Delaware Should Move Forward In Using Blockchain For Corporate Management

Most people who have heard of blockchain technology unsurprisingly associate it with cryotocurrency—typically bitcoin or perhaps ether. While those and other cryptocurrencies utilize the blockchain, they are but one new product made possible by the blockchain.

The components of the blockchain—distributed consensus protocols, cryptography, and economic incentives based on game theory—are not new; rather, the blockchain combines them in novel fashion in the form of a shared ledger that allows consensus to be built and maintained on a distributed, decentralized basis by parties with no inherent reason to trust one another.

The potential for this new technology is immense.

Many believe that the blockchain will drive profound change in such diverse fields as artificial intelligence, autonomous vehicles, identity, governance, and land transfer, to name just a few. Since its inception in 2009, the blockchain has been the basis for many proofs of concept, each advancing a solution—some grounded in present-day possibility, some more in the realm of science fiction—for a “problem”—some real, some postulated.

Perhaps surprisingly, one of the more tangible implementations for the blockchain has been advanced by the State of Delaware, which in 2016 launched the Delaware Blockchain Initiative to explore how the blockchain might qualitatively improve its suite of corporate services offerings. This initiative, headed by Andrea Tinianow, has teamed up with one of the leading blockchain technology platforms, Symbiont, as part of its efforts. Together they have pioneered several services on the blockchain, including issuing and trading corporate securities and the automating various aspects of Uniform Commercial Code filing and monitoring.

A small state with big ideas, Delaware is home to nearly two-thirds of the Fortune 500 companies and has long prided itself as being the domicile of choice for businesses in the United States. It has even earned the nickname as “the corporate capital of the world,” a status that has been well-earned. Supporting its corporate infrastructure, the Delaware legal system is at the forefront of legal issues impacting complex business transactions, and its judiciary is home to leading experts in such issues. The Secretary of State’s Office also plays a big part in Delaware’s success, constantly improving the user experience and maintaining foresight to ensure that the State’s offerings and systems are always on the leading edge of customer demand.

The Delaware Blockchain Initiative is just the latest result of these unique factors. In late July, Delaware Gov. John Carney, Jr. signed a bill into law making it legal for companies to use the blockchain to issue securities and maintain corporate records.

What does that mean to you? When can we expect implementation?

We recently hosted a Delaware Fireside Chat in New York City which was attended by Delaware Secretary of State Jeffrey Bullock and Director of Corporations Kristopher Knight assembled together with some 60 industry stakeholders — bankers, attorneys, technologists, and even some representatives of foreign governments. The discussion was lively and clearly there's an appetite for Delaware advancing the initiative based on the audience participation.

On Delaware’s part, we detected no small measure of caution about moving forward, with references to concern regarding the interests of Delaware’s citizens and constituency.

No doubt, any agents of disruption will be met with legacy naysayers who enjoy the status quo…but at what cost?

That is the difficult question and environment government officials must try to answer and navigate. Ultimately the delegation’s response left many somewhat perplexed, as it seemed to indicate the pace of advancement would slow.

Adopters are awaiting the ability to access and utilize various services.

We have penned an “Open Letter to Delaware” in which we give a more organized voice to industry enthusiasm for this initiative and provide some specific suggestions as to how the State of Delaware’s leadership in this space will result in innumerable benefits in corporate management and governance.

Indeed, an entire suite of services—well beyond the digitization of ownership interests—could be provided to business entities of all types and sizes. For example, these services could include a blockchain-based ledger for the storage and registry of corporate documentation such as operating agreements and board records to enhance and support entity-level recordkeeping.

Additionally, corporate voting could be implemented swiftly and efficiently using a blockchain-based system which could fundamentally change the way in which shareholders participate in the governance of their companies.

Ultimately the transformation of corporate services by the State of Delaware to one powered by the blockhain has the potential to be a watershed moment in the history of corporate formation, practice, management, and governance in the United States.

Much like the internet did before it, the advancement of the blockchain in this area is likely to generate additional value-added opportunities that at present we cannot envision. We believe the demand of companies big and small alike to move into a new century of corporate practices is quite high, as the benefits of the efficiency and immutability of distributed ledger technology with no single point of failure is extremely attractive.

The world is watching and waiting.

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by Chuck Thompson and Gary Miller of Blockchain Consulting LLC, a group of financial services professionals bridging the gap between technology and real-world use cases for distributed ledgers.