Do you find it comforting to dismiss blockchain as “flash in the pan”? Simona Pop believes you’d be a fool to do so and explains why it will live up to the hype.
There is a pattern emerging where new technologies are treated with a certain degree of skepticism. After the initial wave of excitement and expectation, many of the game changing advances are suddenly approached with a “flash in the pan” dismissal.
Is it meant to reassure comfortable people and businesses that carrying on as they are is the better option? Why risk innovation when you can draw out a tradition type stance?
But this isn’t the technology’s fault. Many of these advances are – when divorced from the Gartner hype cycle and the hashtags and actively placed in their proper context – exactly as exciting and game changing as they seem, if not more so.
Blockchain is a high-profile victim of this phenomenon: as a distributed ledger technology that promises faster, more secure payments, many industries have been exploring its possibilities and many more have been writing and talking about it.
Purchasing is no exception. And while blockchain technology may have limited application in other professions, in this one, it will live up to the hype. As a means of reducing costs, improving efficiency, controlling fraud, and boosting transparency, it has tangible, real-world benefits for procurement functions – whatever the market or business they work within.
In a recent article, Paul Clayton, Head of New Service Development for Basware, states:
”In 2017, blockchain is word of the year, it’s absolutely everywhere. But it’s not earth shattering, it’s not the third generation of the Internet it’s just an interesting concept with some obvious benefits and flaws.”
Let’s go through some of the reasons why Basware feel blockchain is not all it promises to be for finance and purchasing:
- “Whilst a blockchain itself is safe, an application using it remains hackable” – This is also true of your bank software, or Apple Pay or pretty much any software we are currently using for payments. It should not stop us using it or leveraging its deep transformational effects in how businesses operate.
- “It can be too transparent” – Technically true, but in reality the references to user wallets are encrypted key strings which, whilst easy to relate to the originating source and other related transactions, is not as easy to relate to an actual physical person. In much the same way as a credit card number isn’t easy to relate to a person without extra information.
- “It’s not the most elegant solution” – Here’s where we strongly disagree. The elegance is in the simplicity. Banks have been trying to come up with distributed ledger technology since the 70s but they were hindered because they refused to be outside the transaction. By using TLS style encryption and cutting out the transaction verification at financial institution level, the whole transaction becomes significantly simpler.
- “You can still lose things!“ – Of course you can. You can lose your wallet too.
The argument that there isn’t really that much value in blockchain when the benefits of smart contracts and removing the invoice are tangible possibilities is nonsensical. Removing the need for invoice processing is huge and any platform truly helping businesses handle their invoices and payments should know this. Invoice processing, and invoice fraud by proxy, are the biggest threats to company money out there today. Just look at Facebook and Google who were victims of $100M payment scam this year.
Blockchain automates trust
Trust is the cornerstone of every business relationship. On a fundamental level, you need to believe that the other person is who they say they are – and they need to believe the same of you.
In this age of phishing, malware, and general cyber security attacks, this seemingly simple principle becomes complicated. Login details are stolen and turned to criminal ends; high-level executives are being impersonated by hackers, who then persuade other parties to release vital funds; the sheer scale and variety of cybercrime is growing.
Blockchain provides a means of automating trust. By using permanently retained historical data to authenticate everyone involved in a deal, each side can be assured of the other parties’ trustworthiness: the seller and buyer alike are always who they say they are, and the product is the right product. What’s more, because prices cannot be modified, invoices will effectively be rendered obsolete.
This greatly simplifies the complicated, multi-faceted transactions that make up modern supply chains – maximising security and reducing the risk of fraud.
Blockchain is fast
Procurement functions will also benefit from the speed and efficiency of blockchain technology. For one thing, it’s fully digital: by taking the more time-consuming elements of a conventional transaction out of the equation, you immediately save time and resources that would have been spent on these tasks.
Shared access databases mean that it’s no longer necessary to manually scan invoices – dramatically accelerating the reconciliation process as all parties are allowed to view the same transaction.
Blockchain effectively cuts out the middlemen. By removing all intermediaries, it makes the processing of payments and transactions much faster: purchase order data can be exchanged on the blockchain at a far speedier pace than current levels will allow. This technology can also identify the nearest and most cost-effective vendors: decreasing lead and work time, and improving your operational efficiency.
Blockchain creates strong audit trails
Blockchain technology stores every detail of every transaction at every level of the supply chain. This will – as mentioned above – facilitate greater fraud control, and it will also offer transparency into issues of legality such as money laundering and the use of child labour.
And though it’s a digital technology, blockchain will also assist with the tracking and recording of physical items. As they are transported across local and international borders, they can be identified at each location – creating a strong and fully documented audit trail.
This kind of end-to-end visibility ensures that delays are rare and that missing items are found and allocated to supply routes more easily. This allows you to manage and optimize these supply routes with maximum efficiency – ensuring that no space is wasted and no customer disappointed.
It’s clear blockchain will have a significant influence on procurement and finance. The advantages of being able to streamline business processes, secure payments, and automate workloads shouldn’t be understated. Do the research, ensure you’re positioning your business correctly and you’ll be in the camp that benefits – today, and in the future.
See InstaSupply’s co-founders chat about blockchain and its vital role on our roadmap.