blockchain primer 2 - ldr...

B l o c k c h a i nU S I N G I T I N Y O U R B U S I N E S S

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From Education to ExecutionSix Step Process to Move from Education to Execution of a Blockchain Solution

1.0 EDUCATION 2/1/18

2.03.0 4.05.06.0

USING IT IN YOUR BUSINESS

DEFINE REQUIREMENTS

SELECT PLATFORM

DEVELOP & TEST

EXECUTE DEPLOYMENT

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http://ldrinvest.com/blockchain-version1/

Overview

Our Blockchain Primer 1.0 described what blockchain is (LDR Blockchain Primer 1.0 - Education), and its future impact. Blockchain 2.0 is the second part of the six-part series that will help you move from ideation to implementation.

Blockchain 2.0 is a practical guide that explores how to use blockchain in your business, and is broken down into four steps:

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Step 1: Understand real-world applications.Step 2: Evaluate the rationale for implementation. Step 3: Define the stakeholder ecosystem.Step 4: Confirm blockchain as the solution.


http://ldrinvest.com/wp-content/uploads/2017/12/Blockchain-Primer.pdf

Common Use Cases by Industry

Finance

Insurance Supply Chain / Logistics

Real Estate

Energy

Manufacturing

Compliance P2P Lending

International Payments Derivative Trading

Clearing Houses

Property Management Title Record Keeping Fractional Ownership

Smart Home

Anti-counterfeiting Patents

Raw Material Tracking

Reinsurance Multinational Insurance Claims Management

Fraud Detection Microinsurance

Global Trade Food Supply

Shipping Asset Traceability

Real Time Brokering

Solar Power Net Metering Smart Devices

Power Certificates

Step 1: Understand Real World Applications

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Business problems that lend themselves to blockchain solutions:

Multi-party reconciliation

Manual and labor intensive processes

Need for transparency

Establishing provenance

Develop the Business Case

Implementation Cost:

To determine if your firm is ready to implement a blockchain solution you must first evaluate the business case.

When evaluating various use cases, both quantitative and qualitative characteristics must be considered. Due to uncertainty around blockchain's impact, an analysis based solely on ROI may lead to a false negative. Similarly, an analysis that ignores ROI may lead to a false positive. If implemented correctly, industries using blockchain technology could realize material savings. For example, Accenture estimates that by implementing smart contracts for some back-office tasks, investment banks could see $12 billion in savings annually. It is likely that these savings could also be generated across many other industries, using a similar analysis.

Strategy:

Quantitative Qualitative

Key Performance Indicators (KPIs):

ROI/IRR/Payback Period:

Determine the overall cost of the project:

What are the KPIs?How will blockchain affect them?

- Consultants. - Developers. - Time for training, implementation, and change management. - Maintenance.

Evaluate costs and benefits.Understand alternatives.

Feasibility:

Step 2: Evaluate the Rationale for Implementation

Brand:

Appetite: Are all parties willing to invest the required resources (time, money, people) to develop a solution?Capabilities: Do you have in-house capabilities to develop a blockchain solution or will you need to outsource?

Will blockchain address social or regulatory pressure? Does the solution enable a better customer UX?Is "innovation" an important part of your brand?

Will the solution allow better buying/supplying power?Will this give you a competitive advantage?

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The Stakeholder Ecosystem Step 3: Define Stakeholder Ecosystem

Blockchain Platform:

Your Company

Considerations:

Considerations:

Considerations:

Industry Partners

After you select the potential use cases, identify the stakeholders. The best approach is a collaborative approach.

Payment Partners

End-Users

Developer

Select platform based on needs vs capabilitiesHyperledger, Corda, Ethereum Determine data elements to go on blockchain

Executive sponsor(s)Operations Legal / ComplianceProject ManagerIT

Personnel from operating companies/divisions.

Who physically builds?

Other constituents affected by the use case:

Citi VisaMastercardCryptocurrency

IBMMicrosoftNiche developers

How are end-users impacted by a blockchain solution?How do you determine this? (See page 5)

Not all blockchain transactions are settled in cryptocurrencies.

Will need to obtain their buy-in.

Legal/compliance experts from the affected jurisdiction.

IT for technical support.

