How Blockchain Technology Can Help Business

This post has already been read 1225 times!
0 Flares Twitter 0 Facebook 0 0 Flares ×

The Association of Fraud Examiners states that white collar fraud costs the US economy over $600 billion annually. That’s a “B!” Complex business processes filled with holes; weak asset transfer procedures and documentation; and document hijacking are just some of the problem areas that blockchain technology could remedy as well as lowering the transaction costs for the supply chain.

Every time there is a transfer of goods or services, there are legal contracts, letters of credit or other legal documents that form part of any transaction. For example, a global supply chain may contain up to twenty exchanges of goods along with associated documentation that is required to complete a transaction. To service the logistics requires substantial back-office cost as well as opportunities for fraud or contractual problems.

Intermediaries like lawyers, brokers, and bankers might no longer be necessary. Individuals, organizations, machines, and algorithms would freely transact and interact with one another with little friction. This is the immense potential of the blockchain.

How Does Blockchain Technology Work?

Blockchain technology is the digital infrastructure that allows for the secure end-to-end transaction of goods and services. Basically, it constructs a digital block wherein all transaction documentation, and related information is verified, tracked and updated along with its path from origin to destination. Of course, this is an oversimplification, but the concept is an evolution of the TCP/IP file transfer protocol first developed in the 1980’s.

Blockchain—a peer-to-peer network that sits on top of the internet—was introduced in October 2008 as part of a proposal for bitcoin, a virtual currency system that eschewed a central authority for issuing currency, transferring ownership, and confirming transactions. Bitcoin is the first application of blockchain technology. According to an article by  Marco Iansiti and  Karim R. Lakhani in the February 2017 issue of the Harvard Business Review[1], the parallels between blockchain and TCP/IP are clear. Just as e-mail enabled bilateral messaging, bitcoin enables bilateral financial transactions. The development and maintenance of blockchain is open, distributed, and shared—just like TCP/IP

Block Chain and “Smart Contracts”

“Smart contracts” may be the most transformative blockchain application at the moment. These automate payments and the transfer of currency or other assets as negotiated conditions are met. For example, a smart contract might send a payment to a supplier as soon as a shipment is delivered. A firm could signal via blockchain that a particular good has been received—or the product could have GPS functionality, which would automatically log a location update that, in turn, triggered a payment.

How Blockchain Technology can Help Business

Block Chain is already being used in some of the largest company for supply chain management

How should executives think about blockchain for their own organizations? 

According to the cited Harvard Article, the easiest place to start is single-use applications, which minimize risk because they aren’t new. For example: use blockchain internally as a database for applications like managing physical and digital assets, recording internal transactions, and verifying identities.

Block Chain is seeing a lot of investment in private blockchain networks right now, and the projects involved seem poised for real short-term impact. Financial services companies, for example, are finding that the private blockchain networks they’ve set up with a limited number of trusted counterparties can significantly reduce transaction costs.

Tracking complex inventory in the supply chain is already using blockchain to track items through complex supply chains, for instance. This is happening in the diamond industry, where gems are being traced from mines to consumers. The technology for such experiments is now available off-the-shelf.

In summary, blockchain technology not only promises to help reduce fraud but also reduce transaction costs, including the potential reduction in administrative overhead.



If you liked this article, we'll be happy to send you one email a month to let you know the newest edition of the MetaOps/MetaExperts MegEzine has been published. Just fill the form below.