Blockchain Use Cases in BFSI Prepared by CIGNEX

Blockchain Use Cases in BFSI Prepared by : CIGNEX Datamatics Confidential www. cignex. com

The Bitcoin Network • The Bitcoin Network – Bitcoin is a open source cryptocurrency – Based on a peer-to-peer network of computers running the – – – bitcoin software solving a complex mathematical problem. The first node to solve it generates a “block” of Bitcoins, that gets appended to the “chain” (called the process of mining to achieve the proof-of-work) The network is a decentralized system of distributed consensus with no centralized monitoring authority Users send bitcoins, over the network using bitcoin wallet software Transactions are recorded into a distributed, replicated public ledger known as the Blockchain, with distributed consensus (validations) The authenticity of each transaction is protected by multiple digital signatures (multi-sig) 2 CIGNEX Datamatics Confidential www. cignex. com

What is Blockchain • • 3 The blockchain can be associated with assets for e. g. , the bitcoins, which are inherently built into the system The entire lifecycle of each asset is recorded in the Blockchain - from production to each subsequent transaction. The record is verifiable by distributed (peer-to-peer) participants of the network. The identity of the transacting parties is kept pseudonymous The Blockchain conceptually binds the network together with a “distributed consensus” process for recording and validating the information they hold All interactions are verified by cryptography – private/ public keys Any transaction between two or more parties can be verified programmatically in Blockchains (Bitcoin, Ethereum, Eris etc. ) CIGNEX Datamatics Confidential www. cignex. com Key Properties Public ledger Distributed Database Store of value Immutable History Registry Algorithmic Trust

Future Vision for Blockchain Use as a complete scripting system to record contracts, register assets Date/Time Use as Central Registry for Anti Money Laundering (AML) and KYC Participants Block Chain Use in trading and settlement to achieve a T+0 cycle Use for Io. T Communication, Automation and Commercialization Assets Digital Signatures Challenges: • “Block Chain Bloat” (Bitcoin Blockchain) and “Permissioned Management” (in Ethereum, Chain, Factom etc. ) • Current Regulatory requirements for financial service firms wont allow usage of a permission less ledger • 51% Attack etc. CIGNEX Datamatics Confidential Central Arbitrator. Miner Transaction Use for Real-Time International Payments & 3 rd Party Disintermediation (in Payments space) 4 Cryptographic (Anonymous) www. cignex. com

Permission-less and Permissioned ledgers In a Permission-less blockchain, any user can append to Blockchain (mine) and confirm transactions (consensus proof) Permissioned blockchain networks allow the network to appoint a group of participants in the network who are given the express authority to provide the validation of blocks of transactions. Or, to participate in the consensus mechanism. • • Permission-less Ledger 5 Permissioned Ledger 1 Existing cryptocurrencies Proprietary coins or currency protocols 2 Access not limited Access limited to transaction processors 3 Participants are not vetted Participants are vetted 4 Censorship resistant Identity confirmed 5 “Brave new world” apps “Reinvent the existing world” efficiency improvement apps 6 Anonymous validators (network vulnerable to anonymous attack) Official legal registry 7 Easily disintermediate the settlement and clearing house Switching to Settlement and clearing house into blockchain with a permission 8 Not adopted for capital markets or private enterprises Commonly developed for capital markets or private enterprises CIGNEX Datamatics Confidential www. cignex. com

Blockchain’s Exploitable Properties in BFSI Store of value • With or without a crypto currency • Used for micropayments as an example. E. g. Change. Tip, Citibank’s Citi. Coin etc. • Used for targeting the underbanked population in developing countries • Use cases around interbank settlements and payment flow • Crowdfunding (crypto based), International Payments 6 Trustless Trust or Algorithmic Trust and Unbreakable Security • Use to eliminate regulatory, central authorities, intermediaries or clearing houses • Eliminate payment gateways such as SWIFT, ACH etc. • Bank’s regulatory records can be exposed for local or global auditors, Shareholder Voting CIGNEX Datamatics Confidential Network Distributed Ledger • Write once, read many times publicly accessible exposure of a “ledger” outside the firewall of an enterprise • To deploy applications that can act as registries or “proofs of existence” www. cignex. com Highly Scalable • Unlimited vertical and horizontal scaling of Public Blockchain • Use of Blockchain as a Service on Azure (Ethereum) or AWS (Eris) Permissioned • Explicit grant of permission to organizations (e. g. participating banks in R 3 Cev) • Exploitable property is that permissioned Blockchain(s) are programmable. For e. g. , a transaction on Ethereum fueled by the network currency (Ether) can launch a little piece of code that does “if this then do this or else do that”

Smart Contracts • • • Computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract Can send, receive and store money. It can also interact with other smart contracts or systems connected to the internet Advantages: – Significant savings in time and resources devoted to negotiation, development, and – – enforcement Autonomous - Code self-executes when a triggering event occurs Execution is completely transparent Cannot be reverted and its trace is public and immutable Eliminate counterparty risk 1 2 A contract is signed between two parties and written as code into the blockchain 7 CIGNEX Datamatics Confidential • Applications: – Voting systems – Financial Exchanges – Derivatives, Swaps, Trade finance – Auto-Clearing upon trade completion – Custodian services – Intellectual Property 3 A triggering event occurs and the contract executes itself according to the terms coded www. cignex. com Regulators can use the blockchain to view the activity.

