Blockchain consortiums enable multiple companies to track the efficiency and process of their industry. The consortium’s end result could vary from establishing a cryptocurrency to a blockchain-based system of smart contracts for use within an industry. The solutions are almost limitless, and the transparency and cybersecurity of the blockchain has encouraged various industries to adopt the technology and create consortiums.
In May, for example, Big Four firm KPMG joined the Trusted IoT Alliance blockchain consortium to assist in developing and establishing a standard for an open source blockchain to support IoT technology in various industries. Trusted IoT launched in 2017 with founding members that included Bosch, Bank of New York Mellon, Cisco and other organizations, according to a TokenPost article.
Walmart also announced last week it joined Pfizer and pharmaceutical wholesalers McKesson, AmerisourceBergen and Cardinal Health as a member of MediLedger, a blockchain consortium tasked with tracking prescriptions’ origins to address interoperable data, packaging serialization and other concerns.
Yet, like with any technology and membership, a blockchain consortium has its risks. Duane Morris fintech industry group chair Cindy Yang cautioned against joining a blockchain consortium with a “shotgun approach.” Instead, she and other lawyers advise companies to consider the consortium’s governance, data privacy, security and more. Here’s what they suggest to watch for when joining.
One of the biggest questions companies should ask before joining a blockchain consortium is governance, said Mayer Brown cybersecurity and data privacy practice partner Oliver Yaros.
“Establishing the governance of the consortium is important,” Yaros explained, ”to actually understand what commitment is being asked from you, in terms of money, technology, public support for an initiative and what that really is.” From detailing legal liability to voting rights of members, Yaros said those specifics should be defined in a contract before joining any consortium.
Additionally, detailing what type of information will be discussed between members should also be narrowed beforehand to avoid anticompetitive and antitrust accusations. “I think the most important thing for a business is at the outset that they cover what their involvement is going to require, and cover confidentiality,” Yaros added.
Data privacy in the U.S. is most heavily regulated in data-heavy markets, such as health care and financial services. For those companies that fall under the scope of health care and financial service laws, they must ensure their blockchain consortium provides the required confidentiality of clients’ data.
“How do you protect the confidentiality that is required under HIPAA [Health Insurance Portability and Accountability Act] and work in connection with the blockchain for the purposes of selling and distributing the medication to end users?” said Shipkevich principal Felix Shipkevich.
Don’t Take a Siloed Approach
Keeping up with blockchain’s evolving technology and new consortiums involving your industry is important, Duane Morris’ Yang said. “You do need to remain flexible because we don’t know where this blockchain technology will be in two years,” she said.
A focus on variation should also be extended to the number of blockchain consortiums a company is a member of, as blockchain consortiums shift their focus to interoperability, she said.
“Consortiums are starting to look at each other and say, ‘Hey, we should use your technology when dealing with smart contracts or Ethereum,’” Yang said. “[It] gives some relief to the members because the idea is to create common standards within and between blockchains.”
Understanding the Consortium’s Endgame
“Understanding what the endgame of the consortium is going to be and how it’s going to continue as a living and breathing organization,” is also key, Yaros said.
Most consortiums become a service company or foundation that is going to run with the technology created earlier, Yaros explained. In turn, members should consider how the solution they are creating is going to adapt for the evolving legal and regulatory landscape, especially if they are in highly regulated industries like finance or health care.