Blockchains and distributed ledger technology (‘DLT’) are becoming increasingly prevalent in industry. A recent Juniper Research survey found that 56% of companies with more than 20,000 employees were either considering deploying, or were in the process of deploying, blockchain solutions.
At its core, blockchain technology is essentially an engine for processing exchanges of information. It is not a static record. A blockchain is a type of distributed database that tracks transactions in assets and exchanges of information. It is a chronological sequence of verified transactions within a certain network. A ‘transaction’ can be the transfer of an asset, the creation of a new medical record, or the entry into a swap transaction. There is not just one blockchain, just like there is not one database. Different blockchains can be created for different needs, with different operating rules.
A distributed ledger is a distributed database that tracks transactions. Multiple participants have access to the same ‘golden record’ – there is no single official copy. The ledger automatically updates when new transactions take place, and so there is prompt verification of completed transactions across the system. Blockchain is an example of a distributed ledger, but distributed ledgers don’t have to be based on blockchain.
Application to Supply Chains
Supply chain management has long sought an efficient, accurate, and paperless process. A system that records each event, is transparent when it needs to be, confidential at other times, designed to meet the regulatory obligations around government filings, commercial demands, insurance claims, and on and on.
One of the touted merits of a DLT supply chain is that it would solve challenges such as provenance (diamonds), sourcing (origin claims), important admissibility issues (forced labor), and even emerging issues such as conflict minerals.
Role of DLT in Tackling Modern Slavery
Modern slavery is a complex crime and it is estimated that 46 million people worldwide are in some form of slavery. DLT could be a powerful tool to address gaps in supply chain data and increase the efficiency of data sharing helping to improve traceability and transparency of supply chain labor standards. For example, DLT could assist companies to verify the working conditions of people involved in production. Increased collection, analysis, and sharing of data would help companies to identify and prevent slavery and could assist law enforcement agencies in tackling this insidious crime.
In circumstances where there is greater focus than ever before on corporate transparency, tracking supply chains and ensuring human rights are protected is increasingly important. The UK Government released new guidance in October 2017 on the Modern Slavery Act 2015 (MSA) which suggests that even companies that do not reach the £36 million turnover threshold should consider voluntarily producing MSA statements and there has also been increased NGO oversight particularly of large UK companies. Blockchains and DLT could provide the traceability and trust that companies need to combat modern slavery while at the same time improving corporate transparency.
In 2018, you can expect to see more implementations, so now is the time to develop a blockchain strategy and to develop a risk profile so that you will be ready to take advantage of the benefits of this new technology.
Crowell & Moring Can Help
We provide in-house CLE programs and information sessions on blockchain and DLT, helping clients understand both the technology and the regulatory issues of implementing a blockchain or DLT solution, as well as promising use cases in specific industries.
Creating a Blockchain Strategy
We offer in-depth workshop sessions for companies considering implementing a blockchain or DLT network, including identifying regulatory hurdles to adoption, assisting with network diligence, negotiating network agreements, and addressing the full range of issues relating to joining a network.
Ready to Join a Network
And, once you are ready to join a network, our team works to negotiate the legal agreements and provide a deep-dive review of operating procedures, cybersecurity and privacy concerns, and regulatory issues that will impact your success.