Blockchain technology has been called one of the greatest Internet and computer megatrends of the past few years. The megatrend not merely touched Germany, it is said to be booming there: numerous startups are choosing to set up shop in the country, and multinational companies from various industries based in Germany are looking into how to apply new technology.
Cointelegraph caught up with Milan Sallaba, Partner and Technology Sector Head at Deloitte, and Jens Hermann Paulsen, Senior Consultant at Deloitte Blockchain Institute, at BlockShow Europe 2017 in Munich in early April to discuss the current state of Blockchain industry in Germany, the company’s approach to work with the technology, and ongoing transformations in audit caused by tech innovations.
Germany to become a Blockchain innovation epicenter?
In a chat with Cointelegraph Sallaba pointed out that Blockchain is not being promoted in one particular physical location, as it is a pervasive and certainly a global trend. Numerous Blockchain-related projects have been set up in most large German cities, including Berlin, Hamburg, Frankfurt, and Munich. The former is said to be especially booming as a hub for financial technology, with dozens of businesses exploring the potential of Blockchain.
“I’d like to think of a Blockchain as a global idea, a global initiative, pushing forward in time, as people learn and invest and see what can be done. Ultimately, all of the processes in P2P platforms that are enabled by Blockchain could have global relevance and application, it’s not particularly about country solutions. In terms of leading Blockchain innovation, conversations in Germany are very advanced currently; people are trying to do things which have never been done before.”
With such a steadfast approach to Blockchain technology, Germany has a chance to establish itself as a leading Blockchain innovation hub. Germany’s Blockchain startups cover a wide range of applications from global P2P lending, the energy, telecommunications and insurance industries, to the protection of creative ownership online. There must be something that is driving such innovation, and Sallaba shared the secret – it is in a special approach towards nurturing the talents.
“Deloitte relationships with startups go both ways, particularly when it comes to Blockchain. We do see a lot of innovative ideas, and we connect the startups with the right corporate opportunities because obviously, that’s where we have access. As we are nurturing our own ecosystem, we are acting both as participant and also to facilitate the broader development of the ecosystem. We go through startups’ ideas, some of them we advise, others we also promote, and some of them we launch - it is a very vibrant environment. Startups also proactively come to us, typically for guidance in terms of how to approach industry, and ultimately achieve being implemented in a corporate context.”
Building bridges between talents and corporates
Deloitte actually works with leading startups from diverse fields, not only those coming from the Blockchain space. The company is e.g. conducting the Fast50 award every year, a program which recognizes and profiles fast growing technology companies demonstrating the highest potential. The 2017 awards are currently accepting applications.
In theory, Blockchain technology is designed to eliminate middlemen, however, when it comes to exploration of technology a bridge between the tech talents and corporates is often beneficial and needed. Deloitte has taken on this function to appropriately connect enterprises and startups, helping to deliver knowledge of technology and its benefits to the former, and help the latter understand how the corporate world works.
“We do see the perspective from both sides. In enterprises there typically is no central Blockchain responsible, as Blockchain is ‘merely’ a technology, it is not a solution or business application, and particularly if applied across functions, one can derive great use cases from it. However, the responsibilities in the corporates are often defined in narrow ways so rarely anyone says ‘the Blockchain is the answer to my problem’, never mind whether it is about efficiency gains or new business models. On the startups’s side you have the ideas, the innovative approaches, and often more creativity, but less understanding of how corporates work and how to scale the solution to get meaningful traction. We are trying to bridge the thinking across startup and corporates, in fact, this is our daily work. So we bring them together and we facilitate the conversation and we thus get involved in fundamental Blockchain innovation.”
Deloitte’s own center of competence for Blockchain
To drive the Blockchain innovation, Deloitte has established its own Blockchain Institute in Germany. Paulsen shared that the Institute has been set up as industry- and platform-agnostic function-spanning center of competence for Blockchain technology. The Institute is actively researching Blockchain technology looking at the areas which could benefit from the application of technology.
Paulsen explains to Cointelegraph:
“The Institute is actually a startup within Deloitte, we are entrepreneurs, we are working with all the functions within Deloitte combining audit, corporate finance, consulting, and legal, because a lot of use cases have legal aspects, and not everything that can be done technically is legally enforceable. We are integrating all of Deloitte’s experts, and bring sector expertise to our industry-agnostic and platform-agnostic Blockchain knowhow. We are also embedded into European and worldwide networks. So, we have the German initiative, but then we e.g. also have a lab in Ireland, where there are roughly 30-40 consultants working together on proofs-of-concept and how to bring them to life. In a global community we are trying to focus activities, and divide our work to make sure we don’t duplicate and collectively move as fast as possible.”
