The document discusses the potential applications of blockchain technology in the real estate industry, known as PropTech. It outlines how blockchain could streamline processes like property transactions and leasing by creating a shared, immutable record that reduces the need for intermediaries and verifies information automatically. Blockchain properties like transparency and distributed trust management could address issues in real estate like lack of transparency in pricing and the need for streamlined due diligence between multiple parties. The document also provides an overview of the global PropTech market and funding levels that have grown significantly in recent years.
Antisemitism Awareness Act: pénaliser la critique de l'Etat d'Israël
8 dobrauz the dynamics of innovation
1. The Dynamics of Innovation and what
Regulation has to do with it.
ICOs, Cryptocurrencies and tokenized assets - status quo and where
we are headed.
Dr. iur. Guenther Dobrauz-Saldapenna, MBA
PwC Legal Switzerland
We are building the law firm of the future.
Every day.
www.pwclegal.ch
2. 9 March 2018
PwC
Regulation becomes as
strategic dimension
1 Regulation becomes as strategic dimension
blockchain-REAL
2
Status quo and where we are headed –
Regulation becomes a strategic dimension
3. PwC
9 March 2018
How we should see regulation
3
blockchain-REAL
1 Regulation becomes as strategic dimension
Innovators Early
Adopters
Early
Majority
Late
Majority
Laggards
Key Success/ Performance Parameter
Time
Dominant Design
Innovation
Production/
Efficiency
Dominant Design
4. PwC
9 March 2018
How we should see regulation
4
blockchain-REAL
1 Regulation becomes as strategic dimension
Innovators Early
Adopters
Early
Majority
Late
Majority
Laggards
Key Success/ Performance Parameter
Time
Enforced Standard
Production/
Efficiency
Regulation
Enforced Standard
5. 9 March 2018
PwC
Smart technologies and
connected business models
2 Smart technologies and connected business models
blockchain-REAL
5
Regulatory roadmap for Asset &
Wealth Managers – In a nutshell
Smart technologies and connected
business models
6. PwC
9 March 2018
Smart technologies that enable
new business models…
6
blockchain-REAL
2 Smart technologies and connected business models
Speech
synthesis
Smart
Technologies
Business models:
Virtual currencies
(“Bitcoin”, etc.)
Payment transactions
(“Apple Pay”, etc.)
“Crowdfunding” and
“crowdlending”
Digital trading /
Robo-advice
Data analysis and
interface programs
Data security
solutions
Distributed ledger
technologies (DLTs),
blockchain in
particular
7. PwC
9 March 2018
Horizons of technology disruption
7
blockchain-REAL
2 Smart technologies and connected business models
1995 now 2025
WWW
Mobility
Social
Visualisation
Networking
Cloud
Big
data
Data analytics
Early machine learning
IoT
Hybrid
cloud Containers
Cybersecurity
Natural language processing Large scale machine learning
Deep learning Reinforcement learning
AV/VR Biometric identity
3D/4D
printing
Blockchain
Autonomous systems –
cars and drones
Nano-tech
Advanced robotics – cyborgs,
swambots
Super computer –
quantum, neuromorphic
Autonomous super
systems
0
3
5
15
Timeinyearstopeakofadoption
Time to exponential technology breakthrough pointSource: dimensions data via @mikequindazzi
Robotics
Past
(Internet)
Different
(Cloud)
Beyond
(Smart ecosystems)
Other
(Super society)
8. 9 March 2018
PwC
Distributed Ledger Technologies (DLTs)
and Blockchain
8
blockchain-REAL
2.1 Distributed Ledger Technologies (DLTs) and Blockchain
2.1
9. 9 March 2018
PwC
DLT System layers
2.1 Distributed Ledger Technologies (DLTs) and Blockchain
blockchain-REAL
9
Governance
layer
Token
layer
Technology
layer
Legal Entity Token
Holder
Inclusion
Network
Governance
Decision-
making
Processes
Off-chain
Governance
System
Community
Infra-
structure
Token Type
& Purpose
Utility &
Rights
Token Value Value
Distribution
Supply &
Inflation
Legal Status
Blockchain/
Ledger
Architecture
Protocol
Code
Protocol-
Level
Consensus
Mechanism
Validation
Algorithm
Underlying
Platform
Code &
Contract
Security
10. PwC
9 March 2018
Blockchain
The three levels
10
blockchain-REAL
2.1 Distributed Ledger Technologies (DLTs) and Blockchain
Storing digital records1
Blockchain allows unprecedented control of information
through secure, auditable, and immutable records of not only
transactions but digital representations of physical assets.
Exchanging digital assets2
Users can issue new assets and transfer ownership in real
time without banks, stock exchanges, or payment processors.