Digital Identity • • • Identity management (e. g. Passports) currently operates on a paper-based system, with multiple incidents of forgery and theft A cryptographic network could be used to verify individuals’ identities and monitor movement across borders. When a person travels through a checkpoint at a border crossing, they could present their Bitcoin key A network privately maintained by the government, a contractor, or other entity could verify the key and register the entry into the ledger. Advantages: – Validation based on cryptography – Increase security and mobility – Eliminate forgery and theft Person presents bitcoin key at checkpoint 8 CIGNEX Datamatics Confidential Verification/entry into ledger by authorizing entity • Applications: – – Authorize travel, monitor cross-border movement www. cignex. com Social security numbers Tax identification numbers Driver’s licenses Travel identity proof

Trade Finance Solution Landscape Mobile Channels Web PDA H 2 H COMMERCIAL LOAN ORIGINATION SYSTEM External Interfaces TRANSACTION BANKING PORTAL TRADE FINANCE APPLICATIONS Receivables Cheque Collections Payables Low/High Value Payments Liquidity Account Sweeping Supply chain finance Pre/ post Shipment Finance Local / Foreign Collect Fund Transfer Account Aggregation Bill Discounting Debtor Maintenance Domestic / Intl Payments Notional Pooling Collections / Guarantees Direct Debit Mandates Beneficiary Maintenance Interest Netting Invoice / PO Management Receivables Matching Tax Payments Target Balancing Electronic Invoicing Utility services Bank account Management, Reporting, Reconciliation, Accounting Internal System Interface Core banking Compliance and Risk, AML, Alerts & Messaging Lending Document Management, Workflow, DWH, Integration Engine Cards Managenment Data Conversion, Multi-lingual, Mapping, File-upload Components Interest & Pricing CIGNEX Datamatics Confidential www. cignex. com RTGS ACH Clearing & Settlement Clearing Corporation External Network Gateways Blockchain Use Cases

Use Cases (1/2) # Description Companies Smart Contracts ⁻ Law being digitized. All contractual instruments used by legal industry in any exchange can be digitized, and once the exchange is recorded on a shared ledger it becomes irrefutable digital proof Stampery , Everledger 2 Digital identity ⁻ If Digital Identities are recorded on blockchain protocol, then “things” can have authorisation to transact on the owner’s behalf. ⁻ Io. T, Io. V, Mo. IP Shocard and Onename 3 Smart assets ⁻ Components being brought and sold in supply chains, and digitally recorded in a shared ledger ⁻ Digitized bill of lading and letter of credits ⁻ Records asset information, shipper/receiver info, component value, tax/govt clearance etc ⁻ Revolutionising trade finance, working capital and supply chain management Tradle and Wave 4 Clearing and settlements ⁻ ⁻ gives a short-term win with real cost savings T+3 can be reduced to T 0 Improved efficiency, regulatory control Elimination of unnecessary intermediaries • Blythe Masters’ Digital Asset Holdings - Hyperledger • Overstock - T 0 • Epiphyte • Clearmatics • SETL 5 Payments ⁻ ⁻ Blockchain as a service Enables global bank-to-bank transfers Any exchange of value over the internet peer-to-peer Scalability and cost-effective mechanism for value exchange R 3 SWIFT 1 10 Use case CIGNEX Datamatics Confidential www. cignex. com Permissioned/ Permission-less Permissioned block chain – Does not require network Permission-less block chain – Requires network

Use Cases (2/2) 11 # Use case Description 6 Shares trading ⁻ Blockchain ledger can issue securities to investors, ⁻ share trades through a decentralised ledger, and removing the need for a middleman such as a clearing house 7 Risk Management ⁻ Regulation : Persistent trade reporting (risk of loss) ⁻ New business services – identity, multi-party credit monitoring ⁻ Integrity (risk of tampering) 8 Verify Historical Transactions ⁻ Verifications for insurance companies, owners, claimants, law enforcement CIGNEX Datamatics Confidential Companies www. cignex. com Permissioned/ Permission-less Nasdaq – Linq Bank of England R 3 consortium – JP Morgan, Citigroup Permission-less block chain – Requires network • Everledger

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