Presentation for Asian Development Bank conference | "Blockchain for Financial Institutions | 2016

1. B L O C K C H A I N
M I K H A I L M I R O N O V
A B N A M R O
F O R F I N A N C I AL I N S T I TU TIO NS

2. “On the streets of Davos this year there
are only three discussions being had.
One: robots are going to take over our
jobs. Two: blockchain is amazeballs and
three: FinTech is like blockchain
amazeballs, but with even more
possibilities to control and mold the
behaviors of the common man.”
- F i n a n c i a l T i m e s , J a n u a r y 2 0 , 2 0 1 6

3. 1 . U N D E R S T A N D I N G
B L O C K C H A I N
T H R O U G H
B I T C O I N
2 . W H A T I S
B L O C K C H A I N
T E C H N L O G Y ?
3 . B L O C K C H A I N
F O R
F I N A N C I A L
I N S T I T U T I O N S
CONTENT
W HAT W E ARE GOING TO DO TODAY
I N T R O
W HAT D O W E
K NO W A B O UT
B L O C K C HA I N?
฿ Q & A
F UR T HE R
E X P L O R AT I O N
A D V I S E
4 . A B N A M R O
&
B L O C K C H A I N

4. 1.UNDERSTANDING
BLOCKHAIN
THROUGH
BITCOIN

5. WHAT IS BITCOIN?
Bitcoin is a cryptocurrency and a payment system
DOUBLE PAYMENT
PROBLEM
S O LV E D
PLAY SIGNIFICANT ROLE
M I N E R S
LEDGER CALLED BLOCKCHAIN
D I S T R I B U T E D
250K DAILY TRANSACTIONS WITH
c. €35MIO DAILY VOLUME
M A R K E T C A P
€11BN

6. BITCOIN
S A T O S H I ’ S N A K O M O T O
7 5 G B - s i z e o f
B i t c o i n l e d g e r
c a l l e d B l o c k c h a i n
B i t c o i n i s e na ble d by a ne t wo r k o f c o mput e r s
r unni ng bi t c o i n mi n i n g s o f t wa re t ha t ha s a r e c o rd
o f a ll pa s t t r a ns a c t i ons - b l o c kch ai n . B i t c o i n r e li e s
he a v i ly o n c r y pt o gr aphy. I t r uns o n a pe e r - t o-pe er
ne t wo r k , a pe e r i s k no wn a s a “ no de ’ a nd a ny us e r
i s a no de , t ho ugh f ull no de s a r e i n t he po s s e s s i on
o f e nt i r e b l o c kch ai n l e d g er – t he y u p d at e t he
le dge r pe r f o rmi ng c o mput a t i o na lly c ha lle ngi ng wo r k
a nd c a n mi n e B i t c o i ns.
JANUARY 2009: Date 1s t BIT COIN RELEASED
2140: YEAR T HE LAST BIT COIN W ILL BE MINED

7. CURRENT
CHALLENGES
FOR BITCOIN
From Bitcoin-friendly to hostile -
regulations per country vary, so does
legal status of bitcoin
R E G U L AT O R Y
C H A L L E N G E S
BTC/USD is more than 11x as volatile as
cable (even post-Brexit) and 3x as
volatile as oil
C U R R E N C Y
V O L AT I L I T Y
Bitcoin ledger’s transparency is a privacy
concern. With all transactions recorded
forever and in the clear, with enough
data mining people can see
timestamped transactions in and out
accounts
P R I VA C Y
Validation process can be slow
compared to existing high volume/high-
speed payment technologies
Q U E S T I O N S R E
S C A L A B I L I T Y
Cases like that of Silk Road where
Bitcion was used for buying/selling
illegal-drugs and other illicit services
I N S TA N C E S O F
I L L E G A L U S E
Loved by “Early Adopters”, Bitcoin has
not reached “Early Majority” population
A D O P T I O N

8. 2. WHAT IS
BLOCKCHAIN
TECHNOLOGY?

9. WHAT IS BLOCKCHAIN?
Blockchain is a technology, a distributed database with encrypted record of transactions
BY CRYPTOGRAPHIC
ENCRYPTION
AMONG PARTICIPANTS
D I S T R B I B U T E D
VARIOUS PROCESSES CAN BE RUN
SMART CONTRACTS
A U T O M AT E D
NO CENTRAL ENTITY IS IN CHARGE
OF RECORDS
D E C E N T R A L I S E D
S E C U R E

10. CENTRALISED
SYSTEM
E N C Y C L O P E D I A B R I T A N N I C A
Each 17-volume of Encyclopedia was the result
of around 100 full-time editors & over 4k
contributors. Control was centralized in the
hands of publisher.
DISTRIBUTED
SYSTEM
W I K I P E D I A
Anyone can provide updates, which then
approved by trusted parties who earned
moderator rights once they gained trust of the
community
coindesk.com

