How Blockchain is Reshaping Financial

and Data Science Fields

Ratnakar Pandey

22 – 25 November, 2018

NIMHANS Convention Center, Bengaluru

HOW BLOCKCHAIN IS
RESHAPING FINANCIAL
AND DATA SCIENCE
FIELDS
RATNAKAR PANDEY
3
“
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

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 WHAT WE ARE GOING TO COVER TODAY

1 2 3

Distributed Ledger and Blockchain Applications in Blockchain and Data

Blockchain Fundamentals Financial Industry Science

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DISTRIBUTED
LEDGER AND
BLOCKCHAIN
FUNDAMENTAL
WHAT IS THE BIGGEST
PROBLEM THAT A BANK
SOLVE?

Trust
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GENESIS OF BLOCKCHAIN LIES IN CREATING TRUST AMONG
THE PARTIES WHO DON’T KNOW EACH OTHER
 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
WHAT IS A BLOCKCHAIN?

Source: MinuteVideos
 WHAT IS A BLOCKCHAIN? (CONT.)

Digital Record Distributed Decentralized Secure Replicated Automated

Spread over No one in Each Actions are

Immutable,
Like a many particular member of taken based
Irreversible
traditional systems controls the the network on the
and follows
ledger, they across ledger it’s the has full and agreed
consensus
can be record different network that identical criteria
mechanism
of anything sites or controls what copy of the without any
to add info
geographies happens info intervention
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 KEY CONSTITUENTS OF A BLOCKCHAIN

Contains details about transactions or any data, cryptographic reference to the current
Block 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.

A series of encrypted numbers and letters of a fixed length to create a digital fingerprint
Hash unique to the data or block , as human finger prints are unique. Plays a vital role in
securing the chain.

A digital signature in the form of encrypted hash to identify users on the network. This is
Public Key
known to other users

A digital signature in the form of encrypted hash only known to a specific user to validate
Private Key
and push a transaction on a blockchain.

Mining / Computationally intensive part to guess a random number (nonce) and use it to compute
Proof of Work correct hash to add new information as a block. 11
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
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DIVERSE USE CASES OF BLOCKCHAIN…

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 BLOCKCHAIN VS DATABASE COMPARISON

• Decentralized and Distributed- Same data • Generally centralized and controlled by a

resides on many nodes. Hence no single point central authority and database
of failure
administrators
• Disintermediation and Transparency- Same
view available to all nodes in the chain • Data can be altered or even deleted
• Integrity- Better quality data as information is • Prone to more errors or poor quality if the
validated using consensus mechanism correct information is not fed
• Immutable and Append only - All historical • More private and maintains confidentiality
information remains intact and hence more
auditable over a period of time. • Generally faster than blockchain
• Resource Hungry- Requires high amount of
energy and computing • CRUD (Create, Read, Update, Delete)
• Suitable for network-effect and real time • Less suitable for peer to peer transactions
sharing of info among all who have access

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BLOCKCHAIN
APPLICATIONS
IN FINANCIAL
INDUSTRY
“ The Blockchain will do to the Financial
Systems what the Internet did to Media”

– Harvard Business Review

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BLOCKCHAIN APPLICATION IN FINANCIAL INDUSTRY

Real Time Syndicated Capital

P2P Lending
Payments Loans Markets

Regulation
Clearing & International
P2P Payment and
Settlements Payments
Compliance

Assets Fraud
KYC/KYB Insurance
Ownership Consortium

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 SAMPLE USE CASE- COLLABORATIVE LENDING

• One's trash is another's treasure

Idea • Consortia of lenders where they share reject prospects and loan data with the fellow members on the
blockchain

• 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
Benefits them
• Lenders earn a fee or royalty for each referral

Why • Faster execution and settlement due to digitized loan contracts- Traditional process may take days
by which time customer may not have this need
Blockchain? • Scalable, robust and minimal requirements for manual or software driven validation

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 SAMPLE USE CASE- SMART CONTRACT LED WORKING
CAPITAL

Idea • Leverage third parties transaction to provide company’s customers timely cash

• Customer get cash right away rather than waiting for weeks and months
Benefits • Newer ways of evaluating “Ability to Pay (ATP)” as we have better visibility of customers business

Why • Near real time execution and settlement due to digitized smart contracts- Traditional process may
take days
Blockchain? • Even the third parties transaction are as transparent and real time as company’s itself

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SAMPLE USE CASE- SMART CONTRACT LED WORKING
CAPITAL (CONT.)

Company
Single Source
of Truth

Triple Entry
Info /
Cash Accounting and
Payment
Real Time Info
BLOCKCHAIN Sharing via
Blockchain

Company’s Invoices Customer’s

Customer Stakeholders

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BLOCKCHAIN
AND DATA
SCIENCE
INTERSECTION
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.

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HOW TO 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 23
• Etc.
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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