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Blockchain FAQ

Trust in every transaction

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Blockchain FAQ Blockchain technology has some amazing potential for today and tomorrow. The following questions introduce you to blockchain technology and how it’s already helping innovative teams achieve real value.

What is blockchain? Brief Definition: Blockchain is a technology that can help track and transfer assets, record payments in smart contracts and memorialize interactions in a secure, trusted and transparent system. Blockchain provides enhanced trust as compared to traditional databases and applications, particularly as a way to exchange value without intermediaries.

Technical Elaboration: Blockchain architectures employ a distributed ledger and cryptographically-signed transactions, transformed into "blocks" to form a chain that is immutable and virtually impossible to forge and that allows for participants to audit any transaction with full transparency.

How is blockchain different from cryptocurrencies like Bitcoin? To use an analogy, Bitcoin and other cryptocurrencies are like applications that run on the blockchain operating system. Technically, a cryptocurrency is a type of digital asset – a non-physical attribute that is created and/or recorded on blockchain technology.

Blockchain is a distributed ledger technology that can serve many purposes beyond cryptocurrencies.

How do I know whether my organization should use a cryptocurrency? An organization should only consider acquiring cryptocurrencies if it creates value for the organization. Further, an organization should only plan on maintaining a cryptocurrency if the organization has a need that justifies the effort required and the controls in place to accurately manage and report the digital assets. Organizations should be aware of the laws, regulations, accounting rules and guidelines are that are beginning to emerge in this space.

How do I know whether my organization should use blockchain? Many organizations that consider using blockchain technology find that they can best meet their needs with traditional databases. Organizations should use traditional databases instead of blockchain technology if speed and privacy are bigger priorities than party trust and resiliency. 

Consider using blockchain technology when traditional transaction models do not provide sufficient trust (of the participating parties) or resilience (of the underlying transactional systems).

What are some use cases for blockchain? Blockchain can be useful whenever separate parties must trust that transactions are recorded securely. Some pressing use cases for blockchain technology are intercompany transfers, contracts, regulatory compliance, chain of custody for court evidence and the financial services industry. Other compelling use cases center on asset management, supply chain management, digital identity management, asset tokenization and transactions (security) clearing, but the saturation of blockchain technology in these markets is yet to be determined.

Blockchain is most suited to transactional systems that currently rely on intermediaries and are subject to the “friction” of added costs, delays, paperwork and the need to trust participants that are not a party to the transaction. It will be exciting to watch the innovation in this space.

Where should my organization start with blockchain? Organizations should weigh a variety of considerations as they plan their approach to blockchain technology.

First, organizations should realistically consider their long-term interest in the technology. If blockchain technology is only of general interest, they should consider collaborating with platform providers or vendors that have already developed solutions for related industries, products, services, or business models. However, if blockchain development is consistent with the organization’s long-term strategy, the organization could focus on developing custom applications to support functions such as intercompany transfers, contract administration, supply chain management, or human resources complaint adjudication.

If cryptocurrencies are part of a solution, organizations need to determine whether to hold – and report – the digital assets on their financial statements, making sure to understand the regulatory obligations, financial reporting and tax implications of this decision.

Contacts:

Markus VeithMarkus Veith
Partner, Financial Services
T +1 212 624 5370


Johnny LeeJohnny Lee
Principal, Forensic Advisory Services
T +1 404 704 0144