In 2009, a little-known currency entered the market. If you had bought one thousand of them at this time, you would have had to hunt around for about £4.16 of change in your sofa. Purchase one thousand today, and your credit card will take a hit of over £2m. This phenomenon? Bitcoin.
Bitcoin has become the buzzword of 2017, alongside its younger competitor, Ethereum, which has also experienced astronomical rise in the past two months. They are both examples of digital currencies that enable users to purchase goods or services with online credit. However, though these two digital currencies are grabbing most of our attention, the underlying technology that powers them is what contains the real value. This is blockchain.
A blockchain is essentially a database, often called a ledger, that holds records of digital transactions. However, unlike a traditional database, a blockchain database does not require a central administrator (typically a bank or government) to manage the transactions. As a result, peer-to-peer (P2P) transactions can occur as the consumer and supplier are able to transfer online payments directly to one another without passing through an intermediary.
So as stock prices continue to boom for these digital currencies, should businesses be beginning to consider using blockchain in their company?
The benefits of blockchain for businesses
Perhaps the most valuable benefit of blockchain for businesses, particularly in light of the rise in cybercrime, is its extreme security. Every transaction that is made through blockchain is coded and then grouped together with other transactions made within the past ten minutes. This group of transactions, known as a block of code, is then added to a chain made up of all previous code blocks created since the beginning of the particular blockchain.
For a hacker to access the one transaction, they must hack into the specific block, and then all the blocks that ever came before it in the blockchain’s history, all at the same time. A virtually impossible task even the for most skilled of hackers. This could be of particular importance for companies transacting higher value services.
Interbank transactions can often take days to process, and even longer when outside of working hours. However, because transactions with blockchain don’t require this third-party involvement, connecting consumer and supplier directly, this can hugely increase the speed of the transaction.
Barclays trialled a transaction using blockchain, and found that a process that typically takes 7-10 days took them less than four hours. You can also set up automatic payments that fire when selected criteria is satisfied, again cutting down time. With less money therefore having to be set aside at any given time, this could free up significant capital for the business.
Admittedly, the cost of implementing blockchain into your business isn’t inexpensive. There are high initial capital costs. However, once this initial setup fee is costed for, blockchain can hugely reduce everyday costs and, in the long-term, deliver a strong ROI.
This is because blockchain technology directly connects the relevant parties, so businesses no need to pay for expensive intermediary fees that cut into their margins everyday.
Keeping accurate records of exchange of information and assets can be time-consuming, require third-party help and often become muddled through human error.
However, blockchain’s method of record-keeping eliminates these issues. By automatically time-stamping each transaction, there is virtually no risk of a recording mistake being made. This also makes it far easier to track and monitor the movement of the assets or information.
Blockchain technology isn’t vice-free, particularly in regards to its regulatory status. However, its potential is undoubtedly great and nowhere is this more evident than in the fintech space as companies recognise the need to cater to changing consumer demand, no less seen than in the boom in retail finance, as the likes of Divido allow customers to pay for their purchase in flexible monthly instalments at 0% interest.
The Financial Times recently reported that 42% of polled asset managers identified blockchain as an area of financial technology that will have the biggest impact on the industry. In 2016, Barclays claimed to have carried out the world’s first trade transaction using blockchain technology. And in February of this year, Dubai’s government partnered with IBM to carry out their own blockchain tech testing.
These tests still have far to go, and it will take many more years for blockchain technology to prove itself to the masses. However, with such clear and tangible benefits, it’s not a matter of if, but when.