Executing smart contracts3
Self-governing contracts simplify and automate lengthy and
inefficient business processes.
Ground rules Terms and conditions are recorded in the
contract’s code.
Implementation The shared network automatically
executes the contract and monitors compliance.
Verification Outcomes are validated instantaneously
without a third party.
11. PwC
9 March 2018
Blockchain is changing distribution models
11
blockchain-REAL
2.1 Distributed Ledger Technologies (DLTs) and Blockchain
Investor
Bank Custodian and
BankClearing
Data
Vendor
Client
servicing
Transfer
Agent
Asset
ManagerDistributor
Paying
Agent
Investor
1. Blockchain offers a new approach towards data management and sharing, enabling the opportunity to
improve efficiency within the asset management industry.
2. Based on the blockchain technology, all facilitators within the value chain work from common datasets, in
near real-time, and supporting operations are either streamlined or made redundant.
3. Examples of enhanced blockchain technologies are – faster interbank clearing and settlement, lower
transaction costs, reduced counterparty risk, and increased transparency.
Traditional fund distribution model
(1-4 days processing)
Blockchain distribution model
(3-6 seconds processing)
• Distributed
Ledgers
• Master data
• Securities issuance
• Trade contract
recording
• Clearing &
Settlement
• Asset Servicing
Asset
Manager
13. PwC
9 March 2018
Smart Contracts on the Blockchain
13
blockchain-REAL
2.2 Smart Contracts
A smart contract is a computer code with a predefined set of rules that
runs on a blockchain
It defines the conditions under which all parties to the smart contract agree to interact with each other – it auto executes if
all conditions are met
Smart contracts eliminate
the need of third parties
It’s like a cryptographic box that contains value, and
only unlocks, if certain conditions are met
14. PwC
9 March 2018
Smart Contracts
Application Examples
14
blockchain-REAL
2.2 Smart Contracts
1-3 Days Minutes
Manual remittance Automatic remittance
Escrow necessary
Escrow may not be
necessary
Expensive Fraction of the cost
Physical presence
(wet signature)
Virtual presence
(digital signature)
Lawyers necessary
Lawyers may not be
necessary
Smart contractsTraditional contracts
¢
16. 9 March 2018
PwC
Understanding the ICO
Initial coin offerings are making headlines. What they are, how they work, and what you
need to know about these blockchain innovations.
2.3 Initial Coin Offerings (ICOs)
blockchain-REAL
16
Initial coin offering:
Bubble or break-
through? Learn more
about this fundraising
phenomena.
What if you could
raise millions of dollars
in capital for a startup
without giving away
any equity?
One option could be via ICOs,
where tokens are offered to
willing purchasers. It’s a
complex and rapidly evolving
market. Here is a sense of
how ICOs work and the initial
regulatory response.
At a glance
An initial coin offering (ICO) is a form of fundraising
that harnesses the power of cryptocurrencies and
blockchain-based trading. Similar to a crowdfunding
campaign, an ICO allocates tokens instead of shares to
early investors in a business. These tokens typically do
not represent actual ownership in the company, but
they often provide access to an ecosystem and can be
traded on an aftermarket. As with cryptocurrencies, all
transactions are verified through a blockchain. It’s not a
hype: ICOs raised over US$5 billion in 2017 in nearly
800 deals, according to CB Insights. Blockchain equity
funding by comparison was a mere US$1 billion in 215
deals for the same period1).
Benefits
• ICOs represent a new option for raising capital.
• The funds involved are typically much greater than
the funds in basic crowdfunding campaigns.
• ICO issuers can be creative with their business
models.
• Strong interest in cryptocurrencies has triggered
attention in ICOs by both buyers and sellers.
Challenges
• A token received in an
ICO does not grant
equity rights.
• ICOs are often
unregulated;
investors and issues
need to beware.
• Hackers have already
breached ICOs and
stolen funds.
• When it comes to the
taxation and legal
status of ICOs many
gray areas still exist.
• The US Securities and
Exchange
Commission (SEC)
notes that tokens or
coins ‘that are offered
or sold may be
securities.’ As
securities, they must
be registered before
sale and are subject to
US federal securities
laws2) .
• Some startups offer
‘utility’ tokens
(provide access to an
ecosystem) instead of
security tokens
(provide economic
exposure).
• ICO deals are more
and more frequent,
and one major
challenge is
discovering and
learning enough
about them for due
diligence purposes.
• The ultimate
ecosystem or
promised product
may not come to
fruition.
1) http://www.cbinsights.com/research/blockchain-vc-ico-funding 2) http://www.sec.gov/news/public-statement-clayton-2017-12-11?utm_source
17. 9 March 2018
PwC
How an ICO works
2.3 Initial Coin Offerings (ICOs)
blockchain-REAL
17
After weighing the risks
and upsides, Company X
decides that a ICO is the
most viable way to raise
funds.
