The financial services and banking industries are always looking for ways to make financial transactions more secure, so it makes sense that they’d be keeping their eyes on the development of cryptocurrency. The terms Bitcoin and cryptocurrency are becoming more familiar than they’ve been in years past. Cryptocurrency makes use of a type of technology called blockchain. As with many new things, it’s taken us a while to understand how blockchain works and how it might be used in other applications to improve business processes.
The first industries to begin taking advantage of blockchain technology are the banking and financial services industries. The results are promising, and they are motivating other industries to explore how blockchain technology may benefit them as well. Corporations in shipping, manufacturing, consumer goods, automotive, healthcare and other industries are considering the best applications for blockchain within their industries.
What Is Blockchain?
Blockchain is a type of technology that was originally designed to manage the accounting needs for Bitcoin. It’s a digital ledger for economic transactions that users can program to record financial transactions and transaction for other items with value. Designers claim that the technology is incorruptible and once a transaction has been recorded, it can be deleted.
When someone adds a transaction, which is also known as a “block,” to the ledger, it becomes part of the perpetual, collective database. Users add blocks through cryptography, which is why it’s impossible to corrupt them. It’s not possible to copy the data, but it can be distributed.
Ways That Blockchain Could Be Used
Blockchain is also referred to as distributed ledger technology (DLT). Major stock exchanges followed the banking industry’s interest in blockchain’s potential. There is some thought that blockchain could completely transform the accounting field.
Blockchain technology could be used to manage the issuance, transfer and settlement of securities. Since 2015, NASDAQ has been testing blockchain with positive initial findings. NASDAQ notes that the potential benefits of blockchain could decrease costs, reduce complexity, increase the pace of trading and settle processes more securely. Blockchain technology could benefit exchanges by keeping accurate records of stock ownership. These benefits mean that buying and trading stock would become more affordable and transparent.
The mortgage industry is a paper-laden industry in which registry records are often antiquated. Multiple government agencies may retain copies of documents. Blockchain technology would move all transactions to a public ledger, which would cut down on processing time, waste less paper and reduce paper use. All of these measures would save companies money.
Shipping and Supply Chain Management
Many details must be in place before a company moves its freight across the globe. One simple error can cause major delays and increase costs. Industry experts agree that blockchain technology has the potential to improve efficiency and transparency in global trading, as well as decrease costs.
The United States Department of Homeland Security is exploring how blockchain technology can process international travelers, collect data from security cameras and secure data from other devices at border security checkpoints to help aid in trading across borders. Blockchain technology may also be a valuable tool for collecting taxes, issuing passports and recording property sales.
What Do Boards of Directors Need to Know About Blockchain?
Blockchain is a topic that is just now taking up space on board agendas. There is some thought that blockchain could revolutionize some industries and completely change the face of others. It’s better for boards to get blockchain on their agendas as a strategic matter and a competitive risk, and sooner, rather than later. In addition, there is some suspicion that blockchain technology could stimulate major changes, such as affect the balance of power between board directors, executives and shareholders.
Blockchain technology also stands to change the face of corporate voting, making it more accurate, and possibly change such practices as empty voting or non-voting as a strategic move.
It’s probable that blockchain won’t become part of the mainstream for many years, but this is the prime time to consider that blockchain could become a major game-changer that has the potential to alter the current landscape of the marketplace and redirect current business models. Something boards would need to consider is how the business models could change and what effect that would have on other areas of their planning and oversight.
If a move toward blockchain becomes imminent, boards would need to factor it into their overall strategy and make any adjustments where it affects other areas. Boards would need to work with their managerial teams to develop a strategy for implementation internally and externally with third parties.
Boards would also need to consider the pros and cons of using blockchain and ensure that the company gains enough benefit from it to counter any negative side effects. Blockchain is a new technology that would require education for the board and managers on how to maximize its benefits. At the same time, boards would need to evaluate and identify any risks that may emerge and have risk management plans in place that are flexible enough to adapt through the learning curve. The leadership would need to rely on experts to learn what controls they need to have in place to support blockchain technology so that they can figure out how blockchain fits into the current data protection strategy.
If blockchain should somehow fail, the boards and managers would need to develop some sort of continuity plans to keep the business going.
Company leadership would also need to consider that their competitors may also be moving in the direction of using blockchain. They may need to look at whether it’s better to be an industry leader in this area and quickly gain from being a frontrunner or be a close follower and learn from the early mistakes of their competitors. It’s particularly important that these discussions be confidential. A board management software solution such as Diligent Boards and Governance Cloud, where the board can broach this emerging topic from all angles using a highly secure digital platform, is a necessity.
To address the need for information and education on blockchain, boards would also need to develop plans to acquire the necessary blockchain and digital ledger skills and abilities within the company to prevent any pitfalls and ensure that implementation is strategically monitored.
From a compliance standpoint, boards would need to investigate the response of regulatory bodies and authorities that set standards. Along those lines, boards would need to find a way to audit blockchain processes to ensure accuracy and trust within the system.
Boards should consider this information the tip of the iceberg and be committed to learning as much as they can about blockchain.