Over the past year, the term blockchain is one which is garnering much attention. The concept of a cryptographically secured chain of blocks, however, is not of something new. Dating back to 1991, Stuart Haber and Scott Stornetta questioned the prospect of time-stamping on digital documents. So, why does this matter and what is the impact on the world of contract management?
As a first step, let’s understand what a blockchain is and how it works. According to The Wall Street Journal, a blockchain is “a data structure that makes it possible to create a digital ledger of transactions and share it among a distributed network of computers." Once a block of data is recorded on the Blockchain ledger, it becomes immensely difficult to edit or delete – and in each block, there is a secure UNIX timestamp (as Haber & Stornetta figured out years ago!)
So, how does blockchain work? These blocks contain digitally recorded data that are stored in a linear chain. To maintain the anonymity of the transaction data, each block is cryptographically hashed. According to Alan Morrison’s article on blockchain, “a hash is a unique identifier and shortcut that was created when actual transaction data is passed through a cryptographic tool in order to keep transaction data secret." Each block of hashed data draws upon the prior block in the chain, thereby creating a strong link of blocks.
Blockchain for Contract Management Practicalities
Despite the hype and its potential to transform an organization’s operating model, Blockchain technology is relatively new, and requires much more research and validation. For example, during a panel discussion at a Health Conference in Nashville, Andrew Beal, a Blockchain and Distributed Infrastructure Lead at Ernst & Young (EY), noted that “The tech is immature. Everything is in proof of concept (PoC) stage with dummy data and a couple partners." Wayne Vaughan, the founder and CEO of Tierion, a global platform for data verification, chimed in and agreed that the market is still too immature for production-ready services. James Moreau, from The Economist, also explains why blockchain technology will not progress as fast as others have predicted. The author believes that the technology will only be successful if a large number of organizations start adopting and collaborate blockchain technology– which is not exactly the case right now.
In the world of contract management, blockchain-based technology has been used to produce smart contracts (i.e., contracts that can be completed without human interaction). However, the International Monetary Fund (IMF) suggested that the lack of use cases [in smart contracts] results in an ambiguous legal status. In addition, one of the few real-world implementations of blockchain technology in contract management (Decentralized Autonomous Organization, DAO) gained a notorious reputation of launching smart contract software with an astounding US$150 million in mid-2016 but was hacked in less than a month. This hack resulted in a loss of approximately US$50 million in cryptocurrency. In an article published by the Business Insider in June 2016, not only did the value of the specific cryptocurrency (Ethereum) significantly depreciate against the US dollar within a few hours of the hack, but the transaction volume of Ethereum spiked tremendously, stipulating “panic selling."
Blockchain & Contract Management Top 5 Predictions
Regardless of its challenges, blockchain technology is a much needed element to an era of disruption. Our top 5 predictions of how Blockchain will impact the world of contract management:
- Blockchain may be the epitome of global searchable database and/or repository as it is a global distributed ledger (i.e., database) that can be viewed by the general public and records every single transaction, i.e... titles, deeds, money, art and votes on the network, storing them securely and privately. Note that this does not mean that everyone can see the actual content of the transaction as the information is protected by a private key.
- Blockchain presents the ability to contract more easily in an open market as it is a new platform for originators of intellectual property to get the value they create without the need of a third party. For instance, Grammy-winning artist Imogen Heap developed “intelligent songs" with built-in smart contracts that allow artists to sell their work directly to consumers without going through a third party.
- Tighter security as each record within the database (or blockchain) has a specific timestamp and link to the previous block. On top of that, blockchain’s decentralized approach presents some advantages to resist modifications to the data once recorded – although, this does not entirely remove the possibility of data being altered.
- The genesis of new regulatory framework as blockchain is such a new technology – laws surrounding consumers, investor protection, security, money laundering, and so on has yet to be defined.
- Microsoft Azure continues to play a crucial role in the Blockchain space. Microsoft first joined the blockchain league in late 2014 when it announced its partnership with BitPay, a bitcoin payment provider. In November 2016, Microsoft announced its plans to “enter the next phase of its blockchain work with the formal launch of its Ethereum Consortium Blockchain Network."
¹ Haber, S. & Stornetta, W.S. J. Cryptology (1991) 3:99. Doi: 10.1007/BF00196791. Retrieved from: https://www.anf.es/pdf/Haber_Stornetta.pdf
² The Wall Street Journal (2016). CIO Explainer: What is Blockchain? Retrieved from: blogs.wsg.com/cio/2016/02/02/cio-explainer-what-is-blockchain/
³ International Monetary Fund (2016). Virtual Currencies and Beyond: Initial Considerations IMF Discussion Note. International Monetary Fund. P. 23. ISBN 9781513552972. Retrieved 5 January 2016.
This blog is made available by Corridor Company to provide helpful information and thought-provoking on-going discussions. Any views or opinions represented in this blog are personal and do not represent those of people, institutions, or organizations that the author may or may not be associated with in professional or personal capacity, unless explicitly stated. Any views or opinions are not intended to malign any religion, ethnic group, club, organization, company, or individual.
All content provided on this blog is for informational purposes only. The author of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The Company will not be liable for any errors or omissions in this information nor for the availability of this information. The Company will not be liable for any losses, injuries, or damages from the display or use of this information.
Comments are welcome. However, the blog owner reserves the right to edit or delete any comments submitted to this blog without notice due to:
- Comments deemed to be spam or questionable spam
- Comments including profanity
- Comments containing language or concepts that could be deemed offensive
- Comments containing hate speech, credible threats, or direct attacks on an individual or group
The blog owner is not responsible for the content in comments.
This policy is subject to change any time.