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  1. Blockchain for lasting change: What every CEO should know before piloting its implementation

Blockchain for lasting change: What every CEO should know before piloting its implementation

There is a case to be made for implementing blockchain across industries—for stock trading, for supply chains to track an SKU from manufacturing to retail, in public sector for land registries.

By: | New Delhi | Updated: October 9, 2018 2:25 AM
Blockchain is still evolving for business use, and there is lack of platform standardisation and standard protocols for development.

-Akhil Bansal

The last few years have seen rampant surge in technologies being positioned as business-defining. One such is blockchain, which, at its core, is a distributed ledger technology that promises transaction transparency and authenticity.

There is a case to be made for implementing blockchain across industries—for stock trading, for supply chains to track an SKU from manufacturing to retail, in public sector for land registries. But, as is the case with all pioneering technologies, blockchain, too, is riddled with complexities that organisations need to evaluate before committing.

Legal & regulatory concerns: In blockchain implementation, data is distributed across computer systems and nodes, which may not all be on a network controlled by your organisation. As a result, data privacy concerns arise. As do issues of data ownership, jurisdiction and applicable data privacy laws, particularly if data is shared across countries. There is lack of legal oversight and understanding, and of laws governing sharing and privacy of data in the blockchain environment. Until we do not have compatible laws governing customer verification, addressing money laundering, and specifying tax and accounting requirements, blockchain adoption could come with its share of concerns. Interestingly, blockchain, as is, doesn’t address all the requirements of General Data Protection Regulation—the new EU privacy laws—and specifically the law regarding Right to Erasure.

Legitimacy concerns: A concern of blockchain implementation is addressing disputes that may occur at the time of transaction settlement. As transparency, and thus complete audit of transactions, is the foundation of blockchain, it can be assumed that whatever blockchain declares regarding the transaction may be deemed accurate. This, however, may not hold true from a legal or regulatory point of view.

So, while blockchain implementation may be comprehensive from the technology point of view, the legal and regulatory environs need to catch up. If one of the participants of blockchain, however, were a regulator or government representative, this concern may be addressed.

Systems concerns: While the early adopters might have a first-mover advantage, they could also encounter system risks as the technology is yet to be tested in various business environments. One of the key risks is security breach. The information stored in a chain is as confidential as the information stored on the weakest node. If we do not secure a node appropriately, the computer system or mobile device is susceptible to security risks. Thus, security best practices are essential at all points of blockchain implementation.

Blockchain is still evolving for business use, and there is lack of platform standardisation and standard protocols for development. This elicits additional measures for security. The integration of the technology with existing systems of the organisation may pose another hurdle since the technology scalability across industries, businesses and systems environment is yet to be tested. Since blockchain implementation may warrant integration with existing back-end and enterprise-wide systems, it can result in redesigning of systems and processes. The security risks arising from such integration will need to be identified and addressed.

Intrinsic concerns: As blockchain requires replication of information across systems, resource requirements in terms of systems capacity, network capability & power consumption are high. While blockchain enables data integrity, it might not be the most efficient way of processing transactions. These translate directly to rise in costs, which must be factored in by organisations considering blockchain. Also, since blockchain works on the belief of truthfulness and integrity of a group, if someone were to acquire a majority stake in the group (an individual or a company having control of over 51% of the nodes), it would be possible to manipulate blockchain. If blockchain were to be taken over, it could be susceptible to real-world fraud equivalents of insider trading or pump and dump (artificial stock price inflation).

While there are concerns regarding the implementation of blockchain, these cannot be considered insurmountable hurdles. Over time, the technology is likely to evolve, regulations be put in place, standardisations may be adopted and security concerns could be addressed. Any organisation considering blockchain implementation must assess the applicability to its specific business processes and systems, and cautiously select the right technology platform and partner to achieve desired outcomes.

-The writer is Deputy CEO, KPMG in India

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