1
Company X fine tunes
how the tokens can be
used in the ecosystem.
2
Company X formally launches an
ICO campaign, explaining the
goals of the project, the team’s
experience, and the problem they
are solving. As with an IPO, an
initial price is set (either in
traditional currency or, more
often, in cryptocurrency). A pre-
sale period often takes place.
3
On the date of the ICO,
the company issues
tokens to the participants.
5 Like an IPO or a crowd-
funding campaign, ICOs
are open for a limited
time. Many have soft or
hard caps on the amount
that can be raised.
6
Third-party services have
emerged that can aid with
KYC/AML, token
development, ICO
marketing, and more.
4
Following the ICO, the
team will continue
building the promised
product using the funds
received.
7
An ICO is a limited
period in which a
company offers a
predefined number
of tokens to
investors.
SHARE
LIKE
BUY
18. 9 March 2018
PwC
Initial regulatory response
2.3 Initial Coin Offerings (ICOs)
blockchain-REAL
18
China imposed an outright ban on ‘token
fundraising’ in September 20173), declaring
that the activity constitutes ‘an illegal
issuance of securities’ associated with
financial crimes such as fraud and pyramid
schemes.
The government of Canada, Hong Kong,
Singapore, Switzerland, and others, in
similar fashion to the US, have asserted that
at least some coin offerings will be subject
to securities laws. The European Securities
and Markets Authority (ESMA) also echoed
this sentiment.
Similarly, South Korea banned token
offerings at the end of September 20174),
asserting that these offerings, ‘regardless of
technical terminology,’ violate the country’s
capital market law. Additionally, the
country’s Financial Services Commission
plans broader reviews of cryptocurrency
company practices through the end of the
calendar year.
Taking a different tack entirely, Japan
recognized7) bitcoin as legal tender in May
2017 and has since authorized 11
cryptocurrency exchanges. Tokyo-based
exchange Coincheck said in October that it
was reviewing ICO proposals it received
from hundreds of Chinese startups after
China imposed its ban.
Russia’s central bank revealed its intention
beginning in October 2017 to block5) all
cryptocurrency exchange websites operating
in the country entirely. President Putin
pointed out that cryptocurrencies can serve
as a vehicle for money laundering, tax
evasion, and terrorism, according to
Reuters6). www.pwclegal.ch
3) https://www.coindesk.com/chinas-ico-ban-a-full-
translation-of-regulator-remarks/
4) https://www.coindesk.com/south-corean-
regulator-issues-ico-ban/
5) http://cointelegraph.com/news/breaking-russia-
rejects-cryptocurrency-as-authorities-block-
access-to-exchanges
6) http://www.reuters.com/article/us-russia-
cenbank-bitcoin/russia-turns-cold-on-crypto-
currencies-idUSKBN1CF0RF
7) http://www.cryptocoinsnews.com/japan-
accepts-bitcoins-as-legal-payment-method-whats-
next/
Regulators have
expressed divided re-
sponses to ICOs, ranging
from total bans to support
for the activity as long as it’s
regulated. As a result, ICO
activity has been migrating
to countries such as Japan,
which has taken steps
toward legalization.
19. 9 March 2018
PwC
The new "Tech" phenomenon
3 The new "Tech" phenomenon
blockchain-REAL
19
The new "Tech" phenomenon
20. 9 March 2018
PwC
PropTech / Real Estate Tech
3.1 PropTech / Real Estate Tech
blockchain-REAL
20
3.1
Software tools and platforms used by
participants in the real estate industry,
including brokers, investors, mortgage
lenders, property owners, and
managers.
21. 9 March 2018
PwC
The PropTech industry verticals
3.1 PropTech / Real Estate Tech
blockchain-REAL
21
Real estate
FinTech
Smart real estate
Shared economy
Exogenous tech
PropTech FinTech
• The real estate industry appears to take pride in keeping several aspects of its operations secret,
such as comparable lease rental rates or property prices to create a possible competitive advantage.
• In response to greater demand for transparency, technology advancements and the disintermediation
by startups, property-related information is increasingly available in digital and paper form.
22. 9 March 2018
PwC
Real Estate Tech annual global financing
2013 – Q1’17
3.1 PropTech / Real Estate Tech
blockchain-REAL
22
$451 $1,159 $1,991 $2,698 $733
114
186
250
61
(Full-YearProjection)
2013 2014 2015 2016 2017
• 61 deals were completed in Q1’17.
• At the current run-rate investment activity is on
track to reach $2.9B invested across 247 deals.
• This would represent an 11% decrease in deal
activity, but a 10% increase in funding.
