EY: How Blockchain Revolutionizes Tax Operations for Businesses in 2 Ways
Following Part 1 of the interview, we looked at Ernst & Young’s perspective on how blockchain can be an effective tool for huge tax savings. Jimmy also shared the progress of Nightfall, zero-knowledge proof technology on the role of privacy transactions on public blockchains.
According to Rod Roman, EY Global Marketing and Capital Markets Tax Leader: Blockchain has huge tax potential especially as it relates to smart contract, can you explain how smart contracts enable huge tax potential?
It is expected that blockchain will significantly impact the world of tax.
Dennis Post, EY Global Blockchain Tax Leader, says:
“We basically see two developments where tax will be significantly impacted by blockchain (besides crypto). Firstly, we see that blockchain will help to create more robust tax systems, for example in the financial services sector (withholding tax) or in global trade (VAT, customs). At EY we are fully embracing the opportunity blockchain brings in reducing manual labor and paper-based processes, and we are in the process of developing blockchain platforms that solve tax problems. Secondly, we are building solutions that can connect to commercial blockchains to calculate tax consequences of these transactions. Smart contracts will facilitate the transfer of digital assets and in the future also payments. With EY OpsChain Tax Engine, businesses can embed tax calculations and payment options directly into business transaction flow, driven by tokens and smart contracts. Instead of calculating tax days or sometimes even months after the transaction has taken place, tax calculations and payments can now happen in real-time. Applying blockchain to withholding tax or basically any transaction tax can really drive efficiency gains for enterprises.”
EY has partnered with Guardtime to improve transparency and efficiency through blockchain, how does blockchain reduce risk in maritime insurance?
EY & Guardtime’s joint venture, Insurwave, uses blockchain technology to drive efficiencies across the marine insurance industry. Marine insurance brokers and insurance providers struggle with obtaining accurate asset values, leading to the risk of under or over insurance. They are burdened by compliance and KYC checks – client asset and organization information, licenses, and credit checks. If there was a solution to accurately capture dynamic risk data, adjust asset value (and premiums), understand live vessel data (machinery performance, engine, oil, routes), and securely share this information among all relevant players, an enormous value could be achieved.
The technology significantly reduces risk along the insurance lifecycle as it digitizes shipping documentation on the blockchain while smart contracts automate procedures and controls when handling claims. Everyone has access to the same documents and information along with a complete record of transactions.
Today, Insurwave manages the risk of over 1000 Maersk commercial vessels generating half a million transactions on the blockchain.
EY Blockchain Team developed ‘Nightfall’ which leverages zero-knowledge proof technology in order to make transactions on the public blockchain more secure and private? Could you explain how Nightfall and ZKP work together and also why it is necessary to leverage public blockchains instead of creating a private one for your clients?
The true value proposition of blockchain lies in its ability to integrate different businesses together on a single platform without assigning a central intermediary. If every company had their own private blockchain consortium, doing business between consortiums would be unscalable and unmaintainable. Just like industry portals at the start of the Internet age (MSN, AOL, etc) we are seeing consortiums follow the same route. It is EY’s belief that a truly scalable universal business infrastructure connecting different business platforms together requires a shared public platform where barriers to entry are completely removed. The technology that most closely aligns with our vision is the public Ethereum blockchain, which is completely decentralized and supports complex smart contract logic.
To support our vision, there are certain technologies that are required; namely being able to perform completely private transactions on a public blockchain while still ensuring that the transaction itself has been properly validated. ZKP is a technology that allows for privacy in transactions and we are actively improving the protocol for large-scale adoption by heavily reducing the transaction fees required.
EY released Nightfall to the public domain in April 2019 to help advance blockchain privacy standards. The main component of Nightfall allows for secure, private transfers and payments on the public Ethereum network.
“The most efficient way to maximize blockchain adoption is to release this work to the community as a true contribution, with no strings attached. The only way that blockchains deliver upon their true promise to the world is if public blockchain networks are the preferred path for enterprises and investors.” - Paul Brody, EY Global Blockchain Leader
As a simple enterprise example serving as a basis for privacy in business ecosystems, take the large multi-national company which acts as an anchor buyer and manages contracts with hundreds of suppliers all competing against another for business. Contract negotiations and terms agreed upon between the two parties are extremely sensitive. Suppliers do not want their competitors to know the terms or pricing of their products. Privacy is essential for businesses to transact on public blockchains.
What plans do the EY Blockchain Team have for 2020?
The EY Blockchain team has three main initiatives for 2020: 1) Improve our EY OpsChain platform and continue to build more applications on it enabling enterprises to transact on the public blockchain 2) Extend the functionality our EY Blockchain Analyzer to provide even more insights on blockchain transactions 3) Continue to scale our privacy solution EY Nightfall for the public domain.
Regarding the last initiative, EY recently released our latest version of EY Nightfall which includes batching and optimistic rollup of transactions.
“This is the first of several new updates that will be coming from us in this area in the coming months. For those of you keeping score at home, this [initial upgrade] represents a 400-fold improvement in gas efficiency since our OpsChain Public Edition prototype just over one year ago.” - Paul Brody, EY Global Blockchain Leader
Over the last year, our transaction costs have reduced from $10 USD to around $0.24 USD for a batch of 20 private transactions. We are working tirelessly to scale and optimize our privacy tool for enterprise use on the public Ethereum blockchain.