The End of Intermediary: Blockchain

While Bitcoin is the first and most well-known application of blockchain technology, the prospects of utilization of the technology goes beyond decentralized currency, opening a new era of distributed solutions. Overall, the blockchain (or distributed ledger technology) is a protocol which facilitates the creation of a common data ledger, which is shared with all members of the network. Every participant acts on the system with encrypted identity (enjoying anonymity), and the transactions conducted are registered in the distributed ledger and shared with everyone. Considering that transactional information is validated by multiple unrelated nodes, there is no need for a trusted intermediary to provide authentication and clearing functions, making the system effectively trustless. Some example applications of blockchain technology are provided below.

1.      KYC/Personal Data – Due to the transparent nature of the blockchain, fraud is easily detectable via the consensus-based protocol. As such, any form of personal data, including data required for KYC, only needs to be verified once. Once that verification has been completed, that same verification can be utilized by other companies, as the information would be stored on a transparent and immutable data storage, on blockchain. The other companies receiving the verification can be sure they have received the genuine verification as any change would be recorded and noted on the blockchain.

2.      Accounting/Auditing – Private and Consortium Blockchains will bring significant simplification to the accounting and audit processes, enabling acceleration, cost reduction and higher efficiency of the procedures. Instead of going through a company’s entire financials for an audit, now all information can be verified on the transparent and immutable blockchain. The cryptographic primitives (timestamped hashing, private/public keys, etc.) inherent to blockchain are highly compatible with several accounting assertions (completeness, accuracy, cutoff, etc.). Furthermore, it is possible to organize third-party confirmations and customer attestations in real time on blockchain (by consensus). Overall, allowing cryptographic protection of the private information, blockchain layer may enable higher interactivity of inputs, facilitating the consolidation and reconciliation of the company data inside a network. All this will lead to exclusion of the several substantive procedures, allowing the auditors to concentrate on more analytical side of the business.

3.      Supply Chain - Emergence of the viable distributed blockchain protocols, which enable the decentralized crosschecking and validation of information will bring a new wave of modernization of the supply chain management systems. The inefficient tracking of cross-border movements of goods (risk of faking, distribution violations), inept inventory management and other supply chain hurdles may be mitigated through blockchain. In addition to the elimination of the intermediaries (cost efficiency) much higher level of verification can be conducted and recorded through blockchain. Again, the transparent and immutable blockchain means that all of the nodes owned by the different companies will be following the same cryptographic protocol to validate changes by consensus, updating and using the same ledger to track all activities.

4. IP and Patent Registration - One of the difficulties of the current IP (as well as patent) registration systems is the trouble to claim the ownership of intellectual property (difficulty to determine the point and date of origination), protect it from the unintentional and targeted violation as well as easy monetization. The immutable and distributed design of the blockchain introduces a more cost effective and efficient way of processing of IP. There are already platforms which are experimenting with storing in the blockchain the unique characteristics of the intellectual property, thus creating an encrypted, auditable ledger of IP data. This data can be more efficiently screened for the violations. At the same time the application of the smart contracts as well as much simpler processes of transfer of IP rights to a counterparty through blockchain, will ensure its easy monetization.