277
247
Source: CBInsights
$2,973M
(Full-YearProjection)
Disclosed
Funding ($M)
Deals
23. 9 March 2018
PwC
The relation between PropTech and Blockchain
Why consider blockchain for real estate leasing?
3.1 PropTech / Real Estate Tech
blockchain-REAL
23
Transaction dependence:
Many leasing and property management transactions are correlated and part of the same database.
For instance, in case of a net lease structure, the tenant pays a base rent amount to the landlord and
maintenance expenses directly to the vendor.
Lack of trust among entities:
Many times, different participants in the leasing lifecycle do not have pre-existing relationships, which
results in mistrust.
Need for a common database:
Shared databases are critical for leasing transactions. One of the key examples is a multiple listing
service, which collates property-level information from private databases of brokers and agents.
Multiple entities can modify database:
Managing real estate properties involves several entities, such as owners, tenants, operators, and
service providers, who provide, access, and modify a variety of information.
Opportunity for disintermediation:
Trusted intermediaries in real estate, such as notaries, can be disintermediated through blockchain, as
transactions can be independently verified and automatically reconciled.
24. 9 March 2018
PwC
The relation between PropTech and Blockchain
How to streamline pre-lease due diligence?
3.1 PropTech / Real Estate Tech
blockchain-REAL
24
• In a real estate lease transaction, significant time is spent
on due diligence activities, due to using physical
documents for proof of identity.
• For a property, these are documents supporting the history of
ownership, tenants, repairs, and maintenance activities.
• Using physical documents related to financial and legal review
also limits the flexibility to customize such documents to
suit various needs.
• This inefficient manual verification process increases
administrative tasks and is prone to loss of information
and errors.
• Due to involvement of numerous third-party service providers,
the due diligence process tends to be elongated.
• Real estate market participants should consider
developing digital identities for a property
to keep pace with the growing preference for
digital transactions.
• A digital identity with respect to a real estate
property implies a digital identifier that
consolidates information, such as vacancy,
tenant profile, financial and legal status, and
performance metrics in digital form.
• Digital identities of properties linked to the digital
identities of owners/tenants can create valuable
online records for the property, improve lease
information management and greatly ease the
due diligence process.
• Digital identity allows financial institutions to
perform critical activities more accurately and
to streamline and automate many processes.
• This may have a powerful impact on reducing
current deficiencies and inaccuracies.
Existing challenge:
Time consuming, paper-driven, predominantly offline due
diligence process
The blockchain opportunity:
Drive efficiency and accuracy in due diligence
process
25. 9 March 2018
PwC
New regulatory
developments
4 New regulatory developments
blockchain-REAL
25
New regulatory developments
26. 9 March 2018
PwC
FinTech policy and regulation
The EU’s vision of a digital single market
26
blockchain-REAL
4 New regulatory developments
The Strategy paper of the EU Commission from May 2015 has since resulted in 35
legislative proposals on the topic, especially within Telecom Network legislation
Agenda for the creation of a “digital single market”
The European Commission published a public consultation on FinTech
legislation in March 2017 which ended in June. FinTech regulation has not
previously been an explicit legislative goal, however this might be subject to
change in the near future
27. 9 March 2018
PwC
FinTech policy and regulation
Local FinTech-regulation as a factor for business decisions
27
blockchain-REAL
4 New regulatory developments
§
The emergence of a FinTech industry is a digital challenge for legislators and
regulators
§
Traditional bodies of rules and regulatory concepts are coming up against their
limits, and are therefore being reformed around the world:
Creation of “FinTech”-specific laws
• Digitization of regulatory law
• FCA and Hong Kong SFC FinTech Co-Op Agreement
• New regulatory categories (“sandbox” of the FCA in the UK)
Application for cohort stage 4 was open until 31st January 2018
§
Initial attempts at concrete regulation in some small areas only, e.g.:
• E-Money Directive (EMD)
• Payment Services Directive (PSD II)
28. 9 March 2018
PwC
Distributed ledger technologies (DLTs)
Position of ESMA
28
blockchain-REAL
4 New regulatory developments
ESMA Report “Distributed Ledger Technology Applied to Securities Markets” dated 7
February 2017
Applicability of pertinent EU directives
• European Market Infrastructure Regulation (EMIR)
• Settlement Finality Directive (SFD)
• Central Securities Depositories Regulation (CSDR)
ESMA's observations
• DLT was originally developed for virtual currencies (Bitcoin) in the form of
“blockchains”
• Increased use for traditional financial services (post-trading activities, e.g., clearing
and settlement in particular)
29. 9 March 2018
PwC
“Virtual currencies” in the EU
29
blockchain-REAL
4 New regulatory developments
• Identification of 70 risks in connection with virtual currencies (including money laundering, consumer
protection, fiscal and currency policy)
• These risks stem from the following factors in particular:
Anyone can create a virtual currency system or alter the function of one
The parties involved (including the “miners”) remain anonymous
The EBA is proposing the creation of a single regulatory framework, which is therefore likely to
take some time
EBA opinion on Virtual Currency – July 2014
EBA welcomed the Commission's proposal to bring virtual currency exchange platforms and custodian
wallet providers within the scope of the 4th Anti-Money Laundering Directive.
