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If digital currencies have proven to be rather resilient, what a bigger reason to believe in the longevity and latent power of the underlying technology set: blockchain. (Photo: Shutterstock)The cryptocurrency crash in 2018 has led some observers to predict their imminent end. However, the recent creation of Fidelity Investments of a cryptocurrency custody unit certainly reflects the credible interest in digital resources between at least some traditional pension funds and asset managers.
With an apology to Mark Twain, therefore, Crypto's death report was "an exaggeration."
If digital currencies have proven to be rather resilient, what a bigger reason to believe in the longevity and latent power of the underlying technology set: blockchain.
A digital adhesive tape
In the realm of social and corporate governance, two of the most powerful blockchain applications are those of supply chain management and so-called smart contracts.
With the evolution of technology, it can become a sort of digital tape for conduits, linking organizational records to an extraordinarily secure, precise and effective system protection and stakeholder transparency.
Blockchain facilitates the sharing of information between and between users of a network through a common list of sequential records called blocks.
Each block contains a validated record / date, plus a link to any previous block, then a "blockchain".
The crowd-sourced and crowd-verified character of such schemes greatly increases their accuracy and, properly administered, can make them virtually tamper-proof.
Above or beyond the blockchain network, smart contracts are computer protocols that allow the engineering of transactions when a set of predetermined conditions are met.
These electronic contracts are self-executed, without the need for third-party verification. In toto, this accounting infrastructure allows companies to track the permanent history of the products they produce, from sourcing to production to sale.
Safety and visibility
The security and visibility offered by this automation can save time and money. Developments promise to solve a number of problems.
Under the status quo, large multinational organizations suffer from labyrinthine supply chain structures made opaque by the difficulty and the cost of tracing each record.
This results in the uncertainty of the counterpart and distrust. Not to mention boredom: with some estimates, the shipment of goods or international input can require the approval of 30 separate individuals and organizations, coagulating the process with delays and inefficiencies.
In addition to the reduction of errors and greater traceability to ensure compliance with corporate standards, blockchain technologies offer other consequent advantages:
- Creating an immutable record, which makes it easier for companies to share data with manufacturers, suppliers and sellers.
- In particular, a lower risk, in general, and greater protection against counterfeiting and gray market trade.
- Elastic scale for network expansion.
- Reduction of paperwork and administrative costs.
- Improvement of corporate reputation among the various stakeholders.
Blockchain in the real world
There are already real examples. One is the successful launch Everledger, which has uploaded unique identifying data on more than a million single diamonds on a ledger blockchain system.
The result is greater protection against crime and insurance fraud. Another result is easier and more reliable compliance with regulatory bans against so-called "blood diamond" products.
In July, the Commonwealth Bank of Australia (CBA) announced that it used the blockchain to successfully track 17 tonnes of almonds sent from Victoria, Australia to Hamburg, Germany. Partners can follow the shipping positions and conditions (think: temperature and humidity) in real time.
According to CBA, the fortified supply chain allows partners to upload and access documents – such as bills of lading, certificates of origin and other documents required by customs – which has greatly simplified their process.
Earlier in 2016, CBA and Wells Fargo announced they had used blockchain to track a shipment of 88 cotton bales from Texas to China. (This implied the execution of a letter of credit through an intelligent digital contract stored on a private accounting register).
In August, IBM and Maersk launched a blockchain-based global shipping tracker that was able to record critical data (think: weights and temperatures) on each shipment in a supply chain, re-generating a record distributed and immutable in time real.
Participants include 20 ports and terminal operators worldwide, in addition to customs authorities. The companies reported that the solution could reduce the transit time of a shipment of packaging materials by 40% to a production line in the United States.
Not without challenges
To be clear, as these technological solutions evolve, multiple challenges arise.
From a practical point of view, the capital and operational expenses necessary to cover the development and implementation of the system can be prodigious.
Furthermore, few organizations will start with a clean slate: they will integrate into a built environment of existing risk management systems and structures. Finding and nurturing the talent necessary to make this happen will also prove daunting to many.
On a purely technological level, IT security remains more than slightly problematic. Less scary, but sometimes just as complicated, the acquisition of systems and licensing can create a huge amount of time.
The replacement of the legacy systems mentioned above will also require interoperability with internal and external users. In addition, data storage requirements will require special attention.
Last, but not least, comes the long arm of the law. Internal legal departments will have to take a sharp look at the intricate standards and requirements for enhancing IT security. Likewise, they will have to carefully evaluate the new decentralized responsibility, the issues of ownership and ownership and the aggregated jurisprudential uncertainty that accompanies this infantile dynamic.
On balance, the promise of blockchain is almost blinding. Make sure you have the right glasses.
Stephen J. Obie is a partner of Jones Day, where he is the leader of his Blockchain initiative. This article represents the personal opinions and opinions of the author and not necessarily those of the law firm with which he is associated.
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