Blockchain & Trust - an economic perspective

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1 08 February 2017 Dr. Daniel Diemers, Partner PwC Strategy& / Board Member Swiss Finance + Technology Association (SFTA) Blockchain & - an economic perspective Digital Shift

secondment to Middle East Co-Founder and Board Member Swiss Finance + Technology

ch) Over 18 years consulting experience with Universal-/ Private Banks and Wealth

Former entrepreneur (start-up on internet based early warning systems/ intelligent

in virtual communities ; published books, articles and speaker at conferences and

2 Introduction: Dr. Daniel Diemers Dr. Daniel Diemers Partner/ Vice President PwC Strategy& since 2005; from secondment to Middle East Co-Founder and Board Member Swiss Finance + Technology Association ( Over 18 years consulting experience with Universal-/ Private Banks and Wealth Managers, focusing on growth strategies, digital innovation and regulation/ risk Former entrepreneur (start-up on internet based early warning systems/ intelligent agents) Ph.D. in virtual communities ; published books, articles and speaker at conferences and roundtables in the US, Europe and Middle East on digital GCC private banking Successful growth strategies after the perfect storm Taking wealth management digital Basell III: A silver lining for Middle East banks

3 What is trust? Source: Wikipedia 3

Layers of trust in the economy and when doing business Definition of trust in the economy Interpersonal Repeated interactions with predictable outcomes

Institutional Socialized business behaviours (definition of good and bad ) Unwritten rules may vary across cultures/ geographies Economic laws and

prudential oversight Stable, codified identities & registries/ ledgers Clear legal frameworks with trust in stability, independence and lawfulness

4 Layers of trust in the economy and when doing business Definition of trust in the economy Interpersonal Repeated interactions with predictable outcomes Stable relationships and sense making Source: Alfred Schütz, Niklas Luhmann, Strategy& analysis Business Conduct Counterparty Regulation Legal Framework Institutional Socialized business behaviours (definition of good and bad ) Unwritten rules may vary across cultures/ geographies Economic laws and dominant logics e.g., game theory: prisoner s dilemma in companies, brands, traditions Industry regulation, standard reference frameworks, incl. prudential oversight Stable, codified identities & registries/ ledgers Clear legal frameworks with trust in stability, independence and lawfulness Enforceability of contracts in economic theories and its implementation (e.g., liberalism, capitalism) Supranational coordination and alignment via institutions (UN, OECD, EU, etc.) 4

5 Let s compare payments the classic way & on a blockchain Payments Payments (BC) personal Interpersonal Required re. counterfeit and fraud (e.g., cheques, cards) Not required/ substituted to the systemic/ institutional level Business Conduct Longstanding tradition Payment networks, e.g. SEPA Relatively new, needs pick-up Early stage re. business usage Counterparty Point-of-Sales acceptance Banks, payment providers Delegated to blockchain: in algorithms, core team, community Regulation Clear responsibilities Prudential market supervision Not yet institutionally regulated (self-regulation as a paradigm) general Legal Framework Institutional National laws against counterfeiting, fraud, etc. Enforcement Maximum alignment internationally Central banks ultimately vet payments and currencies No legal framework yet, no enforcement Delegated to Blockchain: decentral, global solution, limited alignment required (protocols only) degree of institutionalization (low to high) 5

6 Cryptocurrencies have over-performed in the last 2 years e.g., Bitcoin Example: Bitcoin and major currencies vs. USD USD cross rates (indexed per Nov 2014) 200% 1 Bitcoin 743 USD +97% value increase of Bitcoin against USD in 2 years Bitcoin 150% 100% 1 Bitcoin 378 USD CHF CNY EUR 50% 1 Bitcoin 230 USD GBP Time Jan 2015 Jul 2015 Jan 2016 Jul 2016 Source: Bloomberg 6

7 Decentralized trust on the blockchain «-less» network? in computers, algorithms, protocols Systemic, institutional trust in robots, AI in the longevity of technology in communities in the digital economy 7

8 Open questions still remain but key is: don t panic Keep calm (& continue using blockchains & cryptocurrencies) Clarify legal and regulatory questions around Blockchain Understand social and psychological dimensions better Continue innovating & experimenting ( the world in beta ) Focus on interconnectedness/ interoperability of blockchains Source: Strategy& 8

9 Sources John Plansky, Tim O Donnel, Kimberly Richards: A Strategists Guide to Blockchain, Deloitte: Blockchain and the Democratization of, Michael Casey: The Blockchain: Decentralized trust to unlock a decentralized future, BCG: Thinking outside the blocks Daniel Diemers: 5 Thesen zu Blockchain, Daniel Diemers: NZZ TV - Blockchain Technologie rückt ins Rampenlicht (video),

Services FinTech Leader Switzerland Birchstrasse 160

10 Thank you! Dr. Daniel Diemers Partner PwC Strategy& Financial Services FinTech Leader Switzerland Birchstrasse Zurich Tel: Mobil:

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