BDO and Blockchain - How Blockchain fits in the future of our services

04 April 2018

Original content provided by BDO South Africa

BDO is working proactively with blockchain. We are looking at ways of developing new solutions and services, as well as augmenting existing ones, via blockchain and smart contracts. The goal is to add value to our clients’ business processes, drive innovation, boost efficiency and create a 21st-century competitive edge – both for BDO and our clients.I spoke to Maarten Pennings, Product Owner Innovation at BDO’s Global IT Division, about blockchain technology – and its possible use cases for the services and solutions BDO offers clients.

Jakob Sand: There can be little doubt that blockchain/bitcoin – along with AI – dominated media coverage of the technology industry in 2017. We have started to see real-life solutions based on blockchain emerge in various industries. It begs the question, how mature is blockchain technology right now? And how will the near future of blockchain technology look?

Maarten Pennings: Blockchain technology is unquestionably maturing. I think it will likely reach an enterprise production level by 2019. BDO has partnered with the world’s biggest software company, Microsoft, on blockchain technology. Together, we are making good progress towards reaching that goal.

However, there are still a couple of challenges to overcome.

For example, the energy consumption and latency of confirming transactions. Validating entries on a blockchain through the so-called proof-of-work method takes a lot of computation, and thereby a lot of energy. A core enterprise service requires a response time two-digit milliseconds. That becomes an issue when thinking about services based on blockchain and/or smart contracts, which are technically speaking also transactions on a blockchain, currently have somewhat longer waiting times.

One of blockchain technology’s core strengths is the encrypted nature of data stored with it. There is a lot of use cases for that, but at the same time, there are unresolved issues. For example, what do you if there turns out to be a flaw in the encryption algorithm you are using? With any standard database, you update to a newer version of encryption, and you are safe again. However, with data on a blockchain, you cannot just go back and change the data. Data on a blockchain is supposedly immutable. Well if all nodes (parties) agree, you could technically re-encrypt all data, accept all changes and continue like nothing happened. But this does not guarantee that no one took a copy of the blockchain with the old encryption and used the flaw in the old encryption to read all data. A similar issue exists with personal data on a blockchain and GDPR’s right to be forgotten. These are issues which need to be solved for blockchain to be regarded as a mature and enterprise-ready technology.

Jakob Sand: You mention smart contracts, which could be summed up as contracts with inbuilt automation. For example, if a condition in a contract that warrants payment is met, the payment is automatically completed. At the same time, financial data is automatically updated to reflect the payment for both payer and payee. This is just one use case, but one that could potentially save companies and organisations a lot of time and money – while simultaneously making the process more secure and transparent. Blockchain and smart contracts havemany other use cases, so I would suspect that there is a lot of effort going into solving these issues?

Maarten Pennings: Yes, certainly. There are different ongoing efforts to solve these issues. For example by using a different process than proof-of-work to validate changes on the blockchain. These processes are less energy intensive.

The challenge is to develop a solution which keeps all of the advantages of the distributed and secure ledger of the blockchain while overcoming the mentioned disadvantages.

Hybrid solutions, where blockchain and normal compute and storage solutions are combined and used to their strengths, seem to be the way forward for now. And in this hybrid setup, blockchains could already be implemented for niche use cases. As long as the process for which it is implemented does not rely on low latency, high throughput nor has high volatility; we can already benefit from the fraud-resistant and transparent nature of the distributed ledger that is at the core of blockchain technology.

Jakob Sand: My initial thoughts are that areas such as smart contracts, automating processes and leveraging blockchain technology to make financial data and processes more sturdy and safe are very exciting. It could help companies create efficiencies and thereby gain a competitive edge. For BDO, there could be future possibilities of automating some of today’s manual auditing process. Further into the future, we could start to see a switch to continuous, automated auditing processes. What are some of the possible applications of blockchain technology that you see for BDO, and how will they benefit our clients?

Maarten Pennings: Trust is a crucial component to the services BDO delivers to our clients. A classic use case for blockchain is cutting out an intermediary who was required due to a lack of trust between two parties who want to do business together. Trust between BDO and our clients is not an issue, as it has been built up by our excellent employees over the last 50+ year. However, many financial processes involve several parties, which can at times make them less transparent.

Blockchain technology can be employed in a private network distributed between BDO offices/Azure data centres in many countries to prove to clients and legislators that all data is secure, protocols were followed, and audit trails can be computationally checked.

Another exciting area is to support global collaboration between all BDO firms. Our presence in more than 160 countries and a worldwide network of experts is a great strength that helps us deliver exceptional services to all our clients. Blockchain technology could be leveraged to further boost already existing synergies within the BDO network. How this will look in detail is still being determined.

Looking further ahead, blockchain – as well as the associated cryptocurrencies - have unique advantages which allow for new services to arise. Especially the combination of smart contracts and cryptocurrencies is powerful. For example, it allows for smooth implementation of paid microservices, supporting the sharing economy.

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