic private keys generation scheme

JBOK Private keys “structure” HD Private keys structure

Main Wallet Types te re transacti

Desktop Paper Mobile Online Hardware

Desktop Paper Mobile Online Hardware

Private key Private Private Private key Private key

Multi-signature Multi-sig wallets are based on multi-sig transactions and

2- of-3 Multi-signature Wallet te re transacti

Advanced wallet are implementing 2-of-3 Multi-signature in order to enhance security