Blockchain for Company Secretaries (BC 4 CS)

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Blockchain for Company Secretaries (BC 4 CS)


Data storage, processing and retrieval are some of the traditional value adds that emerged from use of IT in the pre-internet era. With internet, that connects different users seamlessly, the facet of value add has expanded to include e-commerce, e-learning and e-governance. Looking into the near future, the advent of Artificial Intelligence and Blockchain technologies have the potential to change human life in a dramatically different way.

Blockchain, the Concept

Professionals conversant with legal agreements know the need for and importance of witnesses authenticating agreements. The objective of witnesses attesting a document is to ensure that the parties do not repudiate their consent given to the agreement.

For very important documents, there is a provision for notarization, where the documents are executed in the presence of a public authority who attests the execution of the document. The equivalent for notarization of documents that need to be enforced in a different country from the one where it is executed is to apostille it. Apostille is the process where the ‘notary’ is designated by the country in which the agreement needs to be enforced. Often the embassy of that country servers as the apostille.

As the business world moves from the real world to the virtual world, the method of authenticating a document by the parties too has changed from physical signatures to digital signatures. In the digital world, the concept of witness can be eliminated by use of blockchain technology that authenticates the consent of the two or more parties to an agreement.

In the digital world, blockchain is the technology by which a transaction between two or more parties is authenticated instantly in a cost-effective manner, without the need for any witness to attest it. Bitcoin, the cryptocurrency that was the speculators delight in the past few years, is one of the most popular use of blockchain technology, which attempted to create a virtual currency that pans across the world, without being limited by political boundaries of any country.

Blockchain, how it Works

Blockchain needs five ingredients listed here. If we use the analogy of share transfer process to understand the blockchain technology, we can find an equivalent for each of the five technical ingredients as listed below:

1. Cryptographic hash: Share certificate A Hash is a cryptographic function that transforms any input data into a fixed-length string of randomly generated alpha numeric characters. One of the most important features of the Hash functions is that the conversion is one-way: you cannot reverse the function to generate the original input from the output.

Cryptographic hash is the block of the blockchain.

2. Immutable ledger: Register of Members Immutable ledger is the place where cryptographic hash or the block resides. By design, every block of the chain contains the hash of the previous one. Hence, it is not possible to modify any block without changing the entire chain. The chain that connects all the blocks works as an immutable digital ledger. This ensures the security of the information contained in the block chain.

Simply put, blockchain consists of the hash, which is the block and the immutable ledger is the chain that binds all the blocks together to form the blockchain. The other three ingredients listed here are enablers that make the blockchain work.

3. P2P network: Stock market Blockchain does not need any external or internal trust authority. This is possible because the Blockchain data is distributed among all the users. Every user has their own copy of the transactions and hashed blocks, and they spread the information of any new
transaction to the entire network. This way, it is not possible for anyone to alter the information in the chain since it is not stored by an individual entity but in an entire network of node users.

Once a block of transactions is validated, it is added to the chain and every user gets to update their local information.

4. Consensus protocol: Share transfer form Every time a node adds a new block, all the users validate the block by using a common protocol.
Typically, the nodes reach a consensus about the correctness of a new block by Proof of Work or Proof of Stake methods.

The nodes check whether the new block meets the requisites of their Proof method, including validation for all the transactions inside the block. If the block is valid, it is considered as a part of the Blockchain and new blocks keep getting added.

5. Block validation: Registrar and Transfer Agent Block validation refers to the act of meeting the minimum criteria required for adding a new block with existing transactions to the Blockchain. Different methods of validation exist, and they are custom defined for a blockchain based on user needs.

Though block validation is not an essential ingredient for blockchain, it was used in Bitcoins to build public confidence. Hence block validation could be used in all applications where public confidence is essential.

BC 4 CS (Blockchain for Company Secretary)
A few years from now, when the technology of blockchain becomes prevalent and more affordable, we could see blockchain technology being used in the Indian corporate secretarial world, among others for the following applications:

i. Share certificate issue and share transfer mechanisms. Pilots in this area are already done by Nasdaq, Abu Dhabi Stock Exchange and Russia’s National Settlement Depository
ii. Postal ballot and shareholder voting mechanism. Pilot projects in this area is already undertaken by Spanish bank Banco Santander
iii. Voting in board meetings and on circular resolutions of the board
iv. Attendance system for board meetings and shareholder meetings
v. Authenticating minutes of the board and shareholder meeting.

In short, blockchain can be used where authentication of a document is required for use by multiple users and their validity is required to be established in different forums. The added benefit of this technology is improved transparency, increased security and enhanced analytics, all of which go to promote better corporate governance.


By | 2021-02-23T11:49:03+00:00 July 5th, 2019|Tech 4 Company Sec|0 Comments

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