What resources will they have to devote to the project?

Who will bare development costs?

Considerations:

Back-end and front-end.

Project Manager to manage timelines and budget.

- Suppliers - Competitors - Regulators - Buyers

(More on this topic in 4.0)

Is it possible to attach to existing solutions?

This requires a payment processor to settle transactions.

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Confirm Blockchain as the Solution

*Interview Guidelines:Behavior Driven Development (BDD) 1) Introduction

1) What are the assets?

2) Who are the stakeholders that interact with the assets?

3) HOW and WHY are these stakeholders interacting with the assets?

An asset is anything where a change of state must be tracked and recorded (this can range from a contract, to a piece of property, to a financial ledger).

Before identifying a solution (i.e. blockchain), you must first define the problem and analyze the respective value for your industry's stakeholders. One way to inform this decision is to use the Behavior Driven Development (BDD) model.

The purpose of diagnosing the business problem is to understand what is valuable to customers. Interviewing users*, early on in the process, will root your analysis in value to the end-users, and increase the likelihood of adoption.

What are their needs/wants? How are those needs/wants currently met?

Collect detailed descriptions of the actions taken by stakeholders to meet these needs/wants. Are there gaps or inefficiencies in the current process?

Step 4a: Understand the Pain Points

Use the parties from your stakeholder ecosystem map to guide this analysis.

Once you have thoroughly defined the who and the what of the problem, conduct interviews with the stakeholders to learn the how.

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2) Initial Questions

3) Validate Workflow Assumptions

4) Gather Insight Into Interactions

5) Final Questions

6) Summary and Closing

Introduce yourself and the reason for the interview.

Gather information about the person you are interviewing ( role, experience, etc.).

Explain what you assume their 'needs', 'actions', and 'artifacts' are, and have them make corrections.

Ask questions to understand who they work with, what tasks need to be done, and what the key artifacts are. What are the challenges/opportunities associated with each of these?

Ask if there is anything else that they think would be useful for you to know.

Thank them for their time and ask if you can contact them with follow up questions if necessary.

If the answer to any of the questions to the right is yes, based off of the data gathered during the stakeholder interviews, then it is likely blockchain can help. If not, look for alternatives.

Alternatives:

Centralized Database:

Confirm Blockchain as the Solution

Six questions to test the suitability of blockchain to the data gathered from stakeholder interviews:

What are the alternative technology solutions?

Step 4b: Decide if Blockchain is the Right Solution

Is trust a central issue?

Is the step process intensive?

Is substantial data exchanged

between parties?

Is this step central to firm

profitability?

Would it benefit from a common source of truth?

Is this step manual or high

cost?

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Data integrity Update and backup data

Easier to hackHave to reconcile differences in data when working with multiple parties

Data is stored in multiple locations making it harder to hackIf one site fails, the network still works

Have to allow databases to synchronizeHave to reconcile differences in data when working with multiple parties

Cons:

Cons:

Pros:

Distributed Database:

Pros:

Blockchain Decision TreeHow to Determine if Blockchain is the Right Solution

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Explore alternatives to

blockchain solutions.

Are all parties

trusted?

Centralized Database

Do nothing Distributed Database

Blockchain

Do you have the resources (time,

money, people) to develop a blockchain

solution?

Do you understand what blockchain is?

Read Blockchain 1.0: Education

Are you interested in implementing a

blockchain solution?

Do you have buy-in from all

stakeholders? (Page 4)

Conduct stakeholder interviews.

(Page 5)

Prioritize use cases based on internal

assessment. (Page 3)

Did you answer yes to many of the six

questions? (Page 6)


Appendix: In-Depth Industry Use CasesFinance: Equities, FX, & Repurchase Agreements

Manufacturing: Raw Materials

Blockchain brings a common truth to the over-the-counter financial market, reducing costly errors and reconciliation time. Digital Asset is a blockchain backed by over 15 strategic technology and financial partners.

Insurance: Multinational Insurance Coverage

Real Estate: Smart Tenancy Contracts

Keeping track of monthly payments, maintenance requests, and other documents can be a cumbersome task for property managers. The Midasium Blockchain helps manage tenant-landlord information in a decentralized and secure online portal.