Once there is an idea, Deloitte Blockchain Institute approaches the client with a proposition to further advance.
“Initially, clients approached us to understand the blockchain basics and how the technology can be deployed. More recently, clients are actually approaching us with ideas of their own to be pressure tested.”
Deloitte then assesses these ideas together with the client trying to understand whether there is really an advantage with or need for a blockchain-powered solution. Paulsen points out that not everything that can be done with Blockchain actually necessarily needs to be done with Blockchain, as it could also be done with something else.
Sallaba agrees that Deloitte’s approach to Blockchain centers around a focus on the use-case and its benefits. He explains that prior to diving into building solutions Deloitte is holding very active conversations with clients:
“We engage in detailed conversations – around business benefit assumptions and all the way to technical pros and cons of using a specific Blockchain versus another. Sometimes the client agrees, sometimes they disagree. And we decide collectively on the path forward, and sometimes we build flexible prototypes so we can change key aspects later as we learn more. I don’t know how the other ‘Big Three’ approach these type of conversations or what their views are, because this typically takes place behind closed doors. I haven’t seen anyone come out of ‘Big Four’ and e.g. say – we favor Blockchain X over Blockchain Y - and I wouldn’t expect them to do so because it really depends on context and what you are trying to accomplish.”
Next generation audit
The audit field is currently going through a massive transformation. For a long time audits were performed by teams of accountants manually processing streams of financial data. Now we see the audit profession evolving rapidly, and innovative technologies become more integrated into the process. It is likely that the audit profession will find a way to actively embrace technology tools such as robotics, cognitive technology, automation in general, etc., eventually uncovering efficiencies, new insights and approaches.
With a “technology revolution” on the way, however, it seems that companies are not always able to keep up with its pace. Thus, KPMG’s 2016 CEO Outlook Survey has shown that 81 percent of executives are concerned about the fact that their organizations are not keeping up with technology advancements. At the same time, 58 percent of respondents of recent Forbes Insights survey think that technology will demonstrate the greatest impact on audit field in the next three to five years.
“Certainly in the coming ten years most of it will be automated, and ultimately only exceptions will be dealt with by humans. We already notice today increasing automation in audits, and margin pressures and innovation drive further automation, where it makes sense. That is a trend that will continue. Audit itself will not go away, however and there will be more transparency and process integration e.g. with tax authorities, but in general this will be brought about less by manual work and more through system integration and automation.”
Sallaba believes that Blockchain technology with its core attributes promoting transparency in transactions is very relevant for audit. Although he says that it is currently still at the level of propositions and theories, and only a few concrete examples have been implemented to date, but there are certain extreme scenarios which forecast decimation of industries as we know them.
“Blockchain will not be the only relevant technology in this context, there are other developments particularly with regard to deep learning, AI and cognitive computing, which may drive insight and efficiencies in this field and disrupt established processes. And while ‘The Big Four’ are focusing on new ideas, new business models, and new operating models both for themselves and for their clients, and while Blockchain is typically not yet fully understood, I see everyone wanting to get involved to learn and, I guess, to avoid missing the proverbial boat.”
You have to make technology tangible
Implementation of Blockchain is a challenging process, and the more we unveil its potential, the more hurdles seem to occur. Many industries are getting more actively involved in exploration of technology and understand that it could be something huge for their business models, however, the question here is how do we implement it best. If it is done right, it would mean huge transformations of industries. However, what if you miss key aspects and realize that you had unrealistic expectations as to the technology’s impact?
Sallaba shares his opinion:
“Could Blockchain go away due to early disappointments? No, I believe it could initially be implemented to enable specific process improvements and insulated use cases, and ultimately the advantages of Blockchain will be widely understood and current limitations may be overcome. Today, comparatively few people understand Blockchain and it not being tangible does not help. And of course, it is hard to trust what you don’t understand. And to be frank, truly understanding Blockchain processes is very difficult, especially some aspects around verification and validation processes.”
Bitcoin is so far the most successful application of Blockchain technology, and Sallaba says that if it wasn’t for Bitcoin, people would be much more skeptical about Blockchain: “We have to wait and see. I do think it is possible we may take a step back when it comes to Blockchain proliferation before taking a step forward.”
He says that each Blockchain brings specific benefits to the table, however, one should carefully evaluate before deciding on one or the other Blockchain depending on the context and the application.
“I believe the Blockchain will be successful and ultimately it will matter little whether it is a Hyperledger project, Ethereum, Bitcoin, or any other alt-coin or side chain solution. It really depends on what is it that we are trying to do.”
The most important is to make the technology tangible, to show people what they can do with it. He believes that Blockchain is taking off as a concept now, as the hype cycle is moving to a stage where people are focusing more on proven applications, and we are likely to see greater advancements this year.