Introduction to Blockchains
A blockchain is a series of records of data that cannot be changed and is managed by different computers. Blockchain is simply a system of recording information in different blocks. Its like a digital ledger of transactions. The information stored is available to all the systems on the network on the blockchain. Each block contains different transactions. Every new time a new transaction is add, it is registere in every participant’s ledger. Such a decentralize system is called Distributed Ledger Technology which is handle by multiple participants. It is called blockchain because every block is a new transaction. Also blocks are added to the chain once they are completed and properly verified. This blockchain technology first came to highlight when it was used in Bitcoin transactions. But now a lot of organizations in developed economies are adopting it.
How Blockchains Work
The transactions are record with a cryptographic signature ‘hash’ that cannot be change by anybody else. The transactions are authenticate using these cryptographic keys. They are like a string of data that acts as a password and identifies the user to gives them access to their account. Every user on the blockchain has his own private and public key. It together creates a secure and authentic identity of the user. Before a transaction is add to the blockchain, it is to be agree and made authentic between the users. For a public blockchain, the addition to the blockchain is by consensus; majority systems in the network must agree for consensus as to the validity of a transaction.
Once a block is add, it is not easy to go back. Its hard to make changes to the contents of the block. It is because each block contains its unique hash, along with the previous block’s hash. In the blockchain, information can only be distribute and not copied. Even though every piece of information has a single owner, it can still be freely shared. It gives the benefit of easily verifying the information as it remains public. The data is also save from hackers as there is no centralize version of the information available. When a new system wants to join the blockchain, it can be attach as a node to the existing network. And the copy of the blockchain information is available to it which automatically updates when a new block is add.
What is Corporate Governance?
The system and processes by which an organization is govern is corporate governance. It provides guidelines as to how every organization should function to fulfill its goals and objectives. It will add to its value and is beneficial for all persons associate in the long run. In a corporate governance model, the management of an organization acts as trustee for all the stakeholders. And the board of directors is consider central to the model. Its relationship to other participants like shareholders and management is crucial.
Corporate governance is based on certain principles that focus on conducting the business with integrity, transparency, accountability, and complying with all the laws. An organization with good corporate governance has a group of independent directors on the board. It then contributes towards ensuring market confidence. Corporate governance helps in taking effective strategic decisions to ensure the safeguard of all shareholders. The need for corporate governance has arisen in today’s market-orient economy. There is a need to recognize the rights of all shareholders.
Blockchains and Corporate Governance
Blockchain has brought a change in technology and has offered better options for organizations to store their information. Governance is now all about initiating and managing a blockchain. It includes defining the procedures and rules, managing permissions, software updates, regulatory work, and protection from cyber risks. Blockchain technology is a powerful tool for effective management of interests of stakeholders in developed economies, which is the most important aspect of corporate governance.
Using blockchain, all users on the network can see the trading by managers or corporate raiders as there is transparency which leads to effective corporate governance. Such transparency acts as a deterrent for corrupt corporate practices. In developed countries, corporate crimes have been increasing and blockchain can be a solution to restructure the corporate governance as poor governance leads to frauds and scandals that affect the shareholder’s rights. The possible reason for the current inefficiency of corporate governance can be attribute to the presence of many intermediaries, managers, or the service providers who work for their gain, which leads to a complex structure. But with the use of blockchain, the majority of the intermediaries can be eliminated, hence, better corporate governance.
Blockchains help an organization by increasing efficiency by removing administrative burden, reduce the risk of frauds as information cannot be change by anybody except the owner, and provides transparency in the general structure of the organization. Blockchain can change corporate governance by making transactions transparent, especially in private companies. If all the information is store on the blockchain, companies will no longer be require to manually update stocks and inform shareholders every time in a new transaction. It will benefit the investors as well, in the sense that, accurate information of the company will be available at all times.
Shareholders, in general, have to rely on the board of directors for information, but with blockchains, verify and secure information will be directly available. A major issue in corporate governance is accurate proxy voting, but this can be solve by blockchain as all the shareholders can cast their vote using separate tokens representing their voting power. This way the voting will be in a secure manner and voters will also have access to the ongoing voting process. Such a process will remove all ambiguities and reduce the manipulation of outcomes. There are a lot of advantages of using blockchain technology in corporate governance, but, it is still in its early stage of usage by organizations in developed economies
Conclusion
Blockchain technology has resolved issues of security and trust since its inception in many ways. To remove the issue of trust, blockchain has implemented tests for new computer systems that want to join, called consensus models, which requires them to prove their identity before participating in the network. System developers and researchers around the world now believe in blockchain potential and the changes it can bring. It can transform the basics of the existing societal and economic systems in the developed economies. Technology is still evolving and new benefits are being discover. But still, blockchain use has started in corporate governance in various industries of developed economies and it can have a huge impact on the everyday lives of all in the long term.
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