Before we get started, I want to make a disclosure that I am by no means a blockchain expert. With that being said, I want to provide a summary of blockchain and why it matters to the four big accounting firms because it is constantly in the big 4 headlines.
Blockchain is a digital form of a ledger where transactions are made. The transactions can be made in bitcoin or other cryptocurrency.
It doesn’t even nescessarilly have to be a specific currency. It can be just economic transactions.
The difference between a blockchain and other transactional ledgers is that it is not recorded in one single place. It is maintained by a network of people. The people on this peer-to-peer networks are known as nodes.
After someone requests a transaction, the nodes on the network validate the transaction using algorithms. A transaction can include cryptocurrency, records, contracts, etc.
After a transaction is verified it is added to a block of data. That block of data is then added to the blockchain. After it is added to the blockchain, the transaction is complete.
The benefits of blockchain are the it cannot be controlled by a single entity, it is transparent, and it reduces the transactions cost of each transaction.
PwC put together the lovely infographic below to help explain blockchain.
Why do the Big 4 care about Blockchain?
The 4 largest public accounting firms care about blockchain for many reasons. Blockchain offers many opportunities for the big four. First of all it offers consulting opportunities. All of the uses of the blockchain are not yet known, so of course the big 4 would love to step in and help you think of many reasons where it can be used.
This is especially true in the financial services industry. It appears that blockchain has the potential to undermine some needs of using banks, so the big 4 will first pitch this hard to the banks. They will tell the banks that they need to invest in this and embrace it to avoid being obsolete.
Another area where blockchain seems to be valuable is in the transfer of securities. Maintaining records of security ownership is annoying and often painful. Blockchain would be extremely valuable in this area of financial services.
Make no mistake that the big 4 will be pushing most of their initial solutions to the financial services industry. This will happen for multiple reasons. One because the financial services industry faces the most disruption from blockchain and two, because the big 4 make the most fees from financial services.
There are also other industries that could be impacted by blockchain and the most common examples you see around the internet are vehicles, ownership, and health.
You see examples around the internet being used for vehicles. For example vehicle ownership. A blockchain could be set up to record all the changes in ownership for a vehicle.
A blockchain could also be utilized by a car rental company to make renting a car easier.
There has also been a lot written about blockchain being used in the health care industry. Data privacy in the healthcare industry makes it difficult to implement blockchain, but the healthcare industry is ripe for change. There are many transactions and many administrative costs with the healthcare. The efficiency of a central ledger that could reduce transaction costs has the potential to disrupt and improve the healthcare industry.
Additionally, all the tax implications of blockchain are not known yet. They will not be known for some time as all the applications of blockchain have not been determined. This means that big four will have ample opportunity in their tax services offerings. They will have opportunities in federal, state and international tax since this is a global currency/technology.
What are the Big 4 doing with Blockchain?
Now that we know a little more about the blockchain and what it means to the big 4 let’s go over what the big 4 are currently doing around block chain. We’ve provide a brief overview for each accounting firm below.
Deloitte is launching a blockchain lab in Dublin, Ireland. The lab will staff 25 people and eventually grow to 50 people. The blockchain lab will come up with capabilities and proofs of concept for blockchain that Deloitte will eventually offer to clients.
Deloitte’s global blockchain team consists of more than 500 people and 9 development teams in their global network.
They have developed more than 30 blockchain related prototypes. Some prototypes include
- Trade finance
- Digital identity
- Digital banking
- Insurance claims handling
- Digital music ownership
Most of the big4 are partnering with other companies are their blockchain ventures. Deloitte’s partnerships include.
- ConsenSys Enterprise – their mission is to create blockchain apps.
- Bloq – builds enterprise grade blockchain. They have five key offerings to help users create, test, update and analyze their public and private blockchains.
- Loyyal – Loyalty and rewards platform built with blockchain. They have partnered with IBM and PwC as well.
As of the writing of this article PwC does not have a blockchain lab. It’s not clear whether every big 4 firm will create a blockchain lab or not. We will first have to see about the success of Deloitte’s blockchain lab. Then the other big 4 will follow suit if it is successful.
PwC does not have much information about their blockchain team around the globe, but they do have information about their blockchain offerings.
Their main offering is the Denovo platform. If you gain access to this platform, you can see PwC’s current blockchain service offerings. The Denovo platform is meant to help clients with potential disruption in the marketplace. Blockchain is seen as a major disruptor and that is why it is a primary offering on the Denovo platform.
You can also take part in PwC’s Blockchain workshops. The blockchain workshops will allow you to network with executives and product owners to come up with blockchain solutions.
In addition to those two offerings, PwC offers the typical consulting offerings where they will come out and perform an assessment and orchestrate a potential solution for your business.
Pricewaterhousecoopers has formed partnerships with
- Blockstream – they focus on implementing sidechains and accelerating innovation in digital currencies.
- Digital asset holdings
- BitSE – Shanghai based startup meant to help improve PwC’s capabilities in China and Hong Kong.
Ey will have multiple service offerings through their techonology and financial services blockhain leaders.
Channing Flynn is their techonology sector leader for tax and Angus Champion de Crespigy is their blockchain leader.
Ernst & Young opened a bitcoin ATM in its Switzerland office. EY is also accepting bitcoin payment for all of their consulting services.
In 2016, EY hosted a bitcoin start up challenge among 6 blockchain startups. 3 of the blockchain companies ended up getting honors.
- BitFury received an award for best pitch. BitFury is a bitcoin mining company
- Adjoint won the Most Investable Pilot award for creating smart contracts
- JAAK won an award for Most Innovative pilot for developing an operating system.
EY has partnered with two of its winners from the startup challenge.
They have partnered with JAAK to come up with solutions in the media industry and they have partnered with Bitfury group to provide blockchain software services.
Paxos – EY has also partnered with Paxos to help gold market participants implement blockchain solutions.
KPMG’s key service offering is their digital ledger services. The service is meant to be a full life cycle offering for blockchain service offerings.
This means they will help come up with a business case and take it all the way to implementation.
KPMG has about 160 people working on blockchain full time around the globe. They have somewhat of a blockchain lab in New York with about 80 people working on blockchain exclusively.
KPMG has one of the largest partnerships in the blockchain with Microsoft. KPMG and Microsoft have historically partnered to offer clients digital services. Part of those offerings are blockchain services.
KPMG will also be partnering with Microsoft to create blockchain Nodes. We defined a blockchain node in the summary above. The priority of this service offering is in the financial services space.