Blockchain Technology and Its Impact on Corporate Entities
by Siggy Seibold, KPMG LLP –
September 14, 2018
It is hard to find a day in the last few years where there hasn’t been news or publications on blockchain, bitcoin and other ledger technology topics. Corporate entities have come a long way in the last two to three years on their journeys to adopt blockchain technology. As the technology has matured, it has left the sandbox stage and moved into the adoption stage for large corporations.
In the summer of 2017, a study from Juniper research found that two thirds of the large corporations (those with more than 20,000 employees) surveyed said that they expected the technology to be integrated into their systems by the end of 2018.
What is Blockchain?
Blockchain is a type of distributed ledger database that maintains a continuously growing list of transaction records ordered into blocks with various protections against tampering and revision. The digital record of ownership differs from traditional database technology since there is no central administrator or central data storage; instead the ledger is replicated among many different nodes in a peer-to-peer network, and each transaction is uniquely encrypted and signed with a private and public key.
Blockchain as an architecture concept can be applied to a variety of applications, such as payments, identity, smart contracts and many others. The ledger can also be programmed with “smart contracts,” a set of conditions recorded on the blockchain, so that transactions automatically trigger when the defined conditions are met. For example, smart contracts could be used to automate corporate actions-related transactions or insurance-claim payouts.
In a supply chain context, transactions would be recorded in a sequential block, which allows all involved parties to share the data in real time. Banks can eliminate the risk of fraud by cross referencing the payment of the invoices against a block-chain-based inventory. This prompted bank-led consortia to experiment with ledger-based payment solutions.
How is Blockchain Being Used?
In early 2018, one of the world’s largest container shipping companies and a major technology company developed a blockchain-based venture to digitize an end-to-end supply chain solution. In April 2018, the first smart contract transactions were completed on a blockchain-based international trading system for seven of the world’s biggest banks. It signaled one of the first cases of blockchain entering the mainstream for big financial institutions. The corporate enterprise use cases are beginning to happen on private blockchains, between known and trusted parties.
As the potential of the technology is being better understood, there is a lot of investment going into securing intellectual property. This can be seen in the massive influx of blockchain-related patents that are being filed. Just within the United States, 1,045 patents have been published related to digital currency standards, digital currency exchanges, blockchain algorithms and infrastructure, blockchain front- and back-end applications, and blockchain-related enterprise technology. Financial firms are among the top blockchain patent owners, but retailers are catching up.
One of the core applications for block-chain is with cryptocurrencies such as Bitcoin. Large corporations are now opening their eyes to the capabilities that cryptocurrency developments can have in people’s daily lives. With each development, virtual currencies are gaining acceptance as a legitimate payment option.
Siggy Seibold is a financial services advisory partner with KPMG LLP.
This article appeared in the September/October 2018 issue of New Jersey CPA magazine. Read the full issue.