How Big Four Auditors Delve Into Blockchain: PwC, Deloitte, EY and KPMG Approaches Compared
PricewaterhouseCoopers (PwC), Deloitte, Ernst & Young (EY) and KPMG, better known as the “Big Four” auditors, all have established solid long-term blockchain roadmaps to remain relevant in the cryptocurrency and blockchain space.
The four professional services conglomerates, which combined employ over a million individuals, have different roadmaps and perception of the future of the blockchain industry. Deloitte for instance, the biggest auditor out of the four with an annual revenue of around $43.2 billion, has stated that the blockchain sector is close to seeing a breakthrough with the technology.
“Ultimately, [blockchain is] more of a business model enabler than a technology...for legacy organizations…we’re starting to see a change in approach toward blockchain. Executives in these organizations are moving away from the pure platform view of ‘What is it?...let’s find a use case’ toward development of more sensible, pragmatic business ecosystem disruption.”
- Deloitte’s 2018 blockchain survey, published August 27
In contrast, PwC, which has been directly involved in the cryptocurrency market through its investment in VeChain (VET) since May 4, a China-based Internet-of-Things (IoT) blockchain network, expressed its concerns over the uncertainty in blockchain regulation.
PwC blockchain head Steve Davies explained that a large number of conglomerates and startups are exploring ways to integrate the blockchain at a commercial level. But, regardless of the increase in demand for the blockchain, regulatory hurdles in integrating the decentralized technology has limited companies from utilizing the blockchain to process information:
“Businesses tell us that they don’t want to be left behind by blockchain, even if at this early stage of its development, concerns on trust and regulation remain. Blockchain by its very definition should engender trust. But in reality, companies confront trust issues at nearly every turn.”
Generally, the Big Four have reaffirmed in recent reports that the interest in blockchain technology is rising rapidly, especially amongst high profile conglomerates such as Microsoft, IBM, JPMorgan, and Goldman Sachs.
However, many experts including US Securities and Exchange Commission (SEC) commissioner Hester Peirce believe that over-regulation in an industry that is still at its infancy could limit a wide range of developments, ultimately damaging the growth of the crypto and blockchain space.
During a speech delivered on September 12, commissioner Peirce said:
“The Commission should not default to a demand that the crypto markets be subject to comprehensive government regulation as a precondition to allowing products linked to those markets to be traded in markets that we regulate.”
While the Big Four acknowledge the lack of regulatory certainty in the space, the four conglomerates have made significant efforts in understanding the market to assist large corporations to integrate the emerging technology.
PwC: investment in VeChain, 1,000 staff in the blockchain, targeting the Swiss banking space
Despite its concerns in regard to regulatory uncertainty in the market, PwC has been the most active professional services conglomerate in the crypto and blockchain space.
Most recently, PwC announced that through a program called “Digital Accelerators Program,” more than 1,000 employees of the company will be trained in the area of blockchain and cryptocurrency.
Over the next two years, Sarah McEneaney, digital talent leader at PwC and head of Digital Accelerators, stated that to meet the increasing demand for blockchain by its clients and competitors, the firm decided to engage in a major initiative to solidify its position at the forefront of blockchain development:
“It just seems table stakes at this point that people should have more technology skills. It’s needed for us to remain competitive and to be responsive for what our clients are also going through...our clients are looking for us to do things more digitally and control the cost of what we’re doing.”
As a professional services conglomerate, the core business model of PwC revolves around its auditing and consulting services that are provided to high profile corporations in major industries like finance, technology and manufacturing.
Hence, in her statement, McEneaney acknowledged that a large portion of its client base that is composed of large-scale corporations have started to demonstrate big interest and demand for the technology.
It is possible that PwC criticized the over-regulation of the blockchain space in its recently published study because its clients and large corporations in various industries are unable to integrate blockchain technology at a meaningful capacity to demonstrate the potential of the technology.
Still, Pierre-Edouard Wahl, the head of blockchain digital services at PwC Switzerland, told Cointelegraph in an exclusive interview that the corporation is targeting the Swiss banking and finance sector with blockchain-based products.
In July 2018, SIX, the main stock exchange of Switzerland, announced that it will launch a fully regulated cryptocurrency exchange by 2019. The public release of the finalized plan of SIX was met with optimism in the global cryptocurrency market, as it was the first announcement of a major stock exchange to be directly involved in the asset class. In the following month, ICE / NYSE, Starbucks, and Microsoft launched a regulated cryptocurrency trading platform Bakkt.
According to McEneany, blockchain technology could negatively impact the current business model of major banks and financial institutions in the short-term, as it eliminates third-party service providers and mediators in the process of settling payments.
In the long-term, however, McEneany stated that blockchain will enable banks, as institutions, to adopt the technology. This is similar to how Ripple has convinced banks like BBVA and Banco Santander to utilize the blockchain in processing cross-border payments, the technology may improve the existing solutions of banks.
“I actually think it will be an enabler. Yes, it might hurt their existing business, but that is often the case with the new technologies: It’s either you adopt them and you think differently about how those technologies are going to actually offer new solutions — as well as improve the existing solutions — or then you just look at the improvements, and we are all racing to the bottom, because there are less and less margins for everyone.”
PwC invested in VeChain, a major cryptocurrency with a market valuation of $711 million in May with the vision of utilizing the IoT-focused blockchain to enable the existing infrastructures of large-scale partner conglomerates of PwC.
Raymund Chao, PwC Asia Pacific and Greater China Chairman, said at the time:
“We are glad to establish a deeper relationship with VeChain, which aims to build a trusted and distributed business ecosystem to help address long-standing challenges in supply chain management, food trust and anti-counterfeiting areas. VeChain’s mission aligns with PwC’s purpose of solving important problems and building trust in society.”