11. BLOCKCHAIN KEY
BENEFITS
I M M U TA B I L I T Y
O F R E C O R D
T he r e i s a n a udi t t r a i l. N o
ba c k v a lue r e c o rd c o r r ec t i on
i s po s s i ble
R E M O VA L O F
M I D D L E M A N
S M A R T C O N T R A C T S
C o mput e r c o de c a pa ble o f
f a c i li t a t ing, e x e c ut i ng a nd
e nf o r c i ng c o nt r a c t ua l
a gr e e me nt s
T R U S T
S a f e t y me a s ur e s e mbe dde d
i n t he ne t wo r k wi t h
c r ypt o gr aphy. H a c ki ng i s
di f f i cult but s t i ll po s s i ble .
” D i s i nt erme di at i on o f Tr us t ”
– L e s s r e li a nc e o n t hi r d
pa r t i e s

12. 3. BLOCKCHAIN
FOR FINANCIAL
INSTITUTIONS

13. CHALLENGES
FOR
BLOCKCHAIN
ADOPTION AT
FINANCIAL
INSTITUTIONS
Adoption requires thinking outside the
box of existing business models for
Financial Institutions
L E A D E R S H I P
Banks are burdened by compliance and
high costs to maintain existing systems
and databases
P R I O R I T I E S
While Ripple & R3 claim advances in
discussing with regulators world-wide,
the process is expected to take time.
Regulation is a p rime perceived barrier
for global systemicallyimportant banks
in clearing and settlement services
R E G U L AT O R Y
C O N C E R N S
Though encryption is embedded in
blockchain, concerns remain
S E C U R I T Y &
P R I VA C Y
While technology is not yet well
understood, lack of technical and
practical skills impedes adoption
L A C K O F S K I L L S
While Blockchain is there to solve the
issue of trust, banks experiment in small
group seeminglynot trusting each other
T R U S T

14. From Credit Suisse Research on
Blockchain
World Economic Forum Survey of
over 800 executives:
• 58% respondents believe 10% of
GDP to be stored on blockchain
before 2025
• 73% expect tax to be first
collected on-chain pre-2025

15. BLOCKCHAIN INDUSTRY
NOW
B I G B A N K S
I N V E S T I N
B L O C K C H A I N
C O N C O R T I A :
R 3 , D A H , e t c
I N V E S T E D I N
B L O C K C H A I N
S TA R T U P S
E T H E R E U M
$1.14BN

16. BLOCKCHAIN USE CASES FOR
FINANCIAL INSTITUTIONS
I N T E R N AT I O N A L
PAY M E N T S
T R A D E F I N A N C E C A P I TA L M A R K E T S
C O M P L I A N C E ,
K Y C , A M L
AND MORE….

17. PAYMENTS &
BLOCKCHAIN
I N T E R N A T I O N A L
• Current international payment systems are
slow and expensive as they require
intermediaries and a number of processes.
A blockchain technology provides solution
by using digital tokens or currencies
• October 20, 2016 Ripple and 12 banks
from R3 consortia had a successful trial of
cross border payments. Rather than
relying on nostro accounts, bank settled
on blockchain using Ripple’s XPR as a
digital currency. Cost reduction – 60%

19. Accenture Mobility Report
S E P T E M B E R 2 0 1 6 - R E S E A R C H
in the US, Canada and Europe in research to learn about the evolution of the
global transaction markets. Respondents were asked a series of questions about
the potential of blockchain technology for payments
C O V E R E D 3 2 L A R G E & G L O B A L B A N K S
Is that NETWORK EFFECT IS IMPORTANT. “The network should be open to banks and
non-banks to create a level playing field.” Potential non-bank participants
could include fintech and tech like Google & Apple
O N E O F M A I N C O N C L U S I O N S
A r e y o u c ur r e nt ly
e x plo r i ng t he us e o f
blo c k c ha i n i n
pa y me nt s ?

20. Accenture Mobility Report
M A J O R A N T I C I P A T E D
B L O C K C H A I N B E N E F I T S

21. Accenture Mobility Report
B A N K S ’ C U R R E N T S T A G E O F
A D O P T I O N
T h e c u r v e r e p r e s e n t t h e s t a n d a r d n e w
T e c h n o l o g y A d o p t i o n D i s t r i b u t i o n C u r v e

22. BLOCKCHAIN &
TRADE FINANCE
Blockchain can automate the still
manual Trade Finance process by
• Transforming LCs to smart contracts
with automated payments
• Digitalising printed documents like
B/Ls
• Creating a record of ownership in
each step

23. invoicing platform
import customs export customs insurer
importer import terminal shipper export terminal pre-shipment
inspector
freight forwarder exporter
importer’s bank exporter’s bank
correspondent bank
document courier document courier
documents
goods
INTERNATIONAL TRADE ECOSYSTEM
Source: Boston Consulting Group

24. INTERNATIONAL TRADE ECOSYSTEM
ON BLOCKCHAIN
Transparent and paperless system
Information distributed via Straight Through Processing
Online real time track & trace of transactions, goods & money
Risks and Operational Costs reduced thru the chain
Elimination of Fraud
exporter’s bank
insurer
export customsimport customs
importer’s bank
correspondent bank
shipper
import terminal
export terminal
pre-shipment
inspector
freight forwarder
importer exporter