Multinational insurance policies can be extremely complex given the numerous parties and regulatory jurisdictions involved. AIG and IBM have developed a blockchain solution to help provide multinational coverage to a client in three countries.

Across all industries, companies have begun implementing blockchain technology. Those slow to adopt may be left behind.

Raw materials are shipped globally and quality is of the utmost importance. The current paper-based method is a poor way to efficiently track the material to its end-state. SteelTrace is in the early stages of creating a blockchain solution to provide a secure, transparent, and easily accessible provenance.

Supply Chain / Logistics: Global Flower Shipping

Records in the shipping industry are largely paper-based and siloed. This makes it difficult for supply chain actors to have accurate information. Maersk and IBM have created a blockchain solution that can provide accurate and up-to-date information to all stakeholders.

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Equities, FX, & Repurchase Agreements

Industry Description:

Finance: Digital Asset

Business Challenges:

Blockchain Solution:

Digital Asset has raised over $115 million from 15 financial and technology strategic investors (Goldman Sachs, IBM, JP Morgan, etc.). The application can be customized and integrated with existing systems. It meets the regulatory requirements of financial institutions globally. Real-time on demand repo clearing and netting reducing operating costs, risks, and capital requirements.Transparency and regulatory oversight of the OTC market.End-to-end clearing and settlement activities for exchanges, central counterparties, and market participants.

Reduced reconciliation time. Need to share confidential data securely and quickly. Bridge the gap between distributed ledger technology and financial modeling languages. Single source of truth increases back office efficiency.

The over-the-counter financial market allows investors to customize many terms of their deals. These deals are made quickly over the phone and can be easily misinterpreted or incorrectly recorded due to human error. Every party in the transaction keeps their own internal record of the agreed upon terms. Errors may result in huge financial discrepancies (missing one digit can be detrimental) and are time-consuming to reconcile.

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Multinational Insurance Coverage


Multinational insurance coverage is cumbersome due to international regulations, paperwork, and payment reconciliations. Coordinating the placement and management of multiple policies across multiple countries is complex. A master policy is issued in the country where the company is headquartered, and affiliates need coverage in other jurisdictions that have differing rules, documentation, and payment terms. Administering the policy (managing premium payments, administering claims, regulatory compliance) is cumbersome given the number of parties involved on the capacity and customer side.



AIG and IBM have successfully piloted a blockchain solution on HyperLedger Fabric to provide multinational coverage for Standard Chartered Bank PLC in the UK, US, Singapore, and Kenya allowing all parties (insured, affiliates, insurers) to share all policy data and documents in real time. “Single view of truth” regarding master and local policy details, augmented by selective permissions to participants based on their credentials. Differing regulatory and economic environment of each involved country adds a level of complexity to the blockchain solution (i.e. cash before cover in Kenya).Central ledger to record and manage premium payments at the local and master level. Reduced need for parties to contact each other to view policy details/status and payment data.

Reduced transaction costs, increased speed of policy and claim payment status.Reduced communication and administrative burden to reconcile coverage and payment information.Streamlined sharing of policy, coverage, and payment information for brokers, auditors, and regulators.Enhanced trust and transparency between insurer and insured (theoretically will drive customer retention).

Insurance: AIG

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Smart Tenancy Contracts


Real Estate: Midasium



The Midasium Blockchain is a decentralized ledger that allows for up to date tracking of land titles, mortgage registrations, tenancy, and bond arrangements.Smart contracts allow for automatic rent payment and will reduce fraud, corruption, and credit risk. No cryptocurrencies are used in payment processing. The blockchain can directly interface with banking systems. Smart Tenancy Contracts allow property managers to track the cash flows of their properties.

Property managers have to keep track of many key pieces of information for their clients. Did they pay rent? Have they submitted a maintenance request? Resident turnover and subleasing increase the burden of tracking paperwork and payments.

Make the real estate market more transparent, efficient, and secure with an auditable and traceable history. Simplify management and reconciliation of payments of all types. Reduce settlement times. Complete transparency in controlling property management expenses.

- Key features include security of bond deposit, reconciliation of tenancy ledger, and expense management. - Tenants can pay rent and submit maintenance requests all through the portal. - Citi Bank manages the program's payment processing. - Tenants must complete a 100-point identity check to be able to sign the digital contract. - All contracts are legally binding as they are converted to a traditional legal format.

