Blockchain and Governance

According to a 2018 Survey by PwC, 32% of Companies are in a developmental stage with blockchain technology. It comes as no surprise as it continues to be one of the highly watched emerging technologies as it is deemed to be one of the most impactful and disruptive across multiple industries. While the excitement has probably decreased since 2018 due to the bear market, key industries continue to develop their technology given the benefits offered. However, as many continue forward, many are discovering that governance is a key factor when creating these solutions.

New technology of any kind brings new risks to consider as the learning curve itself brings challenges needed to be considered when deploying new technology. Most often, controls are needed to be deployed to ensure that the risks associated with changes and new technology are adequately monitored as errors can be costly from many perspectives. For blockchain, ensuring that all stakeholders associated with a project are aligned is a key factor to ensure these controls and governance. Information Technology, Compliance, Finance and many others must be integrated when deploying these solutions.

While the promise of the benefits of blockchain are exciting to see upon deployment, transparency and immutability mean nothing without the proper controls in its deployment. The old thought of “garbage in, garbage out” is a likely consideration when evaluating any processing of data. That is why managing a controlled workflow of not only the process but also the code is imperative to the framework. Even within the code, features like platform, protocol, consensus, and encryption each have their set of implications to a project.

This leads to a major implication for blockchain development in that traditional audits are now obsolete as they are based on a review of a point in time whereas blockchains do not stop processing as part of their network protocol. Despite the transparency and immutability of the ledger, the everchanging data will make any audit old and outdated. PwC created six risk areas which they believe will be the foundation for control frameworks regarding blockchain in the future:

-Governance and oversight
-Cybersecurity
-Infrastructure
-Architecture
-Operational
-Transactional

This also supports their view of moving towards a continuous audits using real-time techniques that rely on code to monitor and test for variances while providing ways to report and issue findings on processes and transactions. While it makes it a more expensive process, it is able to capture problems before they become too large too handle and improve continued efficiencies in the business process flow. This basically is a risk management tool that is real time instead of retrospective like current Enterprise Risk Management frameworks.

While blockchain eliminates the need to “trust” a third party, trust must be place in the network itself before relying on its results. The frameworks created will be a fundamental part of how adoption can occur for blockchain technology given the lack of knowledge in blockchain development these days. While blockchains like Bitcoin and Ethereum have the test of time behind them, most smaller scaled and private blockchains will not which is why governance will become a key part of them. It will also be a key opportunity for those seeking to learn and participate in an emerging technology!

Source: PwC - Governance in the Age of Blockchain Distributed Ledger Technology
https://www.pwc.com/us/en/about-us/new-ventures/assets/pwc-governance-in-the-age-of-blockchain-distributed-ledger-technology.pdf

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