Many think of blockchain as a technology which is solely related to digital currency, which was its original purpose back in 2009.
Blockchain has evolved into something much more than cryptocurrency use. In the broader sense, blockchain allows digital information to be stored and distributed without requiring a central party, through a shared and continuously reconciled database, which database is public (not stored in one single location) and easily verifiable. Blockchain is capable of recording and tracking a multitude of transactions, from financial ones, to supply chains, land registries and medical records.
The emerging technology which underpins the network is a powerful tool which should be sensibly understood by business leaders in order to assess the potential return on investment of a blockchain. The technology should be viewed as a means to address a specific need as opposed to a goal in itself or a one-size-fits-all solution to all problems.
Before fully embracing the potential of blockchain, one will likely question what the benefits for implementing a blockchain network are as opposed to a traditional network, and what the costs and risks are.
In order to adequately address such questions, one will first need to identify and understand the problems which a business is trying to solve, and the added value which blockchain technology will deliver to a particular-use case.
One of the most relevant use cases of blockchain technology is its application in the supply chain and logistics industry. The number of intermediaries involved in a supply chain, ranging from producers to suppliers and distributors, creates a huge need to implement a level of trust among the multiple parties involved to ensure that the end product is authentic and delivered to the customer efficiently and of the highest quality standards.
The consumer purchasing the product will want to ensure and verify the authenticity of the product and guarantee that the product is rid of illegal practices and is not counterfeit. Due to the complexity and lack of transparency involved in current supply chains, there is benefit in applying blockchain technology which will ensure that all levels of a chain of supply are recorded, stored and verified on a blockchain.
Blockchain technology adds value by fundamentally eliminating the need for trust between multiple parties involved through an immutable ledger of transactions that has no single point of failure.
Blockchain creates trust and transparency in the data stored and disintermediates the reliance on a centralised party or authority. Information, once stored on a blockchain is verified as true and cannot be tampered with, parties will therefore rely on the technology as opposed to the parties involved.
Information, once stored on a blockchain is verified as true and cannot be tampered with
Tracking and recording of data on the blockchain occur through the storage of digital data on blocks, which blocks once created are chained together in a continuous line to form a blockchain. Once the blocks have been confirmed the data stored on each block is not capable of being changed and hence is deemed to be immutable and is publicly available for anyone to view.
Designed to be decentralised and distributed across a large network of computers, which decentralisation of storage of data reduces the ability of tampering and fraud to data stored.
Food safety and traceability is another industry which is seeing transformation onto the blockchain.
It is imperative to have accurate records which trace each food item to its origin in order to comply with food safety regulations – however, this requires a level of trust in the supply chain trading partners.
Walmart is studying the transition of its supply chain onto a blockchain to keep track of food items, such as pork sourced from China and information and records on the origin of each piece of meat, how it was handled, processed, stored and delivered to distributors.
In September, Walmart announced that it was requiring all its suppliers of particular vegetables to upload their data to the blockchain by September 2019, ensuring the food safety process is more traceable and transparent to end consumers. By transitioning to a blockchain supply chain, Walmart found that in terms of the time it takes to trace the course of particular foods this could be reduced from approximately seven days to mere seconds.
To the extent that one’s business does not require the need for a shared common database for the distribution of information and does not involve multiple parties who have conflicting interests and/or would not trust each other, the use of blockchain technology might not necessarily result in value added or return on investment. Assessing the return on investment that blockchain technology can bring to a business may be a daunting task; however, by exploring use cases and learning from the blockchain community who are already building networks can provide invaluable insight.
Malta has set itself apart through the implementation of a legal framework regulating virtual financial assets and also a separate regulation which will provide the possibility of certification or recognition of technology arrangements. Regulation combined with the implementation of use cases for blockchain technology is essential in ensuring a budding transparent ecosystem.
Christina Scicluna is a senior associate in the corporate and fintech department, Mamo TCV Advocates. She started her legal career with one of the Big Four firms in the personal tax department, specialising in personal tax compliance and personal tax advisory services including advising high-net-worth individuals on matters relating to taxation and immigration. Dr Scicluna advises a variety of multinational clients on international corporate structures. She has also formed part of the internal Blockchain Committee at the firm which was set up in September 2017 and which today is known as the fintech department. She handles all legal matters related to blockchain, fintech, cryptocurrency, Initial Coin Offerings (ICOs), exchanges and distributed ledger technology projects.
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