The Impact of Blockchain Technology on Mainstream Finance
Bitcoin and other cryptocurrencies have become an almost daily presence in financial and technology news cycles. These cryptocurrencies, however, are just one of the many possible applications of blockchain technology. Blockchain itself is a backbone technology much like the internet on which other applications like email, e-commerce, and online streaming, etc are built. Cryptocurrencies, therefore, are just one such application of blockchain technology. There are thousands of other potential applications already in development throughout the world.
What is blockchain?
The blockchain is essentially a ledger of sorts. It records transactions and other activities in much the same way as a paper ledger. What makes the blockchain different however is that it provides an extremely high level of security, protection from data corruption or tampering, decentralisation (meaning there is no single point of failure) and anonymity if necessary.
This might not seem revolutionary, but the outcomes have tremendous potential. Applications using blockchain are rapidly being developed and exist in fields such as healthcare, insurance, trading, payments, banking, energy, investing, entertainment, education, and manufacturing.
In the next section, we take a brief look at how blockchain can help the finance and accounting profession.
Contract management and trade
Smart contracts use blockchain technology to provide an unprecedented degree of reliability and security. Consider for example an international trade transaction. A local manufacturer enters into a contract to import raw materials from abroad. Previously, the two companies would have to rely on something like a letter of credit to ensure both comply with the terms of trade. This adding to the cost of the overall trade with the inclusion of banks as intermediaries. Using blockchain technology, instead of resorting to a self-executing smart contract, makes the process considerably faster and vastly cheaper.
Cost savings, however, are not the only consideration. The blockchain provides unprecedented transparency throughout the entire process. Data can be transmitted easily between the parties and is recorded securely in the blockchain with a zero chance of tampering. It also eliminates the potential for errors in paperwork and other such administrative issues.
The blockchain can store information in a transparent and secure manner which is a tremendous asset to internal departments, external auditors and regulators. Essentially with the blockchain, there is no possibility of data corruption or tampering. The beauty of the system lies in the fact that it can accommodate any specific requirement – auditability, multi-signatory systems, immutability, logistical efficiency, automatic access management – the list of features is endless.
This is however just a small sampling of the infinite possibilities that blockchain offers. There are already thousands of start-ups working on numerous other permutations and applications. And it is not just the start-ups – big-tech, banks and other players have also grasped the potential and are working on developing out the technology. For a small business, it is already possible to use blockchain for trading and record-keeping, etc. In the coming months and years, it is safe to presume we will see further adoption of the technology in numerous different aspects of finance, accounting, and business in general.
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