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Chain of Custody on the Blockchain

September 20, 2018

Making your records immutable and incorruptible.

Records are arguably less valuable without proof of origin, or without authentication.

Information without validation could be considered speculation, or worse, falsified. Chain of custody is designed to solve this, and blockchain technology dramatically increases that proposition.

By definition, chain of custody refers to the chronological documentation of evidence that “records the sequence of custody, control, transfer, analysis, and disposition of the physical or electronic evidence.”

In law, chain of custody documentation is extremely important because it preserves legitimacy of evidence and renders it admissible for use. So, we can see that chain of custody provides proof of validity.

Blockchain is digital chain of custody. This is one of blockchain’s greatest value adds for existing businesses and industries who presently rely on inconsistent paper processes.

"Two characteristics in particular make chain of custody on the blockchain exciting: data is universal, and the blocks are linked."

Digital chain of custody is just as it sounds; a distributed ledger is comprised of blocks of data that are connected together to form a chain. Once transactions are confirmed by the supporting computer network, the data is cryptographically hashed to form a block. The mining process then adds the block to the chain, and the process repeats with each group of transactions that are confirmed. The result is a chronological ledger of records that can tell a story of data authentication, ownership, and provenance.

Two characteristics in particular make chain of custody on the blockchain exciting: data is universal, and the blocks are linked.

As a distributed ledger, records on the blockchain are stored across a vast network of host computers - also referred to as nodes. In order to add a block of data to the chain, consensus must be reached across all of the nodes. This means that as new transactions take place, the nodes spread them around the network and the ledger is globally updated when the next block is added. With the data being distributed across the network, there is no one centralized point of failure, and security is significantly increased.

Blocks are linked by cryptography. We explained that data is hashed, and this forms the block. But the hash is also used to “chain” the blocks together. As a new block is added, the hash of the old block becomes part of the new block. If any data in the old block were to be tampered with and altered, the hash would be changed, and the chain would break. The network would recognize this as a failure, and the altered block of data would not be added to the chain.

These security measures render the data on the blockchain both immutable, meaning it can’t be changed, and incorruptible, meaning that the integrity of the data is everlasting. This gives the chain of custody incredible strength and integrity.

It also makes blockchain technology an ideal database structure for documentation that proves ownership of assets.

The capital markets will benefit a great deal from the technology. Securities change hands frequently and are required to stand the test of time. A reliable chain of custody makes this possible, efficiently tracing record title and providing an auditable ownership trail. Authentication also happens in real time, giving the markets a trustworthy database.

This is why we’ve focused on equity and debt issuance on the blockchain, and why we believe the technology is the future of the financial industry.

Read more about the benefits of issuing securities on the blockchain here.

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