Financial Services in the Second Era of the Internet

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Scot Henry
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5 The Internet of Value Reputation Social Capital Money Intellectual property Attestations Identity Loyalty points ASSETS Contracts Deeds Carbon credits Energy ASSETS Coupons Other Financial Assets Bonds Music Art Votes Stocks Premiums Other Futures Receivables Swaps IOUs Visual Art Film The Tapscott Group. All Rights Reserved.

Blockchains as Platforms of Information and Value

Understanding the Internet of Value BLOCKCHAIN REVOLUTION: How the Technology Behind

Rethinking the Financial Services Industry 17

18 The Golden Eight: Blockchain Transformations Of Financial Services 8. Account for & Audit Value 7. Insure Value & Manage Risk 1. Authenticate & Attest to Value 6. Fund & Invest 2. Transfer Value 5. Exchange Value 3. Store Value 4. Lend Value The Tapscott Group. All Rights Reserved.

1. Authenticate & Attest to Value BLOCKCHAIN IMPACT: Verifiable and robust

Enabling Citizens To Own And Monetize Their Data (And

Enterprises Harvesting Data From Personal

23 2. Transfer Value BLOCKCHAIN IMPACT: Transfer of value in very large and very small increments without intermediary will dramatically reduce cost and speed of payments The Tapscott Group. All Rights Reserved.

International Payments and SWIFT 26 2016

27 Blockchain-Enabled Possibilities for a Next Generation Payments System 1. Enable Micropayments 2. Enable peer-topeer payments 3. Real-time tracking and auditing 4. Anonymous payments (for privacy protection) 5. Embedded Payments (in smart contracts, autonomous agents) 6. Security, no major points of failure. Immutability 7. Ensure a single version of the truth 8. Instant Settlement The Tapscott Group. All Rights Reserved.

28 3. Store Value 3. Store value BLOCKCHAIN IMPACT: Payment mechanism combined with a reliable and safe store of value reduces need for typical financial services; bank savings and checking accounts will become obsolete The Tapscott Group. All Rights Reserved.

Protecting Rights Through Immutable Records

31 4. Lend Value 4. Lend value BLOCKCHAIN IMPACT: Debt can be issued, traded, and settled on the blockchain; increases efficiency, reduces friction, improves systemic risk. Consumers can use reputation to access loans from peers; significant for the world s unbanked and for entrepreneurs The Tapscott Group. All Rights Reserved.

33 5. Exchange Value BLOCKCHAIN IMPACT: Blockchain takes settlement times on all transactions from days and weeks to minutes and seconds. This speed and efficiency also creates opportunities for unbanked and underbanked to participate in wealth creation The Tapscott Group. All Rights Reserved.

Trade Finance Will be Done on Blockchain 36

The Internet of Things Will Need a Ledger of

6. Fund and Invest BLOCKCHAIN IMPACT: New models for peer-to-peer financing, recording of corporate actions such as dividends paid automatically

38 6. Fund and Invest BLOCKCHAIN IMPACT: New models for peer-to-peer financing, recording of corporate actions such as dividends paid automatically through smart contracts. Titles registry to automate claims to rental income and other forms of yield The Tapscott Group. All Rights Reserved.

The SEC on ICOs 1. If a token looks like a security and acts like a security, then it s likely a security governed by existing U.S. federal securities laws. 2.

markets and to U.S. investors. 3. If the token is clearly not a security (e.g., it s a digital currency), then the issue could access the U.S. market and allow U.S. buyers. 4.

43 The SEC on ICOs 1. If a token looks like a security and acts like a security, then it s likely a security governed by existing U.S. federal securities laws. 2. If the token is a security and the issuer doesn t want to subscribe to those laws, then the issuer should exclude both the sale and the resale of the token in U.S. markets and to U.S. investors. 3. If the token is clearly not a security (e.g., it s a digital currency), then the issue could access the U.S. market and allow U.S. buyers. 4. If the token falls into a grey area, then the issuer should consult U.S. counsel to assess the likelihood of the SEC s deeming the token a security The Tapscott Group. All Rights Reserved.

44 7. Insure Value & Manage Risk BLOCKCHAIN IMPACT: Using reputational systems, insurers will better estimate actuarial risk, creating decentralized markets for insurance. More transparent derivatives The Tapscott Group. All Rights Reserved.

48 Blockchain and Catastrophe Swap & Bonds Source: IBM (2017). Blockchain: Emerging Use Cases for Insurance. IBM Global Business Services, Point of view. Report #IUW03053USEN The Tapscott Group. All Rights Reserved.

