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Why Should Businesses Care About Blockchain?

Blockchain is a means of collecting a variety of different interactions online in real time.

Block Chain Network Concept - Distributed Ledger Technology - Blockchain

Blockchain is the biggest buzzword in technology today. Cryptocurrency and bitcoin more specifically made blockchain famous. Blockchain technology was originally developed as part of bitcoin, but the two are not the same. Blockchain can support a wide range of applications, and it is being used for peer-to-peer payment services and supply-chain tracking and more.

 

So, what exactly is blockchain?

The World Economic Forum defines blockchain as a “shared, programmable, cryptographically secure and therefore trusted ledger which no single user controls and which can be inspected by anyone”.

In the simplest terms, blockchain is a means of collecting a variety of different interactions online in real time. These ever-growing collections of data are called “blocks,” and each block contains the data from all the blocks that preceded it, forming a chain – hence, blockchain. These blocks are both encrypted and decentralized, stored across a network of computers to ensure the data they contain is both transparent and cannot be tampered with.

The characteristics of blockchains are:
• efficiency (allowing for direct transactions between two parties and negating the need for intermediaries),
• attribution (keeping a running ledger of all transactions, making a permanent and traceable record), and
• transparency (existing across a decentralized network, allowing everyone to see every transaction as it occurs).

The consensus is that anywhere data is stored, or online transactions are made will be touched by the adoption of blockchain. That means just about every industry will be impacted.

We will look at the following seven implications that are likely to impact many businesses in the very near future.

 

Auditability

On the blockchain network, the details of each transaction are recorded, subsequently it provides auditability for the asset between two parties. This is especially beneficial for the businesses in which data source is needed to authenticate the assets. You can realize the benefit of blockchain technology and used it to audit any asset and transactions.

 

Decentralised

Blockchain provides a neutral open platform. No third party is needed to authorise transactions. However, there is a set of rules that all participants, users and operators of the system must abide by. This is highly valuable in complex supply chains where trust is low and compliance is difficult to gauge. The Economist has dubbed blockchain “The Trust Machine”.

 

Higher efficiency and lower fees

Efficiency and cost are inter-related and one of the effects of blockchain is the streamlining of cumbersome processes and red tape, meaning many functions that are required to get jobs done will be less time consuming and costly. As an example, today we might hire a vendor, negotiate a price and timeframe, and then – when the contract expires – come to an agreement with the vendor on what has happened and get billed. We approve the invoice, send it over to accounts payable, and – thirty days later – the vendor gets paid. But a “smart” contract could use data stored on a blockchain network to determine if pre-determined conditions have been met and trigger an automation of the whole process.

 

Real-time Information

Because blockchain technology operates on a distributed (rather than centralised) platform, each participant has access to the same ledger records. When information is updated, it’s updated for everyone in the network at the same time. This empowers the whole supply chain to be more responsive to any fraud threats or in the case of food industry, food safety disasters.

Blockchain technology could bring advantages to every player within the supply chain. As an example, for the food supply chain: growers, processors, distributors, suppliers, retailers, consumers and regulators. Here are some of them:

• Producers – Any attempts to tamper with a food item as it moves through the supply chain can be immediately identified and prevented before the food reaches the retailer.
• Retailers – Should a potentially hazardous food product make it onto shelves, stores can identify and remove only the hazardous items. This eliminates the need for costly batch recalls.
• Consumers – The transparency and openness of the blockchain reassure consumers that the food they are buying and eating is exactly what the label says it is. Currently, 75% of consumers don’t trust the accuracy of food labels.

 

Security

Blockchain provides a permanent record of transactions, which are then grouped in blocks that cannot be altered or tampered with. Transactions are verified and approved by consensus among participants, making fraud more difficult. Value of assets differ between industries, therefore fraud in luxury goods may be higher and food fraud is less likely but, if it does occur, it will be easier to spot. At the same time, consumers are reassured that companies cannot change the information in a bid to hide the true origin and movement of the product through the supply chain.

 

Traceability

In the blockchain, tracking goods in a supply chain is easy and advantages. In the food value chain, food processors and manufacturers often struggle to validate the origin of their ingredients. If consumers are to trust in the quality and provenance of any food product, the processor must be able to provide detailed information about what’s in it and how it was made.

Blockchain allows the grower and processor to share information with each other privately and securely, while also having the supply chain validate this information. In other words, it provides a Web-of-Trust system that allows the network participants to evaluate and validate assertions made about food, whether on the food’s origins, dietary claims, sustainability, and so forth.

However, this system will work only if the data at the source is accurate; in other words, if food processors are inputting the correct data. Currently, data is stored on paper or in centralised databases, which are open to human error and inaccuracies. One solution to this challenge is sensors. Food processors can use sensors to collect accurate and detailed information which can then be made available to across the supply chain.

 

Transparency will no longer be optional

The widespread adoption of blockchain will make most actions made by a company verifiable. Everything from product procurement to contract management to investments will have verifiable proof within a network built on blockchain.

Consumers will come to expect a deeper level of transparency into certain company activities. In a world with growing expectations that brands will adhere to a set of values and ethics set by the consumer, people will expect a clear line of sight to whether these standards are being upheld. Brands that fall short of these expectations will be punished and those that meet them will be rewarded.

 

CONTACTS
For more information, please contact:

Stanley Ng
Associate Consultant
stanleyng@nexiats.com.sg