Blockchain: What Boards Need to Know

Blockchain is a hot emerging technology, and it’s changing business across industries and around the world. But PwC’s new Global Blockchain Survey shows that companies are concerned about trust issues surrounding this new technology. What does this mean, and what do boards need to know about blockchain?

For starters, they may have a basic question: What is blockchain? A blockchain is a distributed, tamperproof digital ledger of all transactions in a network. It is decentralized, meaning that it is not stored in any single location, and participants in the network confirm the transactions, or blocks, themselves. This means there is no need for a trusted third-party intermediary. Cryptographic functions ensure the integrity and security of the information.

Second, they may want to know what all the hype is about. A well-designed blockchain reduces costs, increases speed and reach and offers greater transparency and traceability for many business processes. Blockchain technology can have powerful applications in payments, supply chains and even voting. The use cases for blockchain are growing rapidly, including cryptocurrencies and the evolution of digital companies whose financial and operating model is enabled through a token. In fact, the representation of real or virtual assets on a blockchain is spreading to raw materials, finished goods, income-producing securities, membership rights and more.

While financial services are the current and near-term leader in blockchain, the technology is also expanding in industries such as healthcare, industrial products and even auditing. In fact, from research to development to going live, 84% of companies responding to our survey say their organizations have at least some involvement with blockchain technology.

But there are challenges and doubts, as there are with any emerging technology. The biggest ones are around blockchain’s reliability, speed, security and scalability. Companies are also concerned about a lack of standardization and the potential lack of interoperability with other blockchains.

And there are also trust issues around blockchain—despite the fact that the technology is designed to build trust. Blockchain is still very new and complex, causing a lack of confidence by some. Others still struggle to fully understand it. Some companies may also be wary of the idea of working with competitors to build their ecosystems. And there is a lot of regulatory uncertainty around the technology.

Companies and boards have to consider the challenges that come with blockchain. Here are four strategies to help achieve blockchain success:

1. Make the blockchain business case. Ensure that your blockchain initiative has a business purpose around which you and other participants can align.
2. Build an industry ecosystem. Blockchain may call for competitors to collaborate in a new way as they come together to solve industry-wide problems.
3. Determine rules of engagement. Every blockchain requires rules and standards, including around what information participants will be able to access and how they can engage.
4. Navigate regulatory uncertainty. You’ll need to stay agile to meet regulatory requirements as they evolve in the years to come.

Boards are responsible for overseeing digital transformation. Now that they know what blockchain is and why their company may be interested in it, it’s important for directors to understand the opportunities and risks that come with its adoption. Here are some questions boards can ask management about this technology:

• What is the business use case of this technology for our company? Does it fit with our strategy? Have we 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 controls do we have in place to manage those risks?
• What would our blockchain business model look like? Who are the partners we would interact with?

Boards can find more information about blockchain in our piece, The Essential Eight Technologies - Board Byte: Blockchain.