Blockchain is changing how businesses function, providing them with a secure and efficient technology to replace current practices. While it may have an impact on the company financially, it affects various other areas of businesses that are not traditionally associated with finance too, including security, logistics, and transactions.
While these breaches may be common, a business can adapt and leverage blockchain technologies to improve digital security. With the system of a distributed public ledger that is encrypted, various aspects of the business from identities of employees to software updates can be secured using blockchain.
Assuming someone were to breach the update, and add malicious software to one computer, its operating system hash would change. Then, when it compares its hash to the other computers hash codes, its hash code will differ from the copies on the other two computers.
Through this method, each computer can periodically compare its ledger with the other ledgers on the network, and if any one software were to be breached, it could be reported.
This is a simplified example with just three nodes, but a business network with hundreds of computers across multiple organizations would make it almost impossible for any malicious software to be installed on any one computer. The process is also completely automated, allowing threats to be detected seconds after a breach has occurred.
Supply Chain Tracking
Technologies such as the Linux Foundation’s Hyperledger Sawtooth are making this a reality. With the power of blockchain, smart sensors, and the Internet of Things, each piece of inventory can be tracked, allowing all parties to be aware of the condition its kept in.
Back to the example of food – Let’s say a farmer has just harvested some crop. He will attach a sensor to this crop, allowing data such as the time and location it was harvested, the humidity and temperature the crop was stored at, and other key points of information to be tracked securely by the necessary parties. This will allow each party, from the farmer to the retailer, to trust the other as there is technical data to prove the integrity of the inventory being purchased.
Tracking data using these technologies can help prevent malicious parties to sell goods that were not acquired according to the right standards, improving quality for every member in the supply chain.
Transactions and Contracts
To understand how contracts can be impacted by blockchain, one needs to first be familiar with the concept of smart contracts. The idea was first developed in 1993 but has since grown in popularity with the development of Ethereum smart contracts. The basic idea involves the submission of a transaction involving two or more parties onto the blockchain with an expiry date, and at that time, a certain condition will be checked, and the transaction will proceed.
To provide a simple example, let’s say someone had to purchase a house. A smart contract involving a buyer and seller would be created, and it would expire on the day the sale would take place. The seller needs to release the key to the house, and the buyer needs to release the funds to purchase the house. These are the two conditions of the contract. At the time of expiry, if both of these conditions are not met, the contract will not go through. For example, if the buyer releases the funds, but the seller does not send the key, the funds would be returned back to the buyer at the time of expiry. On the other hand, if the seller releases the key early, the blockchain will hold it until the buyer sends the funds.
Another company, called Storj is creating cloud storage by leveraging unused hard-drive space on different computers. A file would be uploaded to this cloud, and encrypted and distributed to each node, creating decentralized storage that is much more secure than saving data on a single server. This would also allow everyday laptop users to leverage their computers as another source of income.
Impact on Financial Sector
Blockchain is going to impact the banking industry in many different ways, allowing the industry to benefit the most from the technology. Its main advantages are reduced costs and increased security, and faster transaction time, which is what every bank wants its processes to benefit from.
The Australian Securities Exchange (ASX) is also moving towards Blockchain by replacing their current Clearing House Electronic Sub Register System. They have been testing the transition for the last two years and have seen how migrating to blockchain can help simplify and cut costs of back-office processes. It is one of the first large financial markets to implement this change, and others are following. The Hong Kong Stock Exchange (HKEX) is planning on following the ASX’s footsteps and migrating to blockchain technologies as well.
Blockchain is going to change the way business function. Companies should adapt to this rapid change and leverage this technology to improve security, supply chain management, and transactions that take place on their business network.