By Jan Christensen & Thomas Honoré
By allowing digital information to be distributed but not copied, blockchain technology created the backbone of a new type of internet. Blockchain was originally developed as the technology behind cryptocurrencies like Bitcoin. A vast, globally distributed ledger running on millions of devices, it is capable of recording anything of value. Money, equities, bonds, titles, deeds, contracts, and virtually all other kinds of assets can be moved and stored securely, privately, and from peer to peer, because trust is established not by powerful intermediaries like banks and governments, but by network consensus, cryptography, collaboration, and clever code.
According to Harvard Business Review, Santander, the European bank, realized potential savings at $20 billion a year by using blockchains. Capgemini, a global consultancy, estimates that consumers could save up to $16 billion in banking and insurance fees through blockchain-based applications.
For the first time in human history, two or more parties, businesses or individuals who may not even know each other, can enter agreements, make transactions, and build value without relying on intermediaries (such as banks).
Like the internet you don’t need to know how a blockchain works to use it. However, just having a basic knowledge of this new technology shows why it’s considered revolutionary.
However, is it just an alternative to credit cards, bank transactions and cyber currencies?
Yes and no. The idea is to safely and swiftly transfer digital values from one company to another or from one person to another.
No banks, governments or other Institutions have the control of the data and the value. This has many advantages. The obvious one is that no bank or institution will take a fee for handling the transaction, which will mean massive savings for companies and consumers. Another advantage is that it is much faster because no intermediates are involved in the transaction. And lastly, the transaction is secure because both the sender and receiver has the ability to perform the validation of the transaction.
You can trade more openly and globally
By using blockchains you can trade with practically anyone in the world since you only need to know their digital identity and authorizations. It also opens up the global trade in parts of the world where you today have to have your agents and bank involved. In the blockchain economy you do not need to involve anyone, because you create smart contracts and Decentralized Autonomous Organization, or DAOs.
You can remove the uncertainty
You do not need to know a lot about your customer, no need of doing credit ratings and trade insurance. This will be handled due to money being exchanged instantly as both involved parties has agreed to and it will be validated by all other in the chain. You also know if the sender has the money even before you start trading.
Blockchain connectivity with your business apps
Imagine, when you invoice a customer from your existing ERP system, you immediately get a green light saying: “money has been transferred and inserted on your account”. No delays, no fees, and no risk. That sounds like a very compelling value proposition.
In order to ensure security and scalability inside the business you need to have blockchain integrated with your existing business apps, such as your ERP, CRM and business intelligence systems. You also need that ability to report on your balance in the blockchain and you need to have a close integration with your back-end apps.
The future of Blockchain
The use of cyber currencies and peer-to-peer transactions are exploding, and our prediction is that the blockchain systems will take over more and more transactions in the world of business, and it will have a profound impact on our business applications.
Is this the end of banking as we know it?
That depends on how incumbents react. Blockchain is not an existential threat to those who embrace the new technology paradigm and disrupt from within. The question is, who – if any – in the financial services industry will lead the revolution?
Throughout history, leaders of old paradigms have struggled to embrace the new. Why didn’t AT&T launch Skype, or Visa create Paypal? CNN could have built Twitter, since it is all about the sound bite. GM or Hertz could have launched Uber; Marriott could have invented Airbnb. The unstoppable force of blockchain technology is barreling down on the infrastructure of modern finance. As with prior paradigm shifts, blockchain will create winners and losers. Personally, we would like the inevitable collision to transform the old money machine into a prosperity platform for all.
Blockchain could upend a number of complex intermediate functions in the industry: Identity and reputation, moving value (payments and remittances), storing value (savings), lending and borrowing (credit), trading value (marketplaces like stock exchanges), insurance and risk management, and audit and tax functions.
Categories: Digital Transformation
Thomas Honoré is Chief Executive officer and President of Columbus.