• National sanction powers as proposed in the EC's amendments should be retained, while transactions in
virtual currencies should remain outside of the scope of the Payment Services Directive.
• Virtual exchange platforms and custodian wallet providers should be implemented in order to avoid risks of
misrepresentation, including whether these entities should be allowed to carry out regulated financial
activities at the same time as carrying out virtual currency transactions.
EBA opinion to bring Virtual Currencies into the Scope of 4AMLD – August 2016
30. 9 March 2018
PwC
“Virtual currencies”
Treatment of ICOs in different jurisdictions
30
blockchain-REAL
4 New regulatory developments
Treat token as
Regulations
Non-monetary digital assetSecurities
Cryptocurrency & Exchanges:
• PBoC imposed a nationwide ban on
cryptocurrency exchanges in Sep 2017
• Early Oct 2017, government hinted
possible resumption of cryptocurrency
trading through implementation of a
licensing program with stringent AML
requirements
Cryptocurrency & Exchange:
• 50 states can have their own
regulations (e.g. BitLicense)
• CFTC regulates cryptocurrency
derivatives
• FinCEN requires all exchanges to
register
Attitude towards
cryptocurrencies
Implications • Expected to resume ICO market eventually
but with regulatory framework
• Many US entrepreneurs going
overseas to conduct their ICO
ChinaUnited States
Asset, not a security
Cryptocurrency & Exchange:
• No special FINMA license
required for a cryptocurrency
exchange
• Favorable treatment under Swiss
Anti-Money Laundering Act
• Favored choice for many ICOs,
especially EU based projects
• Swiss Financial Market
Supervisory Authority (FINMA)
began investigating ICO
practices, to determine whether
regulatory provisions have been
breached (cf. FINMA Guidance
04/2017)
• Zug known as “Crypto Valley”
with established ecosystem
Switzerland
ICOs:
• Definition of security very broad
(e.g. Howey Test)
• SEC recently created a cyber unit
dedicated to policing “violations
involving DLT technology and
ICOs”
ICOs:
• PBoC announced a ban on ICOs on 4
Sep 2017 & mandatory repayment
ICOs:
31. 9 March 2018
PwC
Contract
5 Contract
blockchain-REAL
31
Regulatory roadmap for Asset &
Wealth Managers – In a nutshellContact
35. 9 March 2018
PwC
Appendix
6 Appendix
blockchain-REAL
35
Regulatory roadmap for Asset &
Wealth Managers – In a nutshellAppendix
36. PwC
9 March 2018
Blockchain technologies
EtherScript – The language of the protocol
36
blockchain-REAL
6 Appendix
An Etheruem smart contract to sell websites for “5000 by March”
First, store buyer’s Ethereum address
6af267736363738ghgs7726337373737
Then, store seller’s Ethereum address
April 1, 2014 is 13929839948 in “computer time”
16365437465
note
When t
then
… then designate the buyer as the new website admin and pay the seller
6af267736363738ghgs7726337373737
and t
transaction
If the agreed amount is received on time…
put
note
put
note
put
note
note
in storage slot Buyer
in storage slot Seller
in storage t slot Deadline
value t ≥ t 5000 ether
transaction timestamp t ≤ t storage t Deadline
put
note
storage t slot Buyer in storage t slot Website_Admin
contract balance t to storage t slot Seller
37. PwC
9 March 2018
Blockchain is changing distribution models
37
blockchain-REAL
6 Appendix
Status quo
• Currently each transaction involves
different companies, ranging from
transfer agents to asset managers
that have often to input the
same information, which
is time-consuming and can
be prone to errors.
• The costs of redundancy are
ultimately being paid by
the end investors.
Cost savings
• Blockchain could save the asset
management industry several billions of
dollars a year, if manual practices
were streamlined via online
ledger technologies.
• Based on daily trade volumes
of funds in the UK, IRL, LUX,
HK, SGP, TWN and AUS,
$2.7bn in savings was
possible.
Industry insight
• Calastone has successfully
used blockchain to buy and sell
mutual funds (test case).
• BNP Paribas AM has completed a
full end-to-end fund transaction using
blockchain technology (test case).
