Blockchain Cryptocurrency 2018 FMS Regional Conference

Considerations ofblockchain and cryptocurrencyRob Massey, Deloitte Tax, LLPMarlon Paz, Seward & Kissel, LLPDavid Aman - FINRA

WHAT IS BLOCKCHAIN?Blockchain is to VALUE, what the Internet is to INFORMATION Hence, the Internet of Value[{ Shared, Peer to Peer, Disintermediation }No single ownership, Multiple contributors, No 3rd partyA distributed ledger which allows digitalassets to be transacted inreal time, immutable mannerdig·i·tal ass·et: something represented in adigital form that has an intrinsic or acquiredvalue e.g., land, house, currency, vote, goods,certificates, identity, rewards etc.Transparent, Secure, IrreversibleVerifiable record of everytransactionLow FrictionNear real time settlement ofrecorded transactionsCopyright 2018 Deloitte Development LLC. All rights reserved.]Cryptography (Public& Private Keys)2

WHAT CAN BLOCKCHAIN DO FOR YOU?A blockchain solution can be initiated as a store or transaction record, serve as a transaction platform orautomate business processes RecordKeeping Transferof Value SmartContracts A blockchain solution can offer automated, high-fidelity and low-cost mechanisms for recordkeepingRequires user-specific encryption keys – records are kept in the ledger but only accessible byauthorized usersA blockchain solution enables secure, near real-time, low-cost transfer of value without anintermediaryAllows transfer of records and value between parties, removing the need for a trustedintermediaryA blockchain solution transforms how contracts are executedProtocol is programmable to trigger transfer of value and information under certain conditionsSmart contracts can be developed, exchanged, and automatically executed on decentralizedsystemsAny industry that is full of intermediaries, loses significant value along the transaction path, and lacks transparency and trustIS AN INDUSTRY that is RIPE for BLOCKCHAIN-driven disruption.Copyright 2018 Deloitte Development LLC. All rights reserved.3

DIFFERENT TYPES OF BLOCKCHAINBlockchain can be public, permissioned, or private, referring primarily to the accessibility and permissions ofthe networkPublic Fully decentralized – Requires verylow trustFully transparent – Anyone canread, send transactions andparticipate in the consensusprocess Slow confirmation of transactions Limited privacy protections –Anyone can read the blockchain Low cost for transactionsPermissioned Quasi decentralized – Hybrid Centralized – Requires ‘high trust’entity Read permission of the blockchainrestricted to participants – Greaterdegree of privacy Read permissions restricted toparticipants Consensus controlled bypreselected set of nodes(M out of N) Only the centralized authority hascapability to allow rule changes,transaction reversals andmodifications Participants can agree to rulechanges, transaction reversals andmodifications Greater privacy protection as thecentralized entity controls who hasaccess to which part of blockchain Transaction costs agreed to by theconsortium Transaction costs dictated by oneentity Majority of Corp.SolutionsCopyright 2018 Deloitte Development LLC. All rights reserved.PrivateDo you really needblockchain?4

Evolution of the enterpriseTaxation of the exchange of products and servicesCavemanInternetBlockchainBarter exchange –clubs trading for meatVirtual storefrontsUse of TokensDownload softwareDistributed ledgerNo taxSmart contractsMail, common courier,live servicesSaaS/CloudWhere were services performed?Service?Where was title of propertydeemed to transfer?License?TaxabilityCopyright 2018 Deloitte Development LLC. All rights reserved.SourcingSale?Classification5

BLOCKCHAIN IS IMPACTING EVERY INDUSTRY Integrating cryptocurrencies into existinggas station infrastructure Enabling oil commodities investmenttrading in carbon emissions Digitizing warranties for improved management Preventing trade of stolen goods Distributing and trading in digital assetsConsumerbusiness Verifying media authenticity Creating a decentralized,shared economy Transforming phones to portableblockchain walletsEnergy &resourcesMediaFinancialservicesLife sciences& health.Real estate Transferring existing land deeds Migrating the land registry onto atransparent, immutable ledgerPublic sector Managing registered IDs Creating secure voting platforms Time stamping of certificationsCopyright 2018 Deloitte Development LLC. All rights reserved. Supporting seamless cross currencytransactions Facilitating direct peer-to-peerpayments Facilitating clearance of securities Preventing medical data forgery Tracing and preventing counterfeitpharmaceuticals Creating and recording a person’sgenetic mapManufacturing Managing devices such as sensors Enabling machinery to autonomously manageservice times and supply schedules Creating transparency and secure traceabilityof materials6

ClassificationTrade or businesspropertyInvestmentIntended UseHeld for SaleValueFluctuationsFacilitates transactions in anEcosystemUtilityCommodityCryptocurrencyas ationsSecurityUtilityExchangesDerivativesIntended UseExoticfinancialinstrumentsInvestorsCopyright 2018 Deloitte Development LLC. All rights reserved.7

Tax considerationsHow is it used in the Enterprise?CompensationRevenue RecognitionWithholding and reportingBarter TransactionsOptionsBasis ncyas al PropertyNexusSubpart FSourcingComplianceIncome Tax returnsInformational returnsFBARCopyright 2018 Deloitte Development LLC. All rights reserved.8

Panel Q&ACopyright 2018 Deloitte Development LLC. All rights reserved.9

This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professionaladvice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business.Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. Deloitte shall not be responsible for any loss sustained byany person who relies on this presentation.About DeloitteDeloitte refers to Deloitte Tax LLP, a subsidiary of Deloitte LLP. Please see www.deloitte.com/about to learn more about our legal structure. Certain services may not be available to attestclients under the rules and regulations of public accounting.Copyright 2018 Deloitte Development LLC. All rights reserved.

This presentation contains general information only and Deloitte is not, by means of this presentation, rendering accounting, business, financial, investme