8. Account For & Audit Value BLOCKCHAIN IMPACT: Distributed ledger will make audit and financial reporting real time, responsive, and transparent,

50 8. Account For & Audit Value BLOCKCHAIN IMPACT: Distributed ledger will make audit and financial reporting real time, responsive, and transparent, will dramatically improve capacity of regulators to scrutinize financial actions within a corporation The Tapscott Group. All Rights Reserved.

Triple-Entry Accounting Public Blockchain Ledger Don Alex Don s Bitcoin Wallet Debit Credit 6 3 10 11!6 6 3!

54 The Golden Eight: Blockchain Transformations Of Financial Services 8. Account for & Audit Value 7. Insure Value & Manage Risk 1. Authenticate & Attest to Value 6. Fund & Invest 2. Transfer Value 5. Exchange Value 3. Store Value 4. Lend Value The Tapscott Group. All Rights Reserved.

Rethinking Business Architectures The Theory of the Firm Transaction Costs: 1. Search 2. Coordination 3.

56 The Changing Architecture of the Firm Self- Organization Distributed Value Creation VALUE CREATION Business Webs Extended Enterprise Traditional Hierarchy Industrial Age Corporation Physical Financial CRITICAL RESOURCES Networked Intelligence The Tapscott Group. All Rights Reserved.

Seven Open Networked Enterprise Business Models

The DAO: Distributed Autonomous Organization

61 Showstoppers: Why Blockchain Could Fail 1. The Technology is not ready for prime time 2. The Energy Consumed is Unsustainable 3. Government will Stifle or Twist It 4. Powerful Incumbents of the Old Paradigm will Usurp It 5. The Incentives are Inadequate for Distributed Mass Collaboration 6. Blockchain Is a Job Killer 7. Governing the Protocols is Like Herding Cats 8. Distributed Autonomous Agents Will Form Skynet 9. Big Brother is (Still) Watching You 10. Criminals Will Use it The Tapscott Group. All Rights Reserved.

Impediments to the Second Era of the Internet 1.

Impediments to the Second Era of the Internet 2.

64 Impediments to the Second Era of the Internet 3. Legacy Attitudes There s no chance that the iphone is going to get any significant market share. Steve Ballmer, Microsoft CEO, 2007 The coming of the wireless era will make war impossible. Guglielmo Marconi, Pioneer of Radio, 1912 Democracy will be dead by John Langdon-Davies, A Short History of The Future, "Remote shopping, while entirely feasible, will flop. Time Magazine, 1966 Fooling around with alternating current (AC) is just a waste of time. Nobody will use it, ever. Thomas Edison, 1889 Bitcoin is a fraud Jamie Dimon, CEO JPMorgan Chase, 2017 The horse is here to stay but the automobile is only a novelty a fad. The president of the Michigan Savings Bank advising Henry Ford's lawyer not to invest in the Ford Motor Co., There is no reason for any individual to have a computer in his home Ken Olsen, CEO Digital Equipment Corp, 1977 A rocket will never be able to leave the Earth's atmosphere. The New York Times, 1936 This 'telephone' has too many shortcomings to be seriously considered as a means of communication. William Orton, President of Western Union, 1876 "Television won't be able to hold on to any market it captures after the first six months. Darryl Zanuck, 20th Century Fox, The Tapscott Group. All Rights Reserved.

65 Impediments to the Second Era of the Internet 4. Stewardship of the Blockchain Era 1. Standards Networks 2. Knowledge Networks 3. Delivery Networks 4. Policy Networks 5. Advocacy Networks 6. Watchdog Networks 7. Networked Institutions The Tapscott Group. All Rights Reserved.

67 Impediments to the Second Era of the Internet 5. Leadership for Transformation Paradigm shifts involve dislocation, conflict, confusion, uncertainty. New paradigms are nearly always received with coolness, even mockery or hostility. Those with vested interests fight the change. The shift demands such a different view of things that established leaders are often last to be won over, if at all The Tapscott Group. All Rights Reserved.

BLOCKCHAIN REVOLUTION: Surviving and Thriving in the 2 nd Era of the Internet

BLOCKCHAIN REVOLUTION: Surviving and Thriving in the 2 nd Era of the Internet Alex Tapscott TWITTER: @alextapscott Swiss Re January 23 rd, 2017 2016 Don Tapscott and Alex Tapscott. All Rights Reserved.