Delaware’s path to a blockchain future is getting clearer.
The state has mulled applying blockchain technology to stock ledger and Uniform Commercial Code (UCC) processes for nearly two years and passed a law last summer allowing the transfer of shares in blockchain form. The challenging work required to make that a reality appears set to begin in April.
Delaware’s efforts are important because most US companies are incorporated there, potentially enabling more than one million private and public businesses to register ownership shares on a blockchain. UCCs are also filed in the state, and recording them on a blockchain would provide an immutable record of information, such as the collateral supporting loans and any liens on that collateral.
The Delaware Secretary of State’s office has spearheaded efforts to advance the process, holding extensive talks with legal and corporate communities. Unable to reach a consensus on which business area should be the initial focus, it then engaged IBM to work with state leaders and the businesses to assess the possibilities, vet legal concerns and prioritize where to start.
The office conducted interviews in January with 15 state and business leaders to prepare for a workshop in February, when participants were divided into three groups to explore the application of blockchain technology to stock ledgers and UCCs, as well as corporate records. The groups determined that UCC filings were the place to start, while stock ledgers would have the biggest long-term impact.
Kristopher Knight, deputy secretary of state in Delaware, told iTreasurer that a month-long stage to develop initial proof-of-concepts for each area would likely begin toward the end of April. A full proof-of-concept would then proceed for the next two to three months, followed by production pilots in the next four to 11 months, and a transformation of the current processes over the next 12 to 18 months.
UCC filings involve business transactions including leases, fund transfers, letters of credit and secured transactions, and entering those in a blockchain would let market participants track their real-time status. Knight said rolling out UCC filings on the blockchain would likely take less time than stock ledgers; but applying the technology to stock recordkeeping would have much greater impact.
“UCCs can get off the ground relatively quickly,” Knight said. “Stock ledgers will take more time to identify the tools and reports, and then expand the scope to a bigger audience.”
Tom O’Connell, chief strategist and managing partner at Applied Information Services (AIS) and a participant in the Delaware blockchain workshop’s stock ledger group, said that applying blockchain technology would let companies track and monitor ownership records much more efficiently. Large companies are already required to maintain stock ledgers, although there’s no formal process for it; automating the process via blockchain would also permit small limited liability corporations (LLCs) to better maintain such ledgers.
“It’s something you would really build for big companies, but LLCs could get a lot of value from it,” O’Connell said. “At the very least it would be a service to query stock ownership records. And in the next steps it could probably provide updates when stock ownership changes, and even when stock issuance exceeds actual stock ownership.”