Blockchain is here, and it’s changing business worldwide. But a new survey by PwC shows that companies are concerned about trust issues surrounding this new technology. So, what do boards need to know about blockchain? Here are the basics, from the insights found in our Global Blockchain Survey.
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.
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 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, some might say we’re now in a “token economy,” with the representation of real or virtual assets on a blockchain spreading to raw materials, finished goods, income-producing securities, membership rights, and more.
Enterprise software platforms—the engine for company operations like finance—are beginning to integrate blockchain as well. Companies can streamline processes, facilitate data sharing, and improve data integrity by using blockchain with their enterprise resource planning (ERP) systems.
While financial services is the current and near-term leader in blockchain, the technology is expanding in industries such as healthcare, industrial products, and even auditing. 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.
As with any emerging technology, challenges and doubts exist 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.
Ironically, there are also trust issues around blockchain—a technology designed to build trust. A lack of confidence exists for this new and complex technology, as well as a limited understanding among users and stakeholders. Even now, many executives are unclear on what blockchain really is and how it is changing business.
Some companies may be wary of the idea of working with competitors to build their ecosystems. And there is a lot of discomfort with the regulatory uncertainty around the technology. According to our survey (see graph below), the top three barriers to blockchain adoption center around trust: regulatory uncertainty (48%), lack of trust among users (45%), and the ability to bring a network together (44%).
How Companies and Boards Can Face the Challenges
To overcome the trust paradox, companies need to focus on four things:
- Make the blockchain business case. Ensure that your blockchain initiative has a business purpose around which you and other participants can align.
- Build an industry ecosystem. Blockchain may call for competitors to collaborate in a new way as they come together to solve industry-wide problems.
- 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.
- Navigate regulatory uncertainty. You’ll need to stay agile to meet regulatory requirements as they evolve in the years to come.
Boards need to understand what the company is doing around emerging technologies like blockchain, as well as the opportunities and risks that come with adoption of the technology. Here are some questions boards can ask management about blockchain:
- 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?
Want more information about blockchain? Read PwC’s Global Blockchain Survey and The Essential Eight Technologies – Board Byte: Blockchain to learn more.