Blockchain has been the talk of the town for quite some time now. Ever since the technology had been introduced with the arrival of cryptocurrency, it has been interesting to see how industries other than finance, too, took interest and found several possibilities hidden in this disruptive technology.Blockchain’s main advantages of boosting efficiency, reducing costs, increasing the speed of transactions and most importantly, promising reliability and trust has made it one of the most promising technologies that have been introduced in recent times.It does not matter if the enthusiasm or scepticism for blockchain lasts or not, as the technology itself has shown that it can help businesses, irrespective of industries they operate in, in manifold ways.
The lack of trust in the finance industry and how blockchain boosts reliability
One of the basic covenants of blockchain is the transparency it provides. Ever since the subprime crisis of 2008-09, banks have been wary of releasing funds without doing a lot of due diligence. Most badly hit in this entire scenario, were the SMEs. They could not have banks issue quick loans to them and would approach factoring houses to help reap in receivables so that they could keep their working capital mechanism oiled somewhat, if not sufficiently. The need for physical verification every step of the way for each and every transaction and invoice, made financing a costly and time-consuming process.To start with, the arrival of blockchain made intermediaries redundant. The private and public distributed ledger system, and decentralized storage of data that could not be replicated or duplicated, made way for a more transparent and quicker system of handling finances. Banks do understand how effectively a distributed public ledger system can work and have been contemplating an integration ever since the ‘70s, however, the issue was the system would make banks redundant, and that is something banks were not ready for.Blockchain removes a lot of misgivings that bank transactions are accompanied with these days. Matters like long processing times, frauds, identity thefts etc, are easily taken care of in a blockchain-powered system. So, as a business, you stand to gain in time, resources, and reliability when you welcome blockchain in your business processes.
Blockchain frees businesses of invoice frauds
One of the biggest benefits of blockchain is its ability to ensure trust. Every time a transaction takes place, it is being stored in a block where it stands immutable and irrefutable. Once it is introduced into the block, it cannot be changed further till all parties mutually agree on the changes being discussed. Once that is done, a new block is introduced into the chain with details of the new agreement.Each entry in a blockchain is treated as an independent transaction. Once the transaction is updated and validated by the network, the seller or lender is committed to the price or the rate of interest and duration that had been agreed upon at the time of the transaction. Each and every transaction on the blockchain is like a binding contract in itself.For example
, in current times sans blockchain, a company releases a purchase order that agrees upon a certain price with the seller. Every time, the seller fulfills a part of the purchase order, they release an invoice stating the amount payable by the company for that particular dispatch. However, it is possible that the seller by mistake or intentionally might change the amount from the one that was agreed upon in the purchase order. In order to ensure such errors do not arise, companies run the invoice through multiple levels to check the accuracy of the invoice. In case some discrepancy is found, indeed, then it takes one too many rounds of meetings with the seller to find out what happened. Needless to say, this entire process becomes extremely time and resource consuming, and there is always a possibility of the company not being able to find the glitch and paying out the amount erroneously or intentionally enhanced by the seller.Blockchain removes the possibility of such error by, in a way, automating the transaction by removing the possibility of entering the wrong amount in the invoice or the company to have multiple resources validate the invoice amount, by having the first level agreement locked in a block and validated by the network.Due to its transparency, each party in the transaction has a clear view of details of the transaction, quality, price et al, removing the requirement to iron out issues later in the transaction. Further, when cryptocurrency is enabled, payments can be made digitally through crypto and the fear of fraud, forgery, and meddling will be addressed, instantly.Fraud, yet another pain point faced by not only SMEs and large corporations but by banks, as well, can be addressed using blockchain. The technology uses a long chain of historical data pertaining to each individual to validate whether the person or request is genuine or not. This makes it easier for lenders to find out if the request for financial assistance is coming from a genuine source or not, or if the invoice being presented are genuine or forged.Although, hackers may hack into a blockchain, just like they can hack into any secure platform we know of today, the robust decentralized system and the immutable property of blockchain make it impossible for hackers to go back and change any of the data in the blocks or create one in a retrospective manner. The time and date stamps on each transaction of each block, makes it virtually and technically an impossible task. What hackers or frauds can do, is add a new entry and steal from a wallet, which is a much less severe matter than we have already witnessed in the last few years. However, since each transaction is created when two parties are in mutual agreement to any change or a new term, even this kind of fraud is limited.Finance and lending sectors are the ones that can largely benefit from integrating blockchain into their systems. The technology was initially introduced for the finance industry and soon other industries too, saw the tremendous possibilities it held. They found new uses for it and started integrating it into their systems. But has the industry it was first developed for embraced its full potential yet? Fintech companies are building tools based on blockchain that can help businesses protect themselves from frauds and invoice stacking issues in an effective manner. It is now up to SMEs and large corporations to reap the blockchain advantage to make their finance vertical more efficient, cost-effective, fast, reliable and protected.