By Nick Roquefort-Villeneuve, Global Marketing Director – Amalto Technologies
Every time I attend a Blockchain conference or an Oil and Gas event and engage CFOs in a discussion about how Blockchain technology can disrupt their industry and revolutionize the way their business functions, I systematically hear the same rhetoric. “Look at the fluctuations of the Bitcoin. So many people have lost fortunes because of Blockchain.” As my grandmother used to say: “Oy vey…” (Yiddish phrase expressing dismay or exasperation).
Inside people’s mind, Blockchain is confined to the attributes of what is called a public Blockchain, which is... for the public. You, me, anyone else. In a nutshell, a public Blockchain is able to receive and send transactions from anyone; and Bitcoins are exchanged on a public Blockchain. There is so much more to Blockchain technology than public Blockchains. Private or permissioned Blockchains, for example. A private Blockchain is not for the public. It is geared towards corporations that want to transact with one another in a peer-to-peer fashion. And it has absolutely nothing to do with the Bitcoin speculative frenzy that make headlines about every other day.
I strongly believe that Finance Executives should consider private Blockchains for the 4 following reasons:
1. Visibility and Trust
A conventional database is controlled by a designated authority, who grants access to the database by providing users with credentials for authentication. For example, a database administrator possesses the privileges not only to grant access but also to create objects and issue database commands. Thus, this authority is in control of what happens with the database. If the security of the authority is compromised, the data can be altered or deleted. If the system that manages access to the database is compromised, then the data can also be altered, deleted, or simply stolen.
A Blockchain network consists of several decentralized nodes. Each node acts as an administrator, which signifies that each node verifies the validity of a new data that is pushed (or stored) to the Blockchain. A new data is stored inside every single node and cannot be overridden. As opposed to a conventional database, there is indeed no function that allows to change or delete a data stored inside the Blockchain. Each party has ownership of its node (or ledger) and can access in “read only” mode solely the content stored inside the node, hence the undeniable visibility factor.
Therefore, the Blockchain is an immutable store of information, hence the inarguable trust factor.
A Blockchain is… a chain of blocks. Each block stores all the information that pertains to one transaction. The previous block stores all the data inherent to the previous transaction. The next block will store all the data associated to the next transaction. Thus, there is an order in the way the chain is structured and consequently in the way the data is stored inside each block that composes the chain. What does this architecture entail? Transactions can be tracked in successive order.
This is a perfect tool for supply chain operations and reconciliation. When you sell a product, you need to ensure that your client receives the item at the right place, in time, uncompromised and for a pre-determined cost. To achieve this objective requires that a few steps be involved such as storage, movement of goods from one warehouse to another, inventory tracking, transportation, etc. These steps cannot be successfully undertaken, if series of tasks aren't optimally run. Blockchain provides the technology that improves those tasks.
Increased transparency implies that a product's journey is documented across the supply chain, from its point of origin to its reception by the client and all the stages in between. Data related to recording and tracking become indisputable. This environment facilitates trust among all stakeholders, which in turn improves internal and external relationships and increases the likeliness of transacting.
3. Smart Contracts to Automate Transactions
Smart contracts are computer-generated, and the obligations that each party must fill lie in the code. Unlike a standard contract that lists the terms of a relationship, which are usually enforceable by law, a smart contract enforces a relationship with cryptographic code. “Enforce” is the keyword. Smart contracts are computer-generated programs that enforce the execution of the contract according to the way it was set up by its creators. Thus, all parties involved are bound by a digitally-produced but binding agreement. Smart contracts carry many advantages, one of which being that they facilitate business arrangements, without the formality and cost associated with traditional contracts.
The emergence of smart contracts may put a few professions at risk. Since smart contracts record and keep track of the terms of an agreement while enforcing the agreement via automation, third party involvement isn’t required anymore. It signifies that intermediaries such as brokers, bankers and lawyers whose responsibilities are to facilitate every step of a conventional contractual process can be eliminated. This represents significant savings for the transacting parties.
4. An Auditing Dream
For all the reasons mentioned above, Blockchain is a technology that provides a unique platform to auditors, so they can perform their job in the best conditions possible, knowing they can trust the data they extract out of the Blockchain to prepare their reports. It is indeed an auditor’s dream come true. The technology also represents an accounts receivable and accounts payable departments’ dream come true: Easy verification of intercompany transactions and/or client-customer transactions. Moreover, thanks to smart contracts, delays in payments are eliminated.