Blockchain is a new technology, and there isn’t much else like it. Often likened to the launch of internet, many believe that blockchain technology will totally revolutionize the way that companies manage their finances and conduct their operations. But for such a technical topic with such reaching ramifications, where should you even begin to start understanding what blockchain means for your business?
We’ve summed up the answers to important questions below so that you can start building the foundation of your blockchain knowledge.
What is the difference between blockchain and Bitcoin?
The terms blockchain and Bitcoin are, unfortunately, often used interchangeably, but the two terms have very different meanings when it comes to truly understanding the basics of the technology and how it works.
Blockchain is a shared, secure ledger that records and time-stamps transactions, and it’s primarily used to record transfers of value between two or more parties.
Blockchain is the technology upon which cryptocurrencies, like Bitcoin, are dependent.
Consider, for example, the differences between email and the internet. Email was one of the first (and a very good) uses of the internet, but it’s definitely not the only use for the internet. Similarly, Bitcoin is the first and most prominent use case of blockchain, but it isn’t the only use of it. Many companies are experimenting with ways in which they can use blockchain to better their businesses and operational processes, such as tracking the production of a product in the manufacturing industry.
How does blockchain work?
Imagine blockchain as the connections within the community marketplace. Companies are always transacting with each other, and your company has many different vendors and customers that you’re connected with through purchases and sales.
Because blockchain is a shared ledger among multiple parties, all of these companies in the community marketplace could use blockchain to record their transactions. After a transaction between two companies, where one company records a sale for an amount, the partner company would record a purchase in the same amount. Transactions are constantly being automatically reconciled because companies are interacting with each other in the same amounts within the same platform.
Does my company need its own blockchain?
You wouldn’t want to create an individual blockchain that only functions for your company because blockchain is specifically designed for multiple parties, just as you wouldn’t conduct purchases and sales only within your own company. For blockchain to work effectively, everyone who is involved in transacting with your company would need to be a part of a blockchain.
What’s the benefit of blockchain?
Utilizing blockchain creates an efficiency of shared information among all parties. The technology tells you that the information that you have can be trusted because it is part of a larger, trusted and shared network.
How will blockchain impact my organization’s finances and accounting?
The traditional method of accounting that is used to balance a company’s books is double-entry accounting, in which every entry has both a debit and a credit.
Blockchain is mostly being used in triple-entry accounting. In triple-entry accounting, two parties would continue to record a transaction as they would in double entry accounting, but each of the parties would also record a third entry into the blockchain ledger. The entry that is entered into the blockchain ledger is then verified by both parties, which ensures that the shared ledger of blockchain is in balance.
When should my company move forward with blockchain?
Some Fortune 500 companies have already made the investment to implement blockchain technology within their operations. These companies have a large amount of resources to devote and are doing a great deal of research and development concerning how blockchain will be utilized by businesses. Eventually, once these companies are ready to fully adopt the blockchain technology, they are likely to approach other companies (their vendors and suppliers) about joining their blockchain. Then, those companies will request that all of other companies that they interact with adapt blockchain, and so on. Though we expect true blockchain implementation to begin with these large companies, through this ripple effect, it will eventually trickle down to mid-size and smaller companies.
Most businesses are not implementing blockchain now, but there will come a time when all businesses will need to be aware of the technology and what it means for their finances and operations, so it’s important that business leaders begin now to garner an understanding of blockchain in the business world. But, for now, it’s important to not get bogged down in the details. An average user of blockchain likely won’t need to understand the high level of technology that goes into blockchain in order to use it effectively.
Most important of all: before implementing a blockchain for your business, you’ll want to be sure that the cost of implementation will be worth the result.
How will things be different when blockchain becomes mainstream?
There will be fewer intermediaries. With blockchain technology and with Bitcoin, there isn’t a need for a third-party bank to settle a transaction between two parties. Companies are expected to see cost savings with this elimination.
How can I learn more about blockchain?
There are many educational resources that business leaders can take advantage of in order to educate themselves about blockchain. Udemy, an online learning platform, offers blockchain courses, and CoinDesk produces articles each day about the latest in blockchain news, though these are only two examples of many resources.
If you are specifically interested in learning how advancing technologies, including blockchain, may impact your specific organization, or what your business should do now to be prepared for the future, contact a Warren Averett advisor.