Blockchain Could Transform Back Office Finance
When it comes to the global economy and disruptive technologies, the terms ‘blockchain’ and ‘bitcoin’ have been thrown about quite a bit in the past few years. But it can be hard to parse out exactly how these technologies work and how they could be utilized to solve real world problems. While the two terms are often used in close association, or even interchangeably, they aren’t equivalents. Bitcoin is a digital currency that runs on a distributed network that has no central bank to control and regulate it. Bitcoin needs a framework to run on, which is where blockchain comes in—blockchain is a decentralized messaging protocol that can transact in bitcoin.
Blockchain, while created originally as a conduit for bitcoin, can be utilized for a host of distributed applications and business transactions. Much like Wikipedia, blockchain can be thought of as a database with no single owner. Many writers can access and edit, and copies of it created and stored on each user’s computer, with changes synchronized in real time.
But how does a user know if the parties that have access to the blockchain are reputable? What if a malicious actor attempts to falsify or destroy information? The features at the core of the technology ensure data integrity and resilience. Blockchains can employ varying levels of permissions and privacy, but the general mechanism that ensures consistency and accuracy is a shared understanding of what makes an entry legitimate. All parties must consent to the rules that make an entry valid, and those rules are enforced by algorithms and other controls within the system. Cryptology mechanisms like asymmetric keys and digital fingerprints make it nearly impossible to cheat.
In accounts payable and other back-office finance roles, it’s easy to envision scenarios where this type of platform could be enormously useful. You could even argue that blockchain already exists in AP in the form of shared digital ledgers that multiple people within an organization have permission to edit. The difference is that with blockchain, the ledger can be opened up to all parties involved in the transaction, not just those within a single organization. The standards by which modern accounting operates, such as validation through double-entry bookkeeping and third party audits, are built right into the system. Theoretically there is no need for human oversight and verification of the ledger because the data is already validated. A large chunk of auditing work could be eliminated from the accounting process.
Additionally, in environments with complex regulations that govern tax compliance and adherence to industry standards (healthcare, pharmaceuticals, etc.), blockchains can be especially useful. So-called ‘smart contracts,’ or programs that run when certain conditions are met, can be used in tandem with blockchain protocol. This allows organizations to configure internal controls ensuring certain transactions won’t flow through the system unless all relevant documentation is in order. It also means that after the program verifies that goods have been received and supplier data is accurate, invoices can be automatically routed and paid via the optimal payment rail.
Developers are already hard at work developing decentralized applications designed to run on blockchain protocol. While still in early stages, there are plenty of use cases in finance and elsewhere where these applications could improve efficiency and security.
Thanks to Anna Barnett of PayStream Advisors and Jim Boone and Greg Lloyd of Levvel for their contributions to this article.
Paystream is a part of Levvel, a consulting firm that combines the innovative DNA of a startup with the wisdom, scalability, and rigor of a Fortune 100 company. Levvel helps big companies innovate like startups and small businesses scale like industry leaders, providing both technical implementation and strategic advisory services to companies across a wide range of industries. Our comprehensive set of services includes a specialized focus in the following areas: DevOps, cloud technologies, mobile, UI/UX, product innovation and design, payment strategy, big data, and analytics.
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