• The UK government recently set out an
ambition to create a blockchain-enabled
digital fund.
Process innovation
• Process innovation is possible by
stripping out iterative processes
that are traditionally incurred during the
buying, selling, clearing and
settlement of transactions and moving to
blockchain technologies.
Investor
Blockchain
distribution
model
• Distributed
Ledgers
Asset
Manager
38. PwC
9 March 2018
Autonomous e-commerce
38
blockchain-REAL
6 Appendix
A fleet of self-driving
trucks delivers goods to
distribution centers.
The robots at the distribution
center sort and move those
goods.
An end consumer,
meanwhile, has some
returns to make (such
as shoes that don’t fit).
An end consumer
also can act as a
seller and put out
new smart
packages for
delivery to the
distribution.
Autonomous delivery
drones then make
deliveries to end
consumers.
31
2 4
5
39. PwC
9 March 2018
Blockchain Start-ups
39
blockchain-REAL
6 Appendix
PresentPast Future
Cloud storage Smart Contracts
Social Networking
Digital Identity
Art & Ownership Prediction
Markets
Internet of
Things
Supply Chain
Anti-Counterfeiting Governance
40. PwC
9 March 2018
Understanding a Bitcoin transaction
How blockchain technology powers Bitcoin
40
blockchain-REAL
6 Appendix
Transaction
request
Verifying &
block placing
Append block
to chain
Checkpoints
Approval of
payment
Receive
payment
1 2 3 4 5 6
Alice wants to send
Bob two Bitcoins
She sends a TRANS-
ACTION REQUEST
to the Bitcoin block-
chain, a distributed
database running on
thousands of com-
puters globally
Send Bob
REQUEST
Computers known as
MINERS verify this
transaction (e.g. check
Alice’s balance)
And compete to place
it into a BLOCK with
other transactions
To append a block to
the chain of prior blocks
(hence: “blockchain”),
miners solve a MATH
PUZZLE that requires a
lot of computational
power to solve
All this computational
power PROTECTS THE
BLOCKCHAIN against
hackers – it would be
difficult and expensive
to falsify transactions or
attack the network
Others in the network
check the miner’s
work
Once the answer is
VERIFIED – when a
majority of miners in
the network approve
the block – the miner
who solved the puzzle
gets paid in Bitcoin
BLOCK
105
105
Bob receives
two Bitcoins
Alice’s transaction gets
ADDED TO THE
BLOCKCHAIN along
with the others
LEDGER
105
102
103
104
41. PwC
9 March 2018
Traditional Contracts
41
blockchain-REAL
6 Appendix
Verify the deal
A trusted third party is required for
verification, in order to officially transfer the
ownership of the car, the terms of the contract
have to be met
The process differs from country to country,
but always involves one or more trusted third
parties: motor vehicle registration authority,
in combination with a notary and/or insurance
company
It’s a complicated and lengthy process
Middle man fees apply
Bob wants to
sell a car
Alice wants to
buy a car
Paper contract
Alice agrees to
pay CHF 20’000
for the car
Once Bob gets the
deposit, he will
transfer the car
ownership to
Alice, by handing
her over the car
documents and
car keys
42. PwC
9 March 2018
Smart Contracts
42
blockchain-REAL
6 Appendix
Bob wants to sell a car.
He identifies himself with his blockchain
address (public key) 757582, uses a smart
contract to define the terms of the sale,
signing with his private key
Alice wants to buy a car.
She finds Bob’s car listed on the internet.
She signs the contract with her private
key transferring CHF 20’000 from her
blockchain address (public key) 389157
to Bob’s blockchain address 757382
Bob leaves his car and car key in a garage locked
with a smart contract controlled smart lock
The car has it’s own blockchain address (public
key) 738492, stored on the blockchain
2
Alice can now pick up her
car by unlocking the smart
lock with her private key
The smart contract is verified by each mode
in the Blockchain Network, to see if Bob is
the owner of the car and if Alice has enough
money to pay Bob
If the network agrees, that both
conditions are true, Alice automatically
gets the access code to the smart lock
for the garage
The blockchain registers Alice as the new
owner of the car, Bob has CHF 20’000
more on his account, and Alice CHF
20’000 less
Smart
contract
4
6
5
2
1
3
43. PwC
9 March 2018
Why can I trust a Smart Contract?
43
blockchain-REAL
6 Appendix
C
Since every transaction is stored
on the public blockchain,
everyone can inspect it
The owner of the unique car ID
with the Blockchain address
738492 is A, not C
Random
person
«Alice owns
the car!”
