All about Blockchain Technology and it's applications in Finance function

All about Blockchain Technology and it's applications in Finance function

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  All about BlockchainTechnology and it's applications in Finance function: Blockchain is the new buzzword in almost all areas. This article showcases the Robotic Process Automation and Cognitive Computing as two of the exponential technologies that would impact future professionals. Blockchain as the emerging technology which will soon have significant influence on the business and finance profession in the near future. It gives a perspective of how the professionals will need to upskill and prepare themselves to embrace the new technologies that will define the future of their business and finance Blockchain is believed to have similar disruptive potential that the internet had in the 1990s. Just like the internet revolutionised the exchange of information, Blockchain is being said to revolutionise the exchange of value. Clearly, Chartered Accountants, CFOs and business leaders are intrigued by the promise of the Blockchain technology. "Blockchain Technology is a vast, distributed ledger, operating on millions of devices, recording anything, with identical copies maintained on each of the network computers. When a new transaction or an edit to an existing transaction comes in, generally a majority of the nodes within a blockchain network must execute some algorithms and essentially evaluate and verify the history of the transaction that is proposed and come to a consensus that the history and signature is valid, then the new transaction is accepted into the ledger. If a majority of nodes do not concede to the addition or modification of the ledger entry, then it is denied and not added to the chain. All the members can review previous entries and record new transactions. These are then grouped into ‘blocks’, which then form part of a ‘chain’, thus leading to a ‘blockchain’". The chain is encrypted so it cannot be deleted or duplicated. By storing data across its network, the blockchain eliminates the risks that come with data being held centrally. Its network lacks centralized points of vulnerability that computer hackers can exploit. Today’s internet has security problems that are familiar to everyone. We all rely on the ‘username/password’ system to protect our identity and
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  assets online. Blockchainsecurity methods use encryption technology. The basis for this are the so-called public and private ‘keys’. A blockchain is the structure of data that represents a financial ledger entry, or a record of a transaction. Each transaction is digitally signed to ensure its authenticity and that no one tampers with it, so the ledger itself and the existing transactions within it are assumed to be of high integrity. “In a marked difference from the prevailing systems of exchange of value, where two or more parties need to agree on the value and other commercial considerations for a transaction to happen, Blockchain allows for transactions within a closed group underpinned by a crypto currency.” In fact, blockchain can be configured to work in a number of ways that use different mechanisms to achieve consensus on transactions and, in particular, to define known participants in the chain and exclude everyone else. The largest example of blockchain in use, Bitcoin, employs an anonymous public ledger in which anyone can participate. For more private uses of blockchain among a smaller number of known actors, many organizations are deploying permissioned blockchains to control who participates in transaction activity. In addition, event triggered programmable contracts, also known as smart contracts, can be stored and executed on Blockchain. “As revolutionary as it sounds, Blockchain truly is a mechanism to bring everyone to the highest degree of accountability. No more missed transactions, human or machine errors, or even an exchange that was not done with the consent of the parties involved. Above anything else, the most critical area where Blockchain helps is to guarantee the validity of a transaction by recording it not only on a main register but a connected distributed system of registers, all of which are connected through a secure validation mechanism.” What is so powerful about this new technology: There are several features of a Blockchain that lend it its power and allows it to record and transfer value over the internet in a peer-to-peer manner: Near real time: It enables near real time settlement of recorded transactions, removing friction, and reducing risk.
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  No intermediary: Itis based on cryptographic proof, allowing any two parties to transact directly with each other, without the need for a trusted third party. Distributed ledger: The peer-to-peer distributed network records a public history of transactions, making Blockchain distributed and highly available. Irreversibility: It contains certain and verifiable record of every single transaction ever made that cannot be altered without altering the entire chain. This prevents double spending, fraud, abuse, and manipulation of transactions. Beyond bitcoin and other cryptocurrencies Earlier, blockchain was seen to be related to only Bitcoin, because it was originally developed as technology for cryptocurrencies. Many financial institutions have been experimenting and developing the idea further. There are many blockchain applications in the areas of finance, accounting, insurance, trade finance, payments, settlements, and audit. Several entities are looking to move from proof of concept to real-life application. Financial services industries lead the way and effort in this. Leading global banks have been actively working together in the Global Blockchain consortium R3, over 80 leading financial institutions and regulators led by R3, a distributed ledger technology firm. While several technical issues and privacy and security related issues are being discussed and sorted out, regulation is awaited, the way forward seems promising, as the technology seems to be achieving greater acceptability. Blockchain proponents believe that it can be used to create alternatives to the current time-consuming and expensive banking processes. Banks are attempting to decrease the number of middlemen and participants in transactions processing. Areas of application: The areas in finance where blockchain could revolutionise the way we work, are of interest to finance professionals, banking industry, CFOs and audit heads. They should lead the discussion and initiative, in an effort to assist top management in decision- making.
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  • Accounting andbook-keeping, where transactions will no longer be required to be recorded in the traditional double entry system, maintaining a single record for all transactions. • Budgeting and forecasting, placing the entire budget data, allowing transfer of funds to various parties, creating an audit trail, providing transparency, and accountability. • Inter-company reconciliation, which essentially will be done away with, facilitating accurate and quick consolidation of financials. • Vendor payable and management, creating and approving new vendor relationships, entering into smart contracts, initiate automated payments, reducing processing time, eliminating the need for reconciliation, improving vendor-customer relationships, doing away with middlemen and institutions. • Speeding up cross-border transfers and payments, simplifying the process and reducing costs significantly. • Share trading may also be influenced by blockchain, which shall allow for greater trade accuracy and a shorter settlement process. • Financial audit, the nature of which will fundamentally change, and companies and firms will look to audit on a daily basis, eliminating the need for external auditors, providing assurance on governance. • Shareholder voting, recording ownership of shares and securities, reduced manual intervention, better investor relations and ensuring shareholder participation. Blockchain in action: cases: Case 1: A global e-commerce company is offering a different approach to online retail, by connecting buyers and sellers directly. The open-source project is creating a decentralised network for peer-to-peer commerce. Instead of visiting a website, users download and install a program that directly connects them to other people looking to buy and sell goods and services, removing the middlemen altogether. Case 2: A bank in Japan has completed a three month trial on the application of mijin (a platform for creating Blockchains) to its accounting systems in a real-world environment. In the demonstration, 2.5 million virtual bank accounts and an environment with capacity to process 90,000 transactions every hour were created, with significantly reduced risk of failure and fraud.