In the last decade, there has been a growing awareness of the concept of blockchain technology and the many potentials it possesses. While most people often conflate the popular cryptocurrency Bitcoin with blockchain technology, it is essential to note that both are not the same.
While Bitcoin is powered by blockchain technology, blockchain technology can be utilized for other purposes beyond Bitcoin and cryptocurrencies in general. Additionally, blockchain is a form of a distributed database, while Bitcoin is a type of cryptocurrency.
One of the use cases made for creating blockchain technology was because it addressed the issue of trust in financial and like transactions. Most common databases, such as the SQL database, typically have individuals in charge who can alter entries to suit their ends. However, blockchain technology is different because no single person is in charge of entries as numerous people run it, and anyone can easily access transaction records.
The technology has proven efficient in tackling various modern-day issues ranging from health to data storage, record management, finance, and business. Business and finance are two of the most critical areas that blockchain technology has immensely impacted since its introduction.
Before delving into the topic properly, it is vital to consider in detail what blockchain technology is all about and the reasons for its adoption in various fields.
What is Blockchain Technology?
A blockchain is a digital ledger or record of transactions spread and duplicated across entire networks or nodes of computer systems on a blockchain. Each block within the chain contains several transactions, and each time a new transaction takes place on the blockchain, a record of such transaction is included in the participant’s ledger.
The kind of database utilized in a blockchain is regarded as a decentralized database known as Distributed Ledger Technology. Numerous participants run the database, and each transaction is recorded using an immutable cryptographic signature known as hash.
As a digital database, blockchain technology stores data electronically in digital form. The innovation is generally acclaimed for its fidelity and security of transaction records generated without the requirement of a third party or intermediaries.
Reasons for the Adoption of Blockchain in Various Fields
Transparency
Due to the decentralized nature of blockchain technology, all activities conducted on the chain can be viewed by an interested party. This can be done through blockchain explorers or individual nodes, which allows parties to view transactions as they occur live. Each node keeps a copy of the chain and is constantly updated when new blocks are confirmed and added.
Records stored on the blockchain are mostly encrypted, allowing only the owner access to the record by decrypting it to reveal their identity. A user can remain anonymous while being transparent. This is done through a public-private key.
Highly Secure
Another reason blockchain technology is utilized by different fields is its security. Because it uses a digital feature to execute fraud-free transactions, third parties can't alter or corrupt such records without the specific digital signature. This security attribute is arguably one of the essential aspects of the technology and has led to its adoption by different fields.
A Decentralized System
Traditionally, a person needs to obtain approval from regulatory bodies such as banks or governments to execute transactions. However, blockchain technology allows participants to conduct transactions by mutual consensus, leading to safer, faster, and smoother transactions.
Automation Ability
Blockchain is largely programmable and can be utilized to automatically create systematic events, payments, and actions when the proper criteria are met.
Impacts of Blockchain on Businesses
Since its emergence, blockchain technology has had tremendous effects on business operations. From operations to accounting, the leading consensus among experts and industry leaders is that blockchain is likely to impact every aspect of business operations.
According to an analysis by popular consulting firm PwC, blockchain has the potential to add $1.79 trillion to the global economy in the next decade. Below are some of the impacts of blockchain in the field of business:
Asset Protection
According to reports, damages resulting from global cybercrime are predicted to be over $6 trillion in 2021. It is estimated that the figure is set to rise to about $10.5 trillion by 2025. However, with blockchain technology's decentralized, transparent, and immutable nature, both digital and physical assets enjoy greater security and protection against third parties.
Blockchain stores data through sophisticated software and math that hackers cannot alter. And the process produces a distinctly encrypted virtual fingerprint known as harsh that is tamper-resistant and secure.
Elimination of Intermediaries or Middlemen
Customarily, most business transactions involve intermediaries or middle to facilitate the process. However, blockchain technology eliminates third-party intermediaries as the gatekeepers of trust. By using special software instead of go-betweens, blockchain has effectively lowered overhead hassles and costs for individuals and firms trading in assets or any business activity.
Lowering Operating Costs
Businesses utilize a programmatic set of rules or instructions known as “smart contracts” to send and receive payments. These smart contracts are programmed on the blockchain, and upon fulfillment of the terms contained in the contract, the smart contract executes the next appropriate process automatically.
This eliminates the need for escrow agents, brokers every, and the expenses that would otherwise be involved, thereby lowering business costs and operating expenses.
Supply Chain Management
Supply chain challenges such as service redundancy, lack of reliability, and poor coordination between departments can often affect businesses. However, with blockchain technology, businesses can track and monitor transactions by numerous supply chain partners within the supply chain system.
Every transaction (date, history, timestamp, etc.) is recorded on a block or decentralized ledger, and anyone can easily validate the authenticity of a product delivered. This allows for maximum transparency in transactions and ensures ethical sourcing and auditing of accounts.
Impacts of Blockchain Within the Field of Finance
The financial sector has been hailed as one of the fields impacted the most by blockchain technology. Aside from the introduction of digital currencies such as Bitcoin, which are powered by blockchain technology, below are other ways that blockchain technology has impacted the financial sector:
Instant Payments/Settlements
Financial transactions, which typically take up to weeks, can be concluded within seconds with blockchain technology. With the assistance of blockchain technology, settlements can be user-optimized to save time and money for all parties involved. Blockchain eliminates the need for back and middle office staff at financial institutions since transactions are settled instantly.
Boosts Capital Optimization
One of the key attributes of blockchain technology is that it eliminates the requirement of intermediaries and ensures smooth peer-to-peer transactions. When applied within the financial service field, it holds the potential to remove fee-charging intermediaries like clearers responsible for validating counterparty credit conditions and custodian banks that send money between banks.
It, therefore, provides capital optimization by reducing a bank’s operational costs.
Improved Transparency
Blockchain is widely hailed for its transparent feature that allows third parties and interested persons to verify transactions on the chain. Increased transparency between financial institutions such as banks leads to central banks' enhanced regulatory monitoring and reporting, especially when such regulators also have access to the blockchain.
Enhanced Financial Transactions Due to Smart Contracts
Complex financial transactions can be managed by smart contracts, eliminating the risks of errors. Financial institutions and banks that use smart contracts record better financial transactions since smart contracts are quickly executed once the contractual obligations are met.
Smart contracts of this nature must be rooted in law and meet regulatory compliances across various jurisdictions where necessary.
Improved Security
Data recorded on the blockchain are immutable and unalterable. This provides a security measure against hackers who might want to tamper with such records. Additionally, such data can be tracked in real-time by any interested financial institution, leaving a detailed audit trail.
Conclusion
Blockchain technology is undoubtedly one of the most significant technological innovations of the modern age. It comes with numerous benefits that can be utilized in various sectors such as businesses and finance. Investors looking to pour funds into the industry can consider the many utilities of blockchain technology, such as those discussed above.