Deloitte: focusing on the technical development and implementation of blockchain technology
Since 2016, Deloitte has been fairly active in the blockchain and cryptocurrency space, leading various initiatives to promote the usage of blockchain technology.
Two years ago, the auditor deployed one of the first Bitcoin ATMs in Toronto, Canada, to demonstrate the possibility of exchanging crypto-to-fiat with ease, without the necessity of strict Know Your Customer (KYC) and Anti-Money Laundering (AML) procedures.
Since then, Deloitte has taken a comprehensive approach towards blockchain development and integration, by creating a division within the conglomerate called “Deloitte Blockchain Lab” that is wholly dedicated to blockchain research and development.
Through its blockchain lab, Deloitte has worked with its partner companies to identify major obstacles firms face in adopting the technology and establish ways to leverage the technology to improve the existing infrastructure of corporations.
PwC and Deloitte have offered contrasting reports on the current state of the blockchain space. On August 28, in a survey report entitled “2018 global blockchain survey Breaking blockchain open” Deloitte stated that blockchain technology is getting closer to a breakout moment. Meanwhile, in a study entitled “Regulatory uncertainty and trust are barriers to blockchain adoption amongst businesses” released on the same day on August 28, PwC noted that regulatory uncertainty still remains as a main obstacle in blockchain development.
Deloitte identified scalability as the main problem of the blockchain, rather than regulatory uncertainty in the market, a viewpoint that has also been shared by different experts in the industry.
Public blockchain networks need a lot of development work to handle the infrastructure of large conglomerates. Bitcoin is processing around 7 transactions per second while Ethereum has been doing around 20. In contrast, Uber processes 12 transactions/sec, Paypal settles hundreds of transactions/sec, Visa processes 24,000 transactions/sec and IoT networks process hundreds of thousands of transactions/sec.
As such, in order for a major supply chain, distributor or an insurance company to adopt blockchain, it will have to process at least tens of thousands of transactions per second.
“One major reason: As a means of processing transactions, blockchain-based systems are comparatively slow. Blockchain’s sluggish transaction speed is a major concern for enterprises that depend on high-performance legacy transaction processing systems. A lack of standards and interoperability between various blockchain platforms and solutions is another challenge.”
- Deloitte study “Blockchain and the five vectors of progress”
Ernst & Young (EY): Building tools to help companies identify risks in the blockchain
In contrast to PwC and Deloitte, EY has focused most its efforts on legitimizing the blockchain, by identifying risks in using blockchain-based platforms and crypto-related models, like initial coin offerings (ICO).
In April 2018, the firm released EY Blockchain Analyzer, a technology “that is designed to facilitate EY audit teams in gathering an organization’s entire transaction data from multiple blockchain ledgers.”
Similar to block explorers including Blockchain.info and Etherscan, EY Blockchain Analyzer is able to extract data from the blockchain to assist companies to audit various types of information processed on the network.
Paul Brody, EY Global Innovation Blockchain Leader, stated that every large-scale conglomerate that attempts to integrate the blockchain as a main component of its infrastructure needs necessary tools to test blockchain-based smart contracts and business contracts, and without established auditing tools, it is difficult to convince corporations to adopt blockchain technology at a big scale:
“Understanding exchanges and cryptocurrencies is the first step in our ability to develop tools to test various blockchain-based business contracts. These technologies lay the foundation for automated audit tests of blockchain assets, liabilities, equities and smart contracts. EY Blockchain Analyzer will be utilized by the auditor to analyze transactions on a blockchain and help provide insight to the finance function.”
The company has also acknowledged developers and builders in the cryptocurrency market, by awarding entrepreneurs in the cryptocurrency sector with the EY Entrepreneur of the Year awards.
Thus, in 2017, Bitcoin ATM manufacturer that deployed more than 180 cryptocurrency ATMs in the US were selected as the finalists by the EY Entrepreneur of the Year awards.
In the months to come, EY is expected to continue its work as a risk identifier in the blockchain and cryptocurrency space, developing various tools to render the experience of using the blockchain seamless for companies.
Most recently, EY started to analyze the public cryptocurrency exchange market, identifying risks involved in ICOs and the vulnerability of token sales to hacking attempts. Over the years, many ICOs lost funds in security breaches, the recent case happened in July, when KickICO lost more than $8 million in a hacking attack.
KPMG: auditing, taxing and analyzing blockchain integration
KPMG also announced new leadership in its U.S. Blockchain initiatives to drive and expand the firm's blockchain strategy into tax, audit, advisory, and industries. In the months to come, the conglomerate emphasized that with the appointment of Arun Ghosh as the firm's U.S. Blockchain leader, and David Jarczyk and Erich Braun as the U.S. Blockchain Tax and Audit leaders, it will work with partner companies to create comprehensive blockchain strategies and guidance.
The decision of KPMG to pivot its blockchain business to risk assessment and audit comes after the release of its report called “The Pulse of Fintech,” which revealed that the first half of 2018 has exceeded the total investment in blockchain technology made in 2017.
Overall, all Big Four companies have recognized the growing demand for the blockchain and crypto. Interestingly, the four conglomerates are taking different approaches to facilitate the rapidly increasing interest in the blockchain space. PwC is taking a more aggressive approach to directly integrate the blockchain into existing infrastructures of conglomerates and Deloitte is focused on improving the technical aspects of the blockchain. In contrast, KPMG and EY have allocated most of their resources to analyze risk in implementing the technology and creating tools that can ease the process of using the blockchain.
It is positive that conglomerates have identified regulatory and technical risks that come with the blockchain, which will help companies understand the potential of the blockchain in a more realistic manner. Still, as Deloitte and PwC firmly stated, it is important for major markets like the US and Japan to provide regulatory certainty in the development of blockchain technology to increase.