The Essential Eight technologies Board byte: blockchain

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What should corporate boards know about blockchain?

Blockchain is a nascent technology that can simplify and secure transactions among parties. It is a ledger of all transactions in a network, and it is decentralized, meaning that it is not stored in any single location. Participants in the network themselves confirm the transactions, or “blocks.” So there is no need for a trusted third-party intermediary.

Blockchain in action: the financial services industry and beyond

Companies in the financial services industry have been among the first to adopt blockchain technology. And companies in shipping, manufacturing, consumer goods, automotive and healthcare, among others, are exploring uses for the technology.

How could it be used?

Stock exchanges – Blockchain could be used to facilitate the issuance, transfer and settlement of securities. 

The mortgage industry – Real estate registry records are often antiquated, paper-based and located across various governmental agencies. Moving these documents to a public ledger would streamline the process, reducing the time, paperwork and costs involved in the process.

Shipping and supply chain management – Moving freight across the globe is a big business. One error or discrepancy in the data can wreak havoc, causing major delays and increased costs. Blockchain potentially offers a way to improve efficiency and transparency in global trade, as well as to lower costs. Other companies are exploring how to use blockchain to improve food safety and origin tracking throughout the supply chain.

Even the government is getting in on blockchain – The US Department of Homeland Security is looking to blockchain to process international travelers, secure data collected by cameras and other devices at US ports of entry and to facilitate trade across borders. Other potential uses by the government include collecting taxes, issuing passports and recording land transfers.

Questions boards can ask management about blockchain:

Boards will want to understand the opportunities and risks that come with blockchain. Here’s what boards can ask management about how blockchain will fit into the company’s strategy:

  • Have we thought about how we could use blockchain technology and considered the pros and cons? What are our competitors doing? What are the security and privacy risks, as well as mitigating factors, of using blockchain
  • What would our blockchain business model look like? Would we use a public or private blockchain? What vendor would we use? How much would it cost?
  • Do we have the systems and technology to support blockchain technology? What controls do we have in place? What are our backup business continuity plans if blockchain goes down? How does blockchain fit into our data protection strategy?
  • Have we discussed how to audit blockchain technology to ensure trust in the system?
  • What are the regulatory, compliance, accounting and other business issues blockchain could pose?

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