C steals the car and claims
ownership of Alice’s car
44. PwC
9 March 2018
Smart Contracts
Simple to complex
44
blockchain-REAL
6 Appendix
Use case
examples
Digital value
exchange
A family member
sends some
bitcoin to
another family
member
Smart right
and obligation
Consumer buys a
digital content
stream
Basic smart
contract
Landlord
remotely locks
nonpaying tenant
out of apartment
Multi-party
smart contract
Sellers lends
buyer funds to
buy a house
Distributed
autonomous
business unit
Unit of a
corporations
issues its own
bonds, and
buyers monitor
payments via a
shared ledger
Distributed
autonomous
organization
Self-driving
trucks make P2P
deliveries, pay
local toll road
fees, and buy
local electricity
Distributed
autonomous
government
Settlers of a
previously
uninhabited area
code their own
self-enforcing
government
services
Distributed
autonomous
society
Groups of settlers
from different
areas establish
self-enforcing
trade agreements
Smart contracts – simple to complex
Simple Complex
45. PwC
9 March 2018
Sectors and industries affected by Smart Contracts
45
blockchain-REAL
6 Appendix
Supply Chain eGovernment Gaming & Gambling
Banks & Insurances Energy sector IoT
Creative Industry IT Services Industry Legal tech
Mobility Accounting & Auditing Digital Identity
Smart Contracts & Blockchain
46. PwC
9 March 2018
ICO Raises by industry
[$mm]
46
blockchain-REAL
6 Appendix
1.8
2.4
183.1
18.9
22.8
1,108.9
7.5
0.5
8.6
366.8
7.5
652.2
166
282.3
6
631.4
5.3
386.9
5.5
262.6
0.4 12.1
395.7
2014 2015 2016 2017
Cryptocurrency Core Tech Cloud
Finance: Banking & Payments Finance: Investments Finance: Markets
Internet of Things & People Gaming & Gambling Media & Social
26 8 231 4,270
47. PwC
9 March 2018
Initial Coin Offerings (ICOs) vs. Venture Capital
Involved parties at an ICO
47
blockchain-REAL
6 Appendix
Project / Code
Token
purchasersIssues token
Use the token to participate in the
ecosystem
Crypto
Exchange
Trade token
Founders and
management
team
Issues whitepaper and project information
Provides funding &
oversees project R&D
Receive “Founder
Tokens”
Manage the
Token issuance
entity
Private Company
(for-profit)
Token issuing
entity
Pays in crypto(e.g. ETH, BTC, USD)
48. PwC
9 March 2018
Initial Coin Offerings (ICOs)
High-level process overview
48
blockchain-REAL
6 Appendix
Sales
Execution
Regulatory
Clearance
Token Utility
and Economy
Design
Business
Strategy
• Selection of
marketing/PR
firm
• Define sale
strategy (target
segment, pricing
strategy, etc.)
• Define token sale
timeline (presale,
public sale) and
related marketing
plan
• Legal
documentation,
drafting and
review
• Account planning
and budgeting
• Operational
framework design
• Governance
framework design
• Strategic alliances
Actions
Business
Execution
• Design and refine
token utility and
economic model
• Sale Mechanics
• Token Economy
• Incorporation of
legal entity
• Start of bank account
opening process
• Launch of website
• Launch of select
marketing
Examples of
Deliverables
High level
timeline
• Project Overview/ FAQ • Issuance of sale
documents
• KYC and AML
process finalized
4 – 12 weeks 4 weeks
• Whitepaper
• Project Strategy
• Business Model
• Understand
market landscape
and industry pain
points
• Design and
refine business
and operating
model
• Key team buildout
• Selection
of
profession
al advisors
• Selection of
business/toke
n advisors
• Legal &
tax advice
• FINMA ruling
49. 9 March 2018
PwC
A PropTech business case
Using blockchain technology in a real estate lease agreement (1/2)
6 Appendix
blockchain-REAL
49
2
Property visit
and inspection
1
Property search through
blockchain-enabled MLS
MLS
3
Negotiation and signing
of the letter of intent
LOI
4
Pre-lease due diligence
by using smart identities
• The lessor and the
lessee or their
respective brokers list
their requirements on
the multiple-listing
services (MLS).
• A transparent MLS
system enables all
parties to view the
available listings
based on their
requirements.
• The brokers discuss
their clients’
requirements and
arrange for property
visits and
inspections.
• Both sides negotiate
the terms and value
of the deal.
• The lessee sends the
letter of intent (LOI)
to the lessor,
expressing interest in
the property.
• Using blockchain-
based digital
identities of
individuals and
assets, the lessor
conducts a
background check on
the lessee and the
lessee checks the
prior transaction and
liens on the property.
