Propelled by the recent explosion in the popularity and value of cryptocurrencies, industry specialists and regular Joes alike started thinking of ways to apply crypto’s underlying systems in other areas. From data protection to eCommerce, potential blockchain applications started popping up everywhere – and for good reason.
Blockchain’s peer-to-peer system and anti-tampering capabilities make it ideal for any sector that benefits from the quick transfer of verifiable, fraud-free information and transactions.
One such sector is business finance, and it’s not hard to see why. The finance sector runs on the endless flow of contracts, finance processes, and transactions. The overall efficiency of this massive volume of constantly transitioning paperwork could be significantly improved through blockchain.
Let’s take a look at how the world of business finance could benefit from the blockchain infrastructure.
What is the blockchain?
You’ve probably come across the term ‘blockchain’ numerous times already, thanks to its ties to cryptocurrencies. However, blockchain is not only tied to virtual money – it forms the core underlying system that makes the crypto world tick.
Blockchain represents a distributed ledger, where networked computers (nodes) each hold a copy of this ledger. This ledger comprises interconnected blocks representing records of transactions, which is why the network is referred to as the blockchain.
Due to how these blocks are chained to one another, tampering with previous transaction data is impossible. Whenever a new transaction occurs, all nodes on the network verify its validity by checking it against their own copy of the ledger. Then, a virtual vote of sorts occurs, and if the majority of the nodes agree that the transaction is legitimate, it gets added to the next block.
The blockchain network is central to the idea and functioning of cryptocurrencies. This peer-to-peer system alleviates the need for any central regulatory institution. The network’s infrastructure combined with the use of cryptography guarantees the anonymity and legitimacy of each transaction. The core idea of Bitcoin and other cryptos is to transform the current financial system and cut out needless intermediaries and long transaction times. These same hopes and aspirations are what drives the application of blockchain in business as well.
The Deloitte Global Blockchain 2019 survey shows that 91% of respondents believe that they would achieve a measurable return within five years of investing in blockchain. Additionally, 83% of respondents saw compelling use cases of blockchain in business, and 86% of them agreed with the statement that “Blockchain can enhance our integration toward more “touchless” business processes.”
The will and optimism for using blockchain in business are evident, and we already saw the first steps in applying blockchain in eCommerce and cybersecurity. Now, the world of finance is readying itself up for the potential use of blockchain to optimize business processes.
How can blockchain help business finance?
The first image that comes to mind when someone says ‘business finance’ is probably that of tons of paperwork, accountants, money transfers, contracts and sales agreements, and other tenuous legal work. These are exactly the areas where blockchain can massively speed up and streamline the overall functioning of finance.
The main field in which blockchain could help significantly is trust. Traditionally, two businesses working together have unaligned databases. Information on how much work was done on one side, how much time it took, or how much it cost could differ between databases of two businesses, leading to discrepancies, conflict, or slow-downs.
By using a distributed, tamper-proof database like the blockchain, all records would be instantly synced across the network and transparent to all parties. The same goes for fiscal transactions. Typically, banks hold funds until one party delivers the products the other party paid for. Thanks to the speed and transparency of the blockchain, coupled with the use of smart contracts, this whole process could be sped up considerably.
Smart contracts are programs on the blockchain that automatically execute or document certain processes once the right conditions are met. Thanks to them, suppliers can immediately get funds once the goods arrive, without the risk of fraud.
Thanks to the blockchain’s ability to store legal documents, verifying the legality of contracts and sale agreements also becomes much easier, as they’re stored securely on the blockchain and are freely available for viewership to authorized parties.
The distribution of invoices stored on the blockchain to all parties involved allows for easy transaction verification and VAT settlement down the line.
These are only some of the possible use cases of blockchain – the potential is practically endless. In addition to B2B blockchains, many companies are opting to create internal blockchain networks to handle intra-company processes – allowing them to optimize the company’s entire workflow.
The blockchain revolution
So, is the business blockchain revolution around the corner? Well, yes and no. While many companies have already started applying blockchain solutions to their processes – and they’re proving very effective – there are obstacles in the way.
There are numerous compliance and privacy issues with existing legal regulations. Proper access control in a blockchain network could prove hard to manage, and transaction privacy goes against the core tenets of blockchain. Incorporating financial institutions into the blockchain, which cannot be omitted from business transactions altogether, could prove to be a problem as well. The coming years will show how well business finance and other sectors will be able to tackle these issues.
Aleksandra Arsic is a Content Specialist. She’s a bitcoin and blockchain technology research author, with a background in economics. Other areas of focus include growth in marketing, IT, and e-commerce.