25. “It is likely that the nimble start-ups w ill be the first to leverage blockchain technology for trade
finance, further adding to the threat for traditional banks.”
- A C C E N T U R E
“W hat one bank we surveyed called the ‘arrogant assumption with BPO that only we can do the
document-checking process’, may soon be undermined. Distributed ledger built on blockchain
technology can validate ownership, certify documents and make payments. T his could ultimately
restrict banks’ role in the trade ecosystem to nothing more than providing financing.”
- B O S T O N C O N S U LT I N G G R O U P
BoA Merrill Lynch on Blockchain & Trade
S l o w A d o p t i o n o f E l e c t r o n i c T r a d e D o c u m e n t s -
B i l l o f L a d i n g & S w i f t M T 7 9 8
B A N K P A Y M E N T O B L I G AT I O N ( B P O ) , t r a d e d i g i t a l i n s t r u m e n t ,
w a s a d o p t e d o n l y b y f e w b a n k s s o f a r
T R E N D S

26. BANKS EXPERIMENT & SPLIT
INNOVATION EMERGES
B L O C K C H A I N & T R A D E
F I N A N C E
Barclays says conducts first
blockchain-based trade-finance
deal with Wave, cutting a
process that normally takes
between seven and 10 days to
less than four hours. Shipment
of cheese & butter from Irish to
Seychelles company
R E U T E R S
S E P T E M B E R 7 , 2 0 1 6
DBS and Standard Chartered
partnered with Ripple in a
blockchain trade-finance trial
called “Trade Safe” placing 60
mock invoices on a chain.
B L O O M B E R G
M A Y 2 2 , 2 0 1 6
Commonwealth Bank of
Australia and Wells Fargo have
used blockchain and the
internet of things to monitor the
shipment of cotton from the
USA to China.
F I N A N C I A L R E V I E W
O C T O B E R 2 4 , 2 0 1 6

27. 4. ABN AMRO &
BLOCKCHAIN

28. ABN AMRO
INNOVATION
CENTRE
Opened in 2013

29. ABN AMRO JOINED DIGITAL
ASSETS HOLDING AND R3 CEV
I N 2 0 1 6
Leading consortium with 60+ of the world’s largest
Financial Institutions
DAH is a blockchain tech company that provides settlement
and ledger services for financial assets. AA is a shareholder

30. WE
PARTNERED
WITH TU DELFT
O C T O B E R 2 0 1 6
JOINED
HYPERLEDGER
C R O S S - I N D U S T R Y O P E N - S O U R C E
C O L L A B O R AT I O N O F 6 0 + M E M B E R S
2 0 1 6

31. Innovation
Center
Blockchain
Core Team
ABN AMRO BLOCKCHAIN
COMMUNITY
• Core Team: Innovation Centre and IT
• Tribe: 10 departments - 14 people
• IT Clan: 12 domains - 24 people
• CISO Clan: 4 people
• Knowledge
Community 165+
• AA Clearing Clan 4 people
Blockchain
Tribe
Blockchain
IT
Clan
Blockchain
IT
Core Team
Blockchain
CISO
Clan
Blockchain
AA Clearing
Clan

32. OUR PROJECTS
ON BLOCKCHAIN

33. TRADE FINANCE
• How to simplify the Trade Finance proces
using smart contracts
• Involved trade clients to understand the issues
with current process
• With practical knowledge and insights moved
on to work with trade and other partners to
build a workable solution
F R O M E X P E R I M E N T T O L I V E P R O J E C T
• ABN AMRO, Port of Rotterdam, SCF Community,
FloraHolland and 11 other partners formed a
project group to build a viable product on Blokchain
under TKI Dinalog for logistic industry with total
value of the project of EUR 2.2mio
• 3 Use Cases:
- Supply Chain Finance
- Inventory Finance
- Circular Economy

34. EXPERIMENT
• Our aim is to create a minimal viable product for property rights registration on blockchain
• Based on Hyperledger fabric

35. BEER & PIZZA PROJECT
• ABN AMRO, ING Bank, Rabobank, SNS & Dutch Central Bank
• Experiment for running local intrabank payments on blockchain

36. Q U E S T I O N S ?

37. Further Reading & Credits:
• ABN AMRO Innovation Center Online Blog
http://abn.com/2fAEH5L
• Accenture Mobility Research. Blockchain Technology: How Banks Are Building a Real-
Time Global Payment Network
• Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money,
Business, and the World by Don & Alex Tapscott
• Credit Suisse Research, Connection Series by Charles Brennan & William Lunn
• Moody’s Sector In-Depth, Credit Strategy – Blockchain Technology. Robust, Cost-
effective Applications Key to Unlocking Blockchain’s Potential Credit Benefits by Nick Caes,
Robard Williams, Elena H Duggar & Gregory W. Bauer
• TechCrunch Video Series Trust Disrupted: Bitcoin and the Blockchain
http://tcrn.ch/2e6eSMj

38. ABN AMRO BANK
T HANK
YOU
MIKHAIL MIRONOV