Blockchain builds trust
Blockchain has repeatedly been described as one of the most disruptive technologies of our time, having the potential to completely transform the banking and financing industry. The impacts are now starting to reach business-to-business interactions as well. But what exactly makes blockchain so innovative and disruptive?
“Blockchains are real-time and secure,” explains Petri Syvänne, Head of Payment Service Nordic at Accenture. “The technology disrupts the market particularly because it makes it possible to build a single blockchain instead of several databases that are updated and verified separately. Thus, blockchain removes the need for manifold saving and confirmation of data, and creates speed and transparency to connected processes.”
“The benefits of blockchain for the payments industry are talked about a lot, but it can disrupt any type of interactions that require making contracts and transferring value or information between parties,” he says.
Syvänne spoke at the Finance 4.0 event organized by OpusCapita and Talouselämä in November. Topics covered at the event included the new era of finance stirred up by developing technologies such as blockchain, and the effect of machine learning and artificial intelligence on organizations’ purchase-to-pay chains.
The business-to-business corporate trade today calls for manifold work and exchange of documents back and forth, electronically or on paper, between different parties. These include purchase orders, delivery and goods receipt notes, invoices and payments, approvals and account statements, and more. But what if all the information related to the process from purchase to payment would be accessible by both the buyer and the seller in real-time on a shared platform? Blockchain technology and smart contracts can make this a reality.
Shared database removes delays
“For a long time, blockchain and the virtual currency bitcoin were regarded as synonymous,” says Syvänne. “But blockchain is the technology that bitcoin is based on, and when we look at it separately, we can see the possibilities it opens up.”
Blockchain is in practice a distributed, cryptographically secured ledger or database, where the data is stored on thousands of computers around the world instead of on a single, centralized server. The information about an agreement or a transaction is stored on a block, which is dynamically linked to the previous blocks using a mathematical hash function. Technology ensures that the data cannot be changed. If the majority of the parties in an established network don’t reach a consensus on the content of the new block, it will not be added to the chain.
“At the moment, in many B2B interactions – or in trading stocks and shares, for instance – the parties update and handle information in their own systems and exchange it with each other,” Syvänne. “This causes many delays in the process, not to mention generating costs for both sides. In a shared blockchain database all the transaction data could be visible simultaneously to everyone involved. Trading could take place in real time.”
According to Syvänne, blockchains could bring similar transparency and efficiency to many value chains. For example, a new car could receive a unique identifier code to a shared blockchain ledger upon manufacturing. Throughout the entire lifecycle of the vehicle, the information concerning ownership changes and registration, maintenance and repairs, accidents and insurance is updated to the ledger, so that the up-to-date vehicle history could be checked reliably at any time including, for instance, when purchasing a used car.
Beyond the hype
"Now blockchain is developing beyond the hype and many innovative use cases are emerging outside payment and capital markets as well,” says Syvänne. “The creative disruption it will cause remains to be seen. It depends, for instance, on the future standardization of the technology.”
As examples, startup company Ripple is using blockchain to transfer cross-border payments between banks in real-time. NASDAQ too is piloting a blockchain solution that reduces the time needed for handling, clearing and settling trades. Around the world, blockchains are being used to store records of property ownership or academic certificates, to run digital gift cards for companies, to trace diamonds and to manage the billing processes for electric car charging stations.
"In Africa, smart contracts are utilized in power and utility distribution. A smart meter is registered on the blockchain, where the buying and paying of electricity can then take place automatically,” explains Syvänne. “Consumers don’t need a bank account, nor do they have to travel long distances to make prepaid electricity agreements. This is one of my favorite examples of blockchain, demonstrating how the technology can help to skip unnecessary phases and make the interaction more convenient and reliable for both parties.”
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