Blockchain in business – are you ready for the revolution?
Blockchain has received some serious attention over the last decade. Having first appeared when a certain ‘Satoshi Nakamoto’ published a paper entitled ‘Bitcoin: A Peer-to-Peer Electronic Cash System’. Of course, here the focus was all on Bitcoin, with blockchain being the vital element to take the cryptocurrency from concept to success.
While Bitcoin has moved beyond its original niche audience, and entered the mainstream, blockchain technology has seen itself being propelled even further. Blockchain is now at the forefront of a revolution. There is wide agreement that this technology is set to have a major impact on every single industry. There is an even wider consensus that it is set to transform the financial sector in its entirety.
With blockchain having the potential to add some $176 trillion to the global economy over the next eight years, here’s a look at how this technology is being adopted, and why now is the time to jump on board.
The benefits of blockchain to business
Even on a basic level, the benefits that are brought to business, by blockchain, are clear. It is a technology capable of tracking transactions automatically, from start to finish. Its workings mean that it does away with any need to consult with a central authority that has been tasked with encrypting the data. It also does away with the need for any human intervention.
While that may all sound great, you may be wondering what it actually means for businesses around the world. Once you understand the impact being had, you can appreciate why investing in this technology just makes sense. Here’s a look at some of the practical applications:
Existing data suggests that by 2025, the damages caused by cybercrime will amount to an astonishing $10.4 trillion. With that sort of figure to digest, it is easy to see that cybercrime is certainly big business. However, the good news is that companies willing to embrace blockchain will see a much-lessened impact.
With blockchain using complex and sophisticated software and math rules, there is much greater security and data becomes almost impossible to hack. Perhaps the best analogy is to look at blockchain as using a uniquely encrypted digital fingerprint. Known as a ‘hash’ this is something that is highly secure and tamper-proof.
What we have seen over the last 2-3 years is a growing need for businesses to invest in their cybersecurity and to strengthen the protection that is afforded to their assets. Given that March 2020 saw the US Department of Health and Human services being targeted, what’s clear is that no organisation is immune.
For those that invest in companies that offer cybersecurity, the marketplace is ever-growing. Covid-19 forced more and more companies to take to an online space. As they created their online operations they also left themselves with vulnerabilities that will, undoubtedly, be compromised. The need for protection is at its highest levels ever and is set to continue to grow. Cybersecurity will prove to be in demand and exceptionally profitable.
Middlemen no more
There are numerous professionals who work within industries where business processes involve them being a third party to a transaction. Think the likes of settlements, contracts, and even banking. The use of third parties adds unnecessary layers to transactions leading to time, and cost, implications.
Embracing blockchain does away with the need for any third party. The cryptology used by blockchain replaces any intermediary and becomes the symbol of trust in any transaction. Its use of mathematics leads to less hassle and fewer costs.
A reduction in operating costs
If a technology is able to reduce ongoing costs for a business, then you can be sure that there is a market for it. This is certainly the case when it comes to blockchain. It allows any business to send and receive payments through something known as ‘smart contracts’. Programmed onto a blockchain, a smart contract will only allow an action to be taken when a previous predetermined one has been completed.
Once the contract has been completed, the blockchain is updated. Given the security that blockchain offers, this update can not be altered. The use of such contracts does away with the need for the likes of escrow agents and brokers, making this technology huge.
Benefits to the supply chain
When a business comes to sell a product, the exact origin is not always 100% clear. What blockchain offers businesses is the highest levels of transparency when it comes to exactly where these products have come from. Perhaps one of the most important uses of this technology can be found when looking at food.
The need to trace the origins, and journey, of food, is essential. It helps to identify, and contain potential health concerns, as well as vouching for overall standards. Companies, such as Walmart, have embraced blockchain in order to track its fresh produce and enhance transparency.
Blockchain and a changing financial sector
While the impact of blockchain on business as a whole is phenomenal, what can’t be ignored is the transformation that is taking place in the financial sector. It was only back in 2017 that the CEO of JPMorgan Chase issued a derogatory statement aimed at bitcoin, and blockchain technology.
What’s interesting about such statements, and there are certainly more, is that they all come from the banking sector. Why? Because that is the sector that has the most to fear. While cryptocurrencies may be seen as posing a threat, the biggest threat comes from the technology behind them – blockchain.
An appreciation of the impact already being had here demonstrates exactly why blockchain is here to stay and why, in some ways, it’s only just getting started. Let’s take a look at just how blockchain is set to disrupt the banking industry and financial sector as a whole:
When it comes to sending and receiving payments, the reliance upon traditional banks is quickly vanishing. Utilising a decentralised ledger for payments will lead to these being made faster while also attracting lower fees than those found at banks.
The reality of today is that if you’re looking to send funds from the US to a family member or friend in the UK, you’ll likely be stung with a $25 fee for the privilege. That’s not forgetting any additional fees that could be thrown into the mix. By the time that you send your money, everyone has taken a cut, and it could still take a week or more for it to credit the recipients’ account. Blockchain will spell an end to this.
Clearance and settlement
As things stand, an average bank transfer can take up to three days to settle. Why? Because these transfers are reliant upon protocols such as SWIFT. Given that this is a protocol that dates back to 1973, it is easy to appreciate how it is now antiquated and not fit for purpose. While moving money is a horrendous experience for customers, it also provides a logistical nightmare for banks themselves.
In the future, we will see blockchain step in and revive the flaggings system centred around money transfers. The technology allows for transactions to be sent, and settled, on a public blockchain. This would happen in an instant and so do away with the existing delays.
If you’re involved with buying and selling the likes of stocks, commodities, or debts, you’ll already have an appreciation of the need for accurate record keeping. The issue with how this works today is that it is overly complex and involves numerous bodies. The complexities of the chain involve:
- Central security depositories
- Custodian banks
And underpinning these numerous layers is a process of paper ownership which is both slow and, has the potential to be, inaccurate. Blockchain sees a move away from what can only be described as farcical. It will revolutionise the process with the creation of a decentralised database containing unique digital assets. This will allow the ability to transfer the rights to an asset via cryptographic tokens. The capability to tokenise real-world assets will be groundbreaking and cause massive disruption.
Know your customer and fraud prevention
KYC checks are a must as financial institutions attempt to combat fraud and money laundering. While a vital process, it can too often be time-consuming and costly. Reports show how customers will simply walk away from a company if the KYC process takes too long, while others show how banks alone spend $500 million each year ensuring compliance and due diligence.
Blockchain can bring significant savings in terms of both time and cost. By storing customer information on decentralised blocks, providing the utmost security, the information can easily be shared across financial organisations. Whichever institution that required the KYC information, would be able to access it quickly.
Hopefully, you can see why blockchain is so exciting. It has the ability to completely change the business world as we know it. It is able to bring speed, cost savings, and levels of security that have never been seen before. Certainly, the latter is perhaps the strongest reason that blockchain has the potential to impact the financial sector quite so much.
What we have looked at is by no means exhaustive. The potential for implementing blockchain is endless. We have not even touched upon how it can be used for insurance claims, air traffic control for drones, and the increase in efficiency of foreign exchange flows.
Yes, blockchain originally came to the fore as the technology that allowed for the transaction of cryptocurrencies. However, what we are now witnessing is a desire to tap into its full potential and reap all of the benefits that includes. Now is the time for businesses to embrace all that is on offer and be part of the revolution.