Effective strategies for blockchain

Nuts-and-bolts decisions about distributed ledger technology require careful planning.

Many blockchain discussions in boardrooms and newsrooms focus on the significant opportunities this technology presents in such applications as smart contracts, digital transactions, and identity management. These opportunities are very real, but organisations may be overlooking—at their peril—other equally important considerations.

Although blockchain could eventually prove even more transformative than its most enthusiastic advocates currently predict, implementing this technology and maximising its ROI are apt to be more challenging than many realise. Considerations for CIOs and business leaders include:

Blockchain consortia. Blockchain ecosystems typically involve multiple parties in an industry working together to support and leverage a blockchain platform. According to one recent estimate, 25 major blockchain consortia are currently operational worldwide. To work effectively, consortia need all participants to have clearly defined roles and responsibilities as well as aligned incentives. Without detailed operating and governance models that address liability, participant responsibilities, and the process for joining and leaving the consortium, it can become more difficult, if not impossible, to make subsequent group decisions about technology, strategy, and ongoing operations. Moreover, some parties whose participation is critical may be hesitant to engage at all. In a 2016 survey1 of 3,000 executives conducted by Deloitte and the European Financial Management Association, 46 percent of respondents cited lack of ownership and accountability as concerns preventing them from starting blockchain journeys.

Flexible architecture. Blockchain is a young technology that continues to evolve rapidly. Even the most mature protocols can see significant updates as often as every six months. These updates are, in most cases, necessary and benefi- cial. However, if made incorrectly, they can cause breakages and disrupt interoperability among the new and legacy technologies operating within a blockchain ecosystem.

Designing blockchain architecture to have a high degree of flexibility can help a blockchain ecosystem sustain changes over time. Approaches for achieving this flexibility may vary, but many involve creating a plug-and-play modular structure that makes it possible to insert modules containing updates and new microservices—think wallets, algorithms, and functionalities—into an organisation’s middleware layer, thus preserving interoperability among disparate systems and preventing breakages. As new microservices roll out, companies will likely be able to unplug their outdated modules and replace them with the latest innovations.

Specialised talent. To maximise returns on blockchain invest- ments, organisations will likely need qualified, experienced IT talent who can manage blockchain functionality, implement updates, and support participants. Yet as interest in blockchain grows, organisations looking to implement blockchain solutions may find it increasingly challenging to recruit qualified IT professionals. At a recent symposium in New York City (U.S.), executives from the financial services and technology industries cited a dearth of blockchain talent as a challenge preventing wider adoption of the technology.

In this tight labour market, some CIOs are relying on technology partners and third-party vendors who have a working knowledge of their clients’ internal ecosystems to manage blockchain platforms. While external support may help meet immediate talent needs and contribute to long-term blockchain success, internal blockchain talent—individuals who accrue valuable system knowledge over time and remain with an organisation after external talent has moved on to the next project—can be critical for maintaining continuity and sustainability. CIOs can be prepared to train and develop internal talent while, at the same time, leveraging external talent on an as-needed basis.

To be sure, consortia, legacy architecture, and talent are not a CIO’s only blockchain considerations. A blockchain solution will likely disrupt current approaches to risk management, cybersecurity, and regulatory compliance as well. Moreover, questions about the applicability of current tax law to certain blockchain transactions—particularly those involving a cross-border transfer of funds— have not been answered definitively in tax jurisdictions around the globe. Yet however challenging, disruption at this scale is neither new nor insurmountable. In the past, business and society have transformed themselves to accommodate historic changes to the power, transportation, and information landscapes. With careful planning, time, and a little courage, we can do it again to accommodate blockchain’s coming disruption of the way we carry out transactions. 1. https://www2.deloitte.com/content/dam/Deloitte/nl/Documents/financial-services/deloitte -nl-fsi-blockchain-from-hype-toprototype-out-of-the-blocks.pdf Further reading: http://deloitte.wsj.com/cio/2016/ 08/31/blockchain-and-thedemocratization-of-trust/ https://dupress.deloitte.com/dupus-en/focus/techtrends/2016/blockchain-applicati ons-and-trust-in-a-global-economy.html For more information, please visit www.deloitte.com/mt/blockchain