Eyes On The Big Four: Studying Blockchain Approaches Of Deloitte, KPMG, EY, And PwC
The big four auditors, otherwise known as PricewaterhouseCoopers (PwC), Deloitte, Ernst & Young, and KPMG, have all established some kind of solid long-term blockchain roadmap in order to remain a relevant and powerful force in the cryptocurrency and blockchain space.
These four multinational professional services conglomerates, which employ over a million individuals as a collective group of four each have different approaches and attitudes towards the application of blockchain technology.
Deloitte, for example, is one of the biggest auditors in the world, especially amongst the big four, with a total revenue of around $43.2 Billion, has previously stated that the blockchain sector is the closest to seeing a breakthrough with the technology.
“Ultimately, [blockchain is] more of a business model enabler than a technology…for legacy organizations…we’re starting to see a change in approach toward blockchain. Executives in these organizations are moving away from the pure platform view of ‘What is it?…let’s find a use case’ toward development of more sensible, pragmatic business ecosystem disruption.”
– Deloitte’s 2018 blockchain survey, published August 27
If we were to compare this with PwC, which had been directly involved in the cryptocurrency market through its initial investments into VeChain (VET) as of May 4th. VeChain, which is a China-based Internet of Things (IoT) Blockchain network, had expressed its concerns early on over the looming uncertainties surrounding blockchain regulation.
Steve Davies, the head of PwC's blockchain department, had explained that there are a larger number of conglomerates and startups which are exploring the various ways in order to integrate blockchain technology on a commercial level.
However, regardless of the increase that there's been in the demand for blockchain technology, there are a series of regulatory hurdles in integrating this technology, partly due to the fact that there are limited companies that have successfully put it to work in order to use it to process information.
“Businesses tell us that they don’t want to be left behind by blockchain, even if at this early stage of its development, concerns on trust and regulation remain. Blockchain by its very definition should engender trust. But in reality, companies confront trust issues at nearly every turn.”
Generally speaking, the Big Four have recently re-affirmed their interest in blockchain technology, citing it as a technology which is rising at a very rapid rate, especially amongst high profile conglomerates such as Microsoft, IBM, JPMorgan, and Goldman Sachs.
While this is compelling and positive news, there are many experts, which includes those from the US Securities and Exchange Commission (SEC), including its commissioner, Hester Peirce, who believes that over-regulation in an industry which is still very much in its infancy would have severe implications on its ability to evolve and develop, inevitably damaging its growth of the crypto and blockchain environment.
During a speech delivered on September 12, commissioner Peirce said:
“The Commission should not default to a demand that the crypto markets be subject to comprehensive government regulation as a precondition to allowing products linked to those markets to be traded in markets that we regulate.”
The Big Four do make steps to acknowledge the lack of regulatory certainty in the space, each of them has made significant efforts in understanding the market in order to assist large corporations, to integrate the emerging technology.
Eyes On The Big Four Deloitte, KPMG, EY, And PwC
PwC: Investing In VeChain, Over 1,000 Staff In Blockchain, Sights On Swiss Banking
Despite its concerns in regard to regulatory uncertainty in the market, PwC has been the most active professional services conglomerate in the crypto and blockchain space.
More recently, PwC has announced that thanks to a program called the ‘Digital Accelerators Program,' more than 1,000 employees within its company will be trained in the fields of blockchain and cryptocurrency.
Within the next two years, according to Sarah McEneaney, PwC's digital talent leader, and head of digital accelerators, stated that, in order to meet the increasing demand for blockchain technology by its clients and rivals, the company would need to engage in a wide-spread initiative to solidify its position at the forefront of blockchain development:
“It just seems table stakes at this point that people should have more technology skills. It’s needed for us to remain competitive and to be responsive for what our clients are also going through…our clients are looking for us to do things more digitally and control the cost of what we’re doing.”
As a conglomerate of professional services, the core business model of PwC centers around its auditing and consulting services that are provided to high profile corporations in major fields of industries such as finance, technology, and manufacturing.
This is why, in her statement, McEneaney stated that a large segment of its existing client base that is composed of large-scale corporations have started to demonstrate big interest and demand for the technology.
It's also quite possible that the PwC criticized the over-regulation of the blockchain space in its recently published research, because its clients and otherwise larger corporations in a wide range of industries are otherwise unable to integrate blockchain at a meaningful level of capacity, in order to demonstrate the potential of the technology.