50. 9 March 2018
PwC
A PropTech business case
Using blockchain technology in a real estate lease agreement (2/2)
6 Appendix
blockchain-REAL
50
5
Preparation of the
heads of agreement
6
Lease agreement
using smart contracts
7
Automated payments and
cash flow management
using the smart contract
8
Real-time data analysis
• The heads of
agreement,
containing all the
clauses and terms
agreed between the
two sides, is prepared
and verified by the
accounts and legal
teams on both sides.
• The key terms of the
agreement are recorded
on the blockchain and
this becomes the smart
contract.
• The smart contract
initiates payment of
security deposit/advance
rent.
• The lessor then transfers
the possession of the
property to the lessee.
• The transaction
agreement is officially
recorded.
• Based on the terms of the
agreement, the smart
contract initiates the
regular lease payments
from the lessee to the
lessor, after paying the
outstanding maintenance
expenses to the
contractors.
• On completion of the
lease term, the smart
contract initiates the
transfer of the security
deposit to the lessor.
• As several payments
and transactions are
recorded on the
blockchain along
with the digital
identities of
individuals,
properties, and
organizations, the
lessor can perform
real-time data
analysis using
appropriate analytics.
51. 9 March 2018
PwC
An industry overview of PropTech start-ups
Residential RE & Mortgage Lending
6 Appendix
blockchain-REAL
51
Commercial RE
Source: CBInsights
52. 9 March 2018
PwC
Robo Advice – International context
52
blockchain-REAL
6 Appendix
• RA is prohibited without prior approval by BaFin (§ 32 KWG). Qualifies as investment advice if the
intermediary provides client with specific advice concerning particular security (ISIN-level).
• Information about industries without reference to individual securities are not in scope.
• Furthermore, RA could qualify as investment brokerage (Abschluss- oder Anlagevermittlung)
• Open question: Who drafts the advisory protocol?
DE
• “Advice Gap” with respect to clients due to prohibition of commissions according to RDR.
• March 2016: FAMR-Report by FCA (Financial Advice Market Review)
• FCA welcomes and endorses FCA; however, currently increased regulatory uncertainty
UK
• December 2015: Joint Discussion Paper of ESAs (EBA, ESMA, EIOPA).
• Focus on investment advice
• Problem: Different understanding of Notion of “advice” across banking sector (e.g. MCD), securities-
sector (e.g. MiFID II) and insurance sector (e.g. IDD)
EU
• The biggest obstacle in connection with Robo Advice (RA) is the increased regulatory uncertainty in
various countries.
• It is unclear for providers if their services are subject to licensing obligations. This can be crucial in
particular in a cross-border context.
• March 2016: FINRA-Report on Digital Investment Advice
• Identified issues:
• Client-profiling
• Suitability & Appropriateness Testing
USA
53. 9 March 2018
PwC
Crowdfunding regulation in the EU
Position of ESMA and the Commission (1/2)
53
blockchain-REAL
6 Appendix
ESMA
• Communication issued by the Commission
regarding unleashing the potential of
crowdfunding in the EU, dated 27 March 2015
• Initial scenario: Absence of an EU-wide
regulatory concept
- Fragmentation – differing national concepts
- No regulatory interoperability or
coherence between local regulatory
regimes
- Consequence: No cross-border or Europe-
wide activity is discernible – crowdfunding
can only be promoted at a local level
• Following an empirical analysis, the ESMA
has come to the conclusion that most of the
pertinent EU directives (MiFID, AIFMD,
Prospectus Directive) are generally not
applicable in practice
Commission
• Report on crowdfunding in the capital
markets union dated 3 May 2016
• Market analysis
- EU market still relatively small
- Volume in 2015: EUR 4.2 billion
- 510 platforms in the EU at the end of
2014 (market leader: UK)
- Cross-border activities low, local
phenomenon
• Regulation
- National approaches to regulation in some
cases
- The Commission wants to promote growth
throughout the union by means of the
future capital markets union
54. 9 March 2018
PwC
Crowdfunding regulation in the EU
Position of ESMA and the Commission (2/2)
54
blockchain-REAL
6 Appendix
ESMA
• ESMA response to the Commission
Consultation Paper on FinTech dated 7
June 2017
• ESMA reiterates its call for a specific
crowdfunding EU-level regime, which
would ensure investors across the EU are
equally protected and which would enable
crowdfunding platforms to operate cross-
border based on a common regulatory
framework
Commission
• Final report on: assessing the potential
for crowdfunding dated 4 May 2017
• An assessment of whether alternative finance
can help Europe address the problem of
access to finance for innovative companies.
• The results of the final report are:
1. an estimation of the size of the alternative
market for research and innovation;
2. an analysis of the European alternative
finance landscape;
3. an analysis of the challenges limiting
development of the alternative finance;
4. an assessment of policy options
addressing those challenges;
5. a final recommendation of priority action
at EU and national level.