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Blockchain and its impact on Data Science and Financial Services

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How blockchain impact financial and data science world

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Blockchain and its impact on Data Science and Financial Services

  1. 1. 22 – 25 November, 2018 NIMHANS Convention Center, Bengaluru How Blockchain is Reshaping Financial and Data Science Fields Ratnakar Pandey
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  4. 4. 4 “ The business value-add of blockchain will grow to slightly more than $176 billion by 2025, and then it will exceed $3.1 trillion by 2030 ” Gartner 2017 Report https://www.gartner.com/doc/3627117/forecast-blockchain-business-value-worldwide
  5. 5. WHAT WE ARE GOINGTO COVERTODAY 5 1 2 3 Distributed Ledger and Blockchain Fundamentals Blockchain Applications in Financial Industry Blockchain and Data Science
  8. 8.  Blockchain technology leveraged decades of computer science research to create the first cryptocurrency Bitcoin in 2009. In the words of Satoshi Nakamoto, the creator of Bitcoin- “ I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party. ” 8 GENESIS OF BLOCKCHAIN LIES IN CREATINGTRUST AMONG THE PARTIESWHO DON’T KNOW EACH OTHER
  9. 9. 9 WHAT IS A BLOCKCHAIN? Source: MinuteVideos
  10. 10. 10 WHAT IS A BLOCKCHAIN? (CONT.) Digital Record Distributed Like a traditional ledger, they can be record of anything Spread over many systems across different sites or geographies Decentralized No one in particular controls the ledger it’s the network that controls what happens Secure Immutable, Irreversible and follows consensus mechanism to add info Replicated Each member of the network has full and identical copy of the info Automated Actions are taken based on the agreed criteria without any intervention
  11. 11. 11 KEY CONSTITUENTS OF A BLOCKCHAIN Hash A series of encrypted numbers and letters of a fixed length to create a digital fingerprint unique to the data or block , as human finger prints are unique. Plays a vital role in securing the chain. Public Key A digital signature in the form of encrypted hash to identify users on the network. This is known to other users Private Key A digital signature in the form of encrypted hash only known to a specific user to validate and push a transaction on a blockchain. Mining / Proof of Work Computationally intensive part to guess a random number (nonce) and use it to compute correct hash to add new information as a block. Block Contains details about transactions or any data, cryptographic reference to the current block, previous block, time stamp etc. Several blocks are chained together to create a blockchain. Any new information is added as a new block, post validation.
  12. 12. 12 EXAMPLES OF SOME POPULAR BLOCKCHAIN NETWORKS Bitcoin • The very first and the largest blockchain • Permissionless or Open- Anyone can join the network Ethereum • Open Source and Pemissionless • Popular for the Smart Contracts Ripple • Permissioned and used for real time settlement • Popular for the cross border payments R3CEV • Pemissioned and a consortia of 100+ financial institutions • More focused on financial applications
  14. 14. BLOCKCHAINVS DATABASE COMPARISON • Decentralized and Distributed- Same data resides on many nodes. Hence no single point of failure • Disintermediation and Transparency- Same view available to all nodes in the chain • Integrity- Better quality data as information is validated using consensus mechanism • Immutable and Append only - All historical information remains intact and hence more auditable over a period of time. • Resource Hungry- Requires high amount of energy and computing • Suitable for network-effect and real time sharing of info among all who have access 14 • Generally centralized and controlled by a central authority and database administrators • Data can be altered or even deleted • Prone to more errors or poor quality if the correct information is not fed • More private and maintains confidentiality • Generally faster than blockchain • CRUD (Create, Read, Update, Delete) • Less suitable for peer to peer transactions
  16. 16. 16 “ The Blockchain will do to the Financial Systems what the Internet did to Media” – Harvard Business Review
  17. 17. 17 BLOCKCHAIN APPLICATION IN FINANCIAL INDUSTRY P2P Lending Real Time Payments Syndicated Loans Capital Markets Clearing & Settlements P2P Payment International Payments Regulation and Compliance Assets Ownership Fraud Consortium KYC/KYB Insurance
  18. 18. 18 SAMPLE USE CASE- COLLABORATIVE LENDING • One's trash is another's treasure • Consortia of lenders where they share reject prospects and loan data with the fellow members on the blockchain Idea • Share reject applications data on a private and confidential blockchain (with customer consent) where other lenders/investors with different risk appetite and priorities may be able to underwrite them • Lenders earn a fee or royalty for each referral Benefits • Faster execution and settlement due to digitized loan contracts- Traditional process may take days by which time customer may not have this need • Scalable, robust and minimal requirements for manual or software driven validation Why Blockchain?
  19. 19. 19 SAMPLE USE CASE- SMART CONTRACT LEDWORKING CAPITAL • Leverage third parties transaction to provide company’s customers timely cashIdea • Customer get cash right away rather than waiting for weeks and months • Newer ways of evaluating “Ability to Pay (ATP)” as we have better visibility of customers businessBenefits • Near real time execution and settlement due to digitized smart contracts- Traditional process may take days • Even the third parties transaction are as transparent and real time as company’s itself Why Blockchain?
  20. 20. 20 SAMPLE USE CASE- SMART CONTRACT LEDWORKING CAPITAL (CONT.) Single Source of Truth Triple Entry Accounting and Real Time Info Sharing via Blockchain Company Customer’s Stakeholders Company’s Customer Cash Invoices Info / Payment BLOCKCHAIN
  22. 22. 22 TOP FIVE BENEFITS OF BLOCKCHAIN FOR DATA SCIENTIST ❶ Data is the King- Access and sharing of large amount of diverse data leads to better models ❷Garbage in, Garbage out- Blockchain’s consensus mechanism fixes many data quality issues ❸ Higher Processing Power- Blockchain based shared computing platform will give the needed boost to the processing power for churning out more complex model. Example- https://golem.network/ ❹ Real-time Analytics- Since each block contains stream of data over a period of time, real time analytics for areas such as fraud detection is much easier. ❺ Crowd Solutioning- Combining predictive analytics solutions from different sources may address the bias variance tradeoff and lead to better models.
  23. 23. 23 HOWTO ACCESS AND DEVELOP BLOCKCHAIN APPLICATIONS USING PYTHON There are many packages/APIs being created in Python and R for blockchain analysis and mining. Some of them include- • bitcoin- python [conda install -c auto bitcoin-python] • Steem [ pip install steem] • Blockchain.info [ pip install blockchain] • Populus [pip install populus] • Etc. Most of these packages will allow you to do the following and many more activities- • Build a brand new blockchain and cryptocurrency • Smart Contract • Explore data on blockchain- statistics, network details, # of blocks etc. • Get specific data from blocks • Proof of Work • Add new blocks (with appropriate permission) • Wallet and payment processing • Etc.
  24. 24. 24 SOME KEY SKILLS REQUIRED • Strong understanding of blockchain platforms such as – Ripple, Hyperledger, Bitcoin, R3, Corda etc. • Experience working with distributed databases and computing • Strong coding experience- Python, Java, C++ etc. • Keep abreast with latest development, use cases, and architectural changes
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