Regardless, Pierre-Edouard Wahl, the head of blockchain digital services at PwC in Switzerland, was quoted during a recent exclusive interview, that the corporation is taking aim at the Swiss banking and finance sector with blockchain-based products.
In July . 2018, SIX, which is the main stock exchange of Switzerland, announced that it will launch an otherwise fully regulated cryptocurrency exchange in 2019. The eventual public release of the finalized plan of SIX was met with a great degree of optimism in the global cryptocurrency market, as it was one of the first announcements of a major stock exchange to be directly involved in the asset class. In the following months, ICE / NYSE, Microsoft, and Starbucks came together to announce the launch of a regulated cryptocurrency trading platform called Bakkt.
According to McEneany, the impact that blockchain technology could have on the business model of major banks and financial institutions in the short term would be a negative, but necessary one. This is because it eliminates third-party service providers, and mediators in the process of settling payments.
Longer-term, on the other hand, blockchain technology will enable banks, as institutions, to more effectively adopt the technology, according to McEneany. This is very similar to the way that Ripple has managed to convince banks such as Banco Santander, and BBVA to make use of blockchain in processing cross-border payments, in contrast to the more expensive, traditional alternatives.
“I actually think it will be an enabler. Yes, it might hurt their existing business, but that is often the case with the new technologies: It’s either you adopt them and you think differently about how those technologies are going to actually offer new solutions — as well as improve the existing solutions — or then you just look at the improvements, and we are all racing to the bottom, because there are less and less margins for everyone.”
PwC, which is already thoroughly invested in VeChain, a major cryptocurrency in its own right, with a total market valuation of $711 million as of May this year, has the longer term aspiration of putting to use IoT-Focused blockchain to enable the existing infrastructures of large-scale partner conglomerates of PwC.
Raymund Chao, PwC Asia Pacific and Greater China Chairman, said at the time:
“We are glad to establish a deeper relationship with VeChain, which aims to build a trusted and distributed business ecosystem to help address long-standing challenges in supply chain management, food trust and anti-counterfeiting areas. VeChain’s mission aligns with PwC’s purpose of solving important problems and building trust in society.”
Deloitte: Putting The Focus On The Technical Development And Implementation Of Blockchain Technology
Since roughly 2016, Deloitte has been relatively active in the blockchain and crypto world, allowing them to lead various intiatives in order to promote the usage of blockchain technology.
Two years ago, the auditor organization implemented and subsequently deployed one of the first Bitcoin ATM's in Toronto, all in order to demonstrate the prospect of exchanging Crypto over to fiat with relative ease, all without the need of strict Know your Customer (KYC) and Anti-money laundering processes.
Since this time, Deloitte has taken a more comprehensive attitude towards blockchain development and integration, all by creating a division within its organization referred to as the ‘Deloitte Blockchain Lab' which is specifically dedicated to blockchain research and development.
It's through this initiative and lab that Deloitte has worked with its major partnered companies to showcase some of the obstacles and chronic issues that firms face in adopting the technology and find ways to leverage the technology in order to improve the existing infrastructure of corporations.
PwC and Deloitte together, have offered a series of contrasting reports on the current state of the blockchain development space. And on August 28th, within a survey report called “2018 global blockchain survey: Breaking Blockchain Open”, Deloitte made it clear that it believed that blockchain technology is getting increasingly close to a breakout moment.
Meanwhile, in a study entitled “Regulatory uncertainty and trust are barriers to blockchain adoption amongst businesses” released on the same day on August 28, PwC noted that regulatory uncertainty still remains as the main obstacle in blockchain development.
One of the main problems that Deloitte identified within the blockchain space, was scalability of the technology, as opposed to the regulatory uncertainty put before it within the wider market. This is a viewpoint has also been shared by different experts in the industry.
Public blockchain networks need a lot of development work to handle the infrastructure of larger conglomerates. At the moment, Bitcoin is processing around seven transactions per second. Meanwhile, Ethereum is able to process around 20. If we are to contrast this with more mainstream counterparts however: Uber is able to process 12 transactions per second, while Paypal settles hundreds in the same span of time, while Visa processes 24,000 per second, and IoT networks are successful in processing hundreds of thousands of transactions in a second.
