What is the Future of Blockchain, and How Should Companies Use it?
Following a panel on blockchain and cryptocurrencies held on Feburary 27, Patricia Connolly, Executive Director of the Center for Corporate Governance at Drexel’s LeBow College of Business, and Richard Godwin, Blockchain Strategy Lead at SEI Investments Company, help bring clarity to blockchain’s mystery.
Blockchain’s potential to disrupt various industries and ultimately, the economy, has many people talking. The technology could conceivably change the way transactions – both financial and logistical – are processed. It’s important to understand the underlying technology in order to consider blockchain’s future applications.
The term “blockchain” is everywhere these days. From its architectural benefits to its use in cryptocurrencies like Bitcoin, blockchain is gaining traction, making it imperative for industries, executives, and regulators to gain a fundamental understanding of the technology and its possible applications.
What is blockchain, and how can it be utilized?
As a result of the 2008 financial crisis, Bitcoin was anonymously developed with the goal of creating a decentralized form of currency that did not rely on banks and their intermediaries. The cryptocurrency effectively provides a digitally distributed accounting ledger, and there are no central authorities needed to maintain it. Bitcoin’s blockchain serves as the record-keeping function, which enables its users to easily transfer ownership of Bitcoin to other network participants. Blockchain’s ledger function is what has drawn the attention of many businesses across a variety of industries.
Each transaction on the ledger is digitally broadcast to all parties in the network, who then verify the validity of the transaction. Not all enterprise blockchain implementations are alike. Cryptocurrency architecture typically processes transactions in “blocks” that are then added to a “chain,” while other blockchain implementations have adapted the architecture by trading some of the unique cryptocurrency designs for better scalability and functionality in an enterprise setting. However, similar key features exist across all platforms:
- Redundancy – All participants maintain their own copies of the ledger and are notified when their respective copies are not in consensus with the other participants’.
- Disintermediation – Automatic updates to the ledger eliminate network breaks, as there is no reliance on centralized changes or system approvals. The technology is inherently “trustless” because blockchain creates a transparent, indelible record of transactions and provides a way for all participants to safely share and access data in a public network setting.
- Automation – Businesses can leverage smart contracts that interoperate with the ledger to automate business logic related to the shared ledger data. This reduces the need for manual reconciliation across multiple organizations who are parties to the ledger.
The underlying blockchain technology has applications that could result in substantial changes to how businesses and individuals transfer information. Any industry in which transactions require a permanent record and trust from all parties can benefit from and potentially use the technology. More specifically, blockchain can simplify paper-intensive processes that require an accounting ledger. Process-heavy practices, such as real estate title issuances and transfers, contract execution, insuranceor trade finance, could similarly extend blockchain technology to digitize and mechanize current processes. Executives even have the opportunity to incorporate blockchain technology into their roles on company boards. For example, some have identified blockchain as a technology that could be applied to proxy voting in order to reconcile and capture votes, as well as deliver the results in an indisputable format. Though these areas are currently being explored, and real enterprise solutions do not yet exist, many organizations can potentially transform the way they conduct business with blockchain.
What can be done to ensure companies and their boards are aware of blockchain?
In July 2017, Delaware was the first state to pass measures allowing businesses incorporated in the state to utilize blockchain technology for record-keeping, including maintenance of shareholder and stock issuance lists. Because Delaware is the site of incorporation for more than 60 percent of U.S.-based corporations, a large number of businesses now have the opportunity to implement blockchain technology for record-keeping practices.
It is imperative that board members gain an understanding of the underlying technology and the ways in which it could positively or negatively disrupt their organizations. Connolly believes that company boards cannot wait until blockchain is being adopted; they must gain an understanding of the technology now, while it’s in development. Board members of companies that may be impacted by blockchain technology should get involved in industry groups that provide education and insight into blockchain’s potential impact on certain businesses or practices. Investing in blockchain research and platforms could prove to be beneficial for each organization in determining how the technology can be strategically leveraged.
Connolly also encourages boards to utilize their organizations’ chief information officers, if they have one. Inviting CIOs into the boardroom for regular conversations about current and future blockchain opportunities will help board members hear firsthand about the company’s plans for emerging blockchain applications, as well as build buy-in from company leadership.
What will be blockchain’s impact five years from now?
It’s difficult to predict the future technology landscape and exactly how blockchain fits in, but Godwin has identified a few areas of potential impact. Five years from now, it’s possible that a central bank will hold Bitcoin on its balance sheet, making the cryptocurrency increasingly accessible and liquid. Cryptocurrency’s lack of intermediaries makes transferring value a completely new and unique experience. Godwin also expects that blockchain technology will be particularly valuable in the finance, healthcare and insurance industries. These industries rely on permanent record-keeping and the efficient processing of financial and informational transactions – areas where blockchain can streamline current processes. Additionally, new internet architectures built upon blockchain could emerge. A few large companies get value from users’ data with the current internet design. Blockchain could aid in pushing that value back into the users’ hands by decentralizing data storage and enabling users to control which applications can access their data and monetize it. Users could get paid in exchange for revealing their data to these new internet applications.
Keeping up with technology’s rapid evolution can be challenging, but the earlier that organizations begin conversations about next-generation technologies like blockchain, the more likely they will be able to take advantage of and integrate these developments.
Richard M. Godwin leads SEI’s corporate blockchain program, which supports the company’s various business units, information technology, and operations. In this role, Richard makes recommendations for blockchain initiatives and implementation, and oversees reporting project progress and risk to key stakeholders. While attending law school at Rutgers University, Richard discovered Bitcoin and spent most of his free time researching and studying the cryptocurrency, blockchain, and economics. When he graduated, he decided to transition from law to finance. After joining SEI’s fund distribution center, Richard moved into a Blockchain Research Analyst role and subsequently, Blockchain Strategy Lead. Richard is currently finishing his master’s degree in Financial Services from Saint Joseph’s University.