It seems like just yesterday that chief technology officers were undertaking marathon cloud migration efforts to modernize their businesses. Now that many of these projects are complete, it's no surprise that the next iteration of computing is already upon us — Distributed Ledger Technology (DLT). Under development for more than a decade, DLT can offer security, availability and scaling advancements that have eluded modern systems.
But for CTOs, gaining business support for this new technology is more of an art than a science, and it all starts with a better understanding of the value DLT can bring to your organization. Here are three considerations to keep in mind to win over stakeholders and secure a budget for your DLT strategy.
Regulatory Compliance
Moving from centralized on-prem databases to the cloud introduced new challenges in meeting compliance requirements. For the financial services sector, meeting SOC 2 standards became a much easier hurdle to clear when cloud data centers offered compliance virtually.
In the same way, transitioning to DLT will become more advantageous when the new systems offer an easier path toward compliance, which can be highly appealing to your stakeholders. Indeed, regulations are now emerging that should usher in a wave of compliance products with competitive advantages for organizations.
Specifically, regulations emerging in the EU in 2024, including MiCA and the TFR, require anti-money laundering processes, and similar bills are making their way through the House. Once enacted, these rules may be baked into the DLT ecosystem, streamlining compliance programs and limiting wasted resources.
At the same time, some existing regulations have already been woven into solutions on offer to DLT customers. For example, restrictions around age-gated content, embodied in COPPA rules for parental consent for minors, must be more broadly adopted to prevent large fines. In fact, the FTC levied significant penalties against gaming companies for violating COPPA. The fines are significant: a $520 million penalty for Epic Games and a $20 million fine for Microsoft Xbox Live. DLT age verification on-chain can help organizations meet minimum requirements more easily while adopting emerging standards.
Hybrid Structure on the Horizon
DLT can help optimize existing on-prem databases and cloud infrastructure. An aspect of this will be particularly important for protecting your organization from cyber attacks, which affect a number of functions, including your company's reputation and legal situation. In particular, on-chain identity and access management can provide the advantage of a higher level of security, cross-platform compatibility and more granular access. By assigning multiple user personas per individual, the current tangle of complicated password management systems will be a problem of the past.
On-chain identity and access management also gives organizations the power to issue, freeze and revoke verified credentials, whether to their own employees or to end users. Some financial institutions may find this to be particularly useful, given AML compliance requirements.
Still, other organizations may have processes or aspects that could benefit from DLT's decentralized networks, ease of use, security and privacy.
The Near-Term Future of DLT
Recently, industry leaders in the DLT space have provided a vision of how the technology will evolve in the near future. In understanding these shifts, CTOs have more access to information that shows the direction forward.
One change is the shift in thinking around processing data efficiently, which can ultimately affect your bottom line and create a win for your finance team. DLT rollups allow scaling by processing transactions off-chain and then submitting them back on-chain in batches.
Another transition taking place is the shift of consumer funds from centralized wallets, where transactions happen within a centralized service, to smart-contract wallets, where consumers maintain custody and control of their digital assets. When provided with the right user experience with a smart-contract wallet, consumers can find this digital asset storage method to be superior to other methods.
Finally, the world can start expecting to see more privacy-preserving tools added to DLT, including social recovery, identity and reputation. These tools will better preserve individual control around their activities on-chain.
Armed with the latest in thinking around the direction of DLTs in relation to rollups, smart contract wallets and privacy tools, CTOs are better equipped to make strategic decisions about updating their tech stacks.
A Matter of Perception
Shifting mindsets to realize the strategic advantage of using DLT may not happen overnight, especially as organizations juggle competing priorities. And many CTOs could require more information to help them take these strategic risks. In our conversations with leadership grappling with making the move to DLT, we usually find that the biggest challenge is timing.
It's not usually a matter of if a DLT investment is on the horizon; it's a matter of when. Many leaders are concerned that it's too early to invest in DLT. They'd prefer to wait until the technology is more developed. But, the reality is that the industry is moving ahead whether they make a move or not. The industry has been in development for more than a decade with more than enough time for institutional development. Companies that are not making moves in the space could soon be at the tail end of the adoption bell curve.
Still, other leaders are refraining from making moves until regulations become clear. However, significant regulation has already been enacted and will begin to take effect in the European Union in 2024. Any company operating internationally may use European standards as a benchmark.
A Winning Strategy
Since the launch of Bitcoin in 2009, DLTs have evolved by leaps and bounds. As solutions under development have evolved, they have matured and now offer competitive advantages to hybrid cloud strategies. When you dig a little deeper into regulatory compliance, hybrid cloud optimization and the directional vision of DLT, the advantages to your many stakeholders can become clear.
Uncommon Knowledge
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
Newsweek is committed to challenging conventional wisdom and finding connections in the search for common ground.
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