As such, in order for a major supply chain, distributor or an insurance company to adopt blockchain, it will have to process at least tens of thousands of transactions per second.
“One major reason: As a means of processing transactions, blockchain-based systems are comparatively slow. Blockchain’s sluggish transaction speed is a major concern for enterprises that depend on high-performance legacy transaction processing systems. A lack of standards and interoperability between various blockchain platforms and solutions is another challenge.”
– Deloitte study “Blockchain and the five vectors of progress”
Ernst & Young (EY): Developing And Building Tools To Support Companies In Identifying Risks In The Blockchain
EY runs in otherwise stark contrast to PwC and Deloitte, the former has instead chosen to focus most of its efforts on the legitimization of blockchain, all by identifying risks in using blockchain-based platforms and crypto-related models such as in Initial Coin Offerings (ICO).
In April 2018, the firm released EY Blockchain Analyzer, a technology,
“that is designed to facilitate EY audit teams in gathering an organization’s entire transaction data from multiple blockchain ledgers.”
Much like block explorers such as Blockchain.info and Etherscan, EY Blockchain Analyzer is capable of extracting data from the blockchain in order to assist companies in auditing various types of information processed on the network.
According to Paul Brody, the leader of EY's Global Innovation Blockchain department, who states that every large-scale conglomerate which attempts to integrat blockchain as a major component of its infrastructure requires the tools necessary in order to test blockchain-based smart contracts and business contracts. And without the established auditing tools to accomplish this, it's difficult to convince corporations to adopt blockchain technology at a major scale.
“Understanding exchanges and cryptocurrencies is the first step in our ability to develop tools to test various blockchain-based business contracts. These technologies lay the foundation for automated audit tests of blockchain assets, liabilities, equities and smart contracts. EY Blockchain Analyzer will be utilized by the auditor to analyze transactions on a blockchain and help provide insight to the finance function.”
The company has also acknowledged developers and builders in the cryptocurrency market, by awarding entrepreneurs in the cryptocurrency sector with the EY Entrepreneur of the Year awards.
Thus, in 2017, Bitcoin ATM manufacturer that deployed more than 180 cryptocurrency ATMs in the US have selected as the finalists by the EY Entrepreneur of the Year awards.
In the next few months, EY is anticipated to continue on its current line of work as a risk identifier in the blockchain and cryptocurrency space, going on to develop various tools to render the experience of using blockchain seamless for any company that wished to implement it.
In more recent memory, EY began to analyze the public cryptocurrency exchange market, in the aid of identifying risks involved with otherwise innocuous seeming ICOs, calculating the vulnerability of token sales to hacking attempts.
Over the years, there have been a significant number of ICOs which have lost funds in security breaches, the recent case which happened in July, When KickICO lost more than $8 million in a single hacking attack.
KPMG: Auditing, Taxing And Analyzing Blockchain Integration
KPMG also announced a new leadership within its United States Blockchain initiatives in order to drive and expand the firms current level of blockchain strategy. Expanding it into tax, audit, advisory, and industries.
In the upcoming months, the company has explicitly stated that with the appointment of Arun Ghosh to the position of the company's new US Blockchain leader, as well as David Jarczyk and Erich Braun to the positions of US Blockchain Tax and Audit leaders, it will work in conjunction with partner companies to create a comprehensive blockchain strategy and guidance.
The decision of KPMG to pivot its blockchain business to risk assessment and audit comes after the release of its report called “The Pulse of Fintech,” which revealed that the first half of 2018 has exceeded the total investment in blockchain technology made in 2017.
Eyes On The Big Four Conclusion
In summary, all of the companies which make up the Big Four have since recognized the growing demand and need for use cases for blockchain and cryptocurrencies. Interestingly enough, the four companies are taking strikingly different approaches to facilitate the rapidly increasing interest in the blockchain space. PwC is taking on the more aggressive approach to directly integrate blockchain into some of its existing infrastructures and those of conglomerates.
Meanwhile, Deloitte is focused on improving most of their available resources in order to analyze risk in implementing the technology, while also creating tools that can ease the process of using the blockchain.
It is a remarkably positive sign that conglomerates have identified regulatory and technical risks which come with blockchain technology, and are striving to help companies understand the potential of it in a far more realistic manner. Still, as Deloitte and PwC firmly stated, it is important for major markets like the US and Japan to provide regulatory certainty in the development of blockchain technology to increase.