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Global Flower Shipping


Supply Chain / Logistics: Maersk & IBM



An average shipment requires over 200 transactions via email and other communication methods. This blockchain portal allows these transactions to occur in a secure place, providing common truth for all parties. Maersk and IBM worked to develop a blockchain solution built on Hyperledger Fabric where documents for shipping containers can be fully digitized and tracked.Finished a proof-of-concept in September 2017.According to the World Economic Forum, GDP could increase by 5% and trade by 15% if friction around information- sharing and border administration is reduced. The blockchain portal is expected to get regulatory approval by Q2 2018 and begin selling software subscriptions by Q3 of 2018.

The shipping industry was popularized in the 1960's and, since then, process management has not seen many improvements, even though 90% of global trade still occurs on these vessels. Correspondence and record keeping is still primarily done on paper, and shipping records are kept by each party on internal databases.

Streamlined communications, document signatures, and regulatory reporting through a portal-based application. Accurate and transparent data sharing among all relevant stakeholders, including end-to-end shipment tracking.

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Raw Materials


Supply Chain: SteelTrace



Allows batches to be traced along the entire supply chain from production through the installer to end client. SteelTrace is the first application that issues true digital certificates for steel manufacturing companies.Founded in June 2017, and while still new, SteelTrace has received interest from manufacturers in Europe.

Because raw materials are inputs to virtually every end product, it is vital that manufacturers keep batch-level information in case of a malfunction of an end product. Companies primarily keep a paper-based record of the details of every batch. In the case of an audit or lawsuit, it can be a time-consuming process to sift through the paperwork to identify the correct documents.

Accountability, down to the batch level, of raw materials.A provenance of the material through its various purchasers.Ensure quality standards are met and records are not tampered with.

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The LDR Approach

(3-5 person) SMALL TEAMS PROFESSIONALLY DIVERSE

PROBLEM SOLVERS

ITERATIVE AND RAPID EXECUTION

COMMITMENT TO EXCELLENCE

SUSTAINED RESULTS

(with complementary qualifications)

(agile & globally deployable)

"enterprise strike force"

FULL- SPECTRUM EXECUTION

Rapidly deployable, self-sustaining teams capable of conducting a wide array of operations:

3-5 person cross-functional teams (CFTs) with diverse skill sets in finance, legal, marketing, strategy, insurance, and operations. Philosophy built on achieving objectives through teamwork, precision, and speed combining:

Management ConsultingDeal AdvisoryDue-Diligence

FAST & FLEXIBLE

TEAMS

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1) Military doctrine 2) Agile methodologies and 3) Combat leadership

Project ManagementLeadership & High Performing Team Building

LDR Blockchain Team

Lauren Gore - Principal

Lauren Gore is a Principal with LDR specializing in deal advisory, strategy, and disruptive technologies. Prior to joining LDR, Lauren spent 5 years as an Army Infantry Officer with a deployment to Iraq and later was an attorney with Baker Botts LLP focused on large-scale energy-related transactions and complex deal design. Lauren is a graduate of the United States Military Academy and Harvard Law School.

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Frank Bennett - Associate

Frankie Bennett is an Associate with LDR specializing in insurance, disruptive technologies, and strategy. Frankie began his career with The Zenith Insurance Company, where he spent extensive time in claims, underwriting, marketing, loss control, and insurance operations. Frankie is a graduate of the University of Southern California and is currently pursuing his CFA.

Madison Fazio - Analyst

Madison Fazio is an Analyst with LDR and supports a wide range of consulting engagements through market research, data analysis, and deliverable creation. Madison is a graduate of James Madison University with a degree in finance, business analytics (minor), and studio art (minor). Madison was a member of the Madison Investment Fund and was recognized as the most Outstanding Graduating Senior in Finance.

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LDR is an innovation consulting firm focused on providing advanced problem solving, leadership, and investment acceleration services that help businesses achieve their goals. LDR operates as a conduit between capital providers and invested companies to seize opportunities, develop innovation capabilities, and accelerate operations with the goal of maximizing ROI for all stakeholders. To learn more, visit www.LDRinvest.com.

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