The distributed ledger system behind blockchain, the technology used to secure cryptocurrencies, ensures that all transactions are validated and, importantly, that an immutable record is kept of these transactions.
By Sumit Kumar Sharma, enterprise architect and head of advisory services at In2IT Technologies
This is essential for securing a digital currency, but it has many applications beyond this, particularly for organisations that are innovative enough to find a business case for building out on blockchain.
The blockchain difference
Any record of transactions has always been subject to fraud and/or misrepresentation, because one party holds ownership of a transaction record, and it is only their word that states that this is valid and true. Transaction records can also be quite easily tampered with. Blockchain works differently.
According to Investopedia: “The innovation with blockchain is that it guarantees the fidelity and security of a record of data and generates trust without the need for a trusted third party.” This is down to the structure of a blockchain, which is made up of blocks with a set storage capacity, which are closed and linked together when they are full. This in turn creates a timeline of events because the data is chained together in chronological order.
The start of a revolution
Blockchain is currently being explored by businesses as a means to increase trust and transparency around financial transactions, especially with regard to areas like smart contracts. IBM’s definition of smart contracts is “digital contracts stored on a blockchain that are automatically executed when predetermined terms and conditions are met”. This has many uses within the financial services sector, as well as businesses like real estate and law, where contracts are part and parcel of the business.
The same type of process can also be used to automate other workflows, because they follow a simple linear progression that if certain conditions are met, other actions are triggered. Blockchain can also be used to improve supply chain management by creating an immutable and chronological timeline of events and locations of goods, to prevent stock loss, theft and so on. For governments, blockchain can be used to improve record keeping and streamline processes such as applications for official documents.
Moving in the right direction
There are many use cases for blockchain technology, many of them within the banking and financial services sector, and this is where a lot of focus is currently being placed in South Africa and across the continent. The South African Revenue Service (SARS) is exploring the potential of blockchain to improve tax systems, and the South African Reserve Bank (SARB) is looking into regulated cryptocurrency to create a pan-African digital currency and enhanced market for cross-border transactions.
However, we are only now at the beginning stages of where blockchain technology could potentially go, and the true potential and impact will only be felt further down the line. The key benefit of blockchain is that it creates a single version of the truth, which cannot be altered without this alteration being evident. If this is harnessed well, it will make processes like record keeping and due diligence much simpler and more efficient.
Building the business case
Blockchain is a solution that is looking for a problem – it needs to be approached from a business first perspective. The question is not what blockchain can do for a business, but how businesses can use blockchain to solve pain points and problems. From areas like Know Your Customer (KYC) and due diligence to compliance with the Protection of Personal Information Act (PoPIA), the ability to create and maintain a single, trusted, and immutable source of truth can be immensely valuable.
This is particularly clear for financial services organisations, as they will be able to reduce fraud and keep improved, consolidated records of customers for better product targeting, cross selling and upselling. However, the same is applicable in any business. Blockchain creates a record of transactions that cannot be questioned, and can clearly indicate ownership of elements like land, property, or even digital real estate. The concept of Non-Fungible Tokens (NFTs) has become increasingly mainstream, where units of a blockchain are used to identify ownership of digital items like videos and photographs.
The key is to take a business problem approach, rather than attempting to implement technology for the sake of implementing technology. It is also imperative to make sure that the limitations, objectives, and business goals are understood and communicated to key stakeholders. As with any new technology implementation, having the right IT partner can greatly assist with strategy, application and change management, as we move into a world where blockchain becomes increasingly mainstream.