Two of the most common — if mystifying — buzzwords floating around the business world these days are blockchain and cryptocurrency. And they are often confused as one and the same. Let’s demystify them, shall we?
Blockchain is “distributed ledger technology.” Instead of having a centralized database for your transactions, blockchain transactions are stored on a network of multiple computers known as “nodes.” All the information is replicated in real time on each node on the network because each location has a ledger.
Blockchain can power any kind of transaction. Let’s consider the myriad transactions involved in growing organic bananas in the Dominican Republic and selling them in grocery stores in Milwaukee. Throughout the process, each transaction — from growing, harvesting, packaging, shipping, receiving, distributing and selling the bananas — can be updated on the blockchain.
But, we’ll go out on a limb and say that most people don’t think about organic bananas when they hear the term blockchain. Most often, people associate blockchain with cryptocurrency, which is digital money such as Bitcoin or Ethereum used for transactions. The surge of cryptocurrency transactions around the world has essentially brought blockchain to the forefront.
Still, these two burgeoning technologies are not the same. And it’s important for business leaders to know the difference.
Blockchain technology is applicable across many industries, including finance, health care, manufacturing and insurance. It’s also useful in streamlining smart contracts as well as tracking logistics and supply chain elements such as inventory and shipping.
If I’m Ford Motor Co. and looking at specific components, and I’m on a blockchain network with my supplier, essentially we’re making changes to the same record. As that record updates, we’re more aligned.
Because blockchain transactions are so much faster than traditional methods, the technology is especially useful for time-sensitive transactions such as stock trades. It usually takes a couple of days for the ownership to be transferred or the settlement cycle to play out. Something like that could be almost instantaneous now.
Blockchain offers a more secure way to share and store data and information. One major benefit of blockchain is that it’s consensus-driven. Instead of having one central gatekeeper, or one central decision-maker like a bank, you would need either all — or a majority of — the parties on the network to say, “Yes, we approve a transaction.”
This reflects blockchain’s intrinsic transparency, since any attempts to update or change transactions are visible to the entire network. Yet, blockchain transactions are also permanent, which makes it a particularly good way to keep information secure. There has not been any technology so far that can hack blockchain.
Pay attention to what’s going on. When you look at the idea of blockchain technology, there are a lot of very practical uses with a lot of very practical payoffs: the reduced transaction fees, the security and the faster processing time, to name a few.
For those working in the field of international business, learning about cryptocurrency is key. Not only is it gaining in popularity in Europe and Asia, but it has the potential to speed up transactions with partners in those regions.
Educating yourself about blockchain is also crucial. At the moment, the most important thing leaders can do is educate themselves about the potential business implications of blockchain.
Executives should spend a considerable amount of time keeping up with the changes. Luckily, the Big 4 public accounting firms are investing in producing educational materials such as white papers on these technologies.
Leaders should conduct brainstorming sessions with their employees about blockchain and its potential positive implications. In reality, that’s where you’re going to see a lot of the growth in the application. As people learn about it, there will be these “aha” moments where people say, “Hey, this is where we could use that.”
If businesses have the financial means, they should run a pilot program with blockchain technology in order to better understand blockchain and learn how it can solve business problems.
There’s a healthy amount of skepticism as to whether blockchain is as groundbreaking as it seems, but people are starting to see it offers some very specific, tangible, beneficial applications. Sooner or later, it’s going to impact businesses and our day-to-day lives — the same way the internet has impacted how we shop and communicate with one another.
Ben Huegel is an assistant professor of business administration-accounting at St. Norbert College.