5 ways blockchain is the new business collaboration tool

While the full potential of blockchain may not be understood by business execs, that's not keeping companies from aggressively exploring how the secure, distributed ledger technology can save time and money.

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While blockchain may have cut its teeth on the cryptocurrency Bitcoin, the distributed electronic ledger technology is quickly making inroads across a variety of industries.

That's mainly because of its innate security and its potential for improving systems  operations all while reducing costs and creating new revenue streams.

David Schatsky, a managing director at consultancy Deloitte LLP, believes blockchain's diversity speaks to its versatility in addressing business needs, but "the impact that blockchain will have on businesses in various industries is not yet fully understood."

In 2017, blockchain technology started to become a key business focus for many industries, something a Deloitte survey conducted in 2016 had predicted.

That online survey of 308 blockchain-knowledgeable senior executives at organizations with $500 million or more in annual revenue found many placed it among their company's highest priorities. Thirty-six percent believed blockchain could improve systems operations, either by reducing costs or increasing speed, and 37% cited blockchain's superior security features as the main advantage. The remaining 24% saw its potential to enable new business models and revenue streams.

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Although 39% of senior executives at large U.S. companies had little or no knowledge about blockchain technology, the rest said their knowledge ranged from "broad to expert – and 55% of that group said their company would be at a competitive disadvantage if it failed to adopt the technology.

The bottom line: both the understanding of and commitment to blockchain varies by industry. But most see it as disruptive.

"It is fair to say that industry is still confused to a degree about the potential for blockchain," David Schatsky, managing director of Deloitte LLP,  said in a statement last summer. "More than a quarter of surveyed knowledgeable execs say their companies view blockchain as a critical, top-five priority. But about a third consider the technology overhyped."

Those already embracing blockchain are finding a new independence in their ability to transmit both sensitive data and money securely, enabling a new business dynamic.

Blockchain is a decentralized electronic, encrypted ledger or database platform -- in other words, a way to immutably store digital data so that it can be securely shared across networks and users. As a peer-to-peer network, combined with a distributed time-stamping server, blockchain databases can be managed autonomously. There's no need for an administrator; the users are the administrator.

Blockchain eliminates huge amounts of recordkeeping, which can get confusing when there are multiple parties involved in a transaction, according to Saurabh Gupta, vice president of strategy at IT services company Genpact. "Blockchain and distributed ledgers may eventually be the method for integrating the entire commercial world's record keeping," he said.

Smart contracts

Blockchain distributed ledgers can be used to automatically execute business contracts. The peer-to-peer database first captures all terms and conditions between an organization and its customers, then uses data gleaned across distributed nodes or servers to determine when those conditions have been met and payment is authorized.

For example, IBM, AIG and Standard Chartered Bank just announced a pilot project to streamline one of the most complex types of policies in the insurance industry - a multinational policy.

The three companies created a master policy written in the UK, and that includes  three local insurance policies in the U.S., Singapore and Kenya, into a “smart contract” based on blockchain technology that provides a shared view of policy data and documentation in real-time.

The solution is structured so that multiple parties in the network -- including brokers, regulators and auditors -- can collaborate more effectively and efficiently, according to IBM. The solution gives all of the parties a unified view of policy and payment data and documentation so that they can make informed business decisions based on a common set of trusted data.

"It is designed to infuse trust and transparency into the insurance underwriting process across borders," an IBM spokesperson wrote in an email to Computerworld. "When critical data about the policy is stored on the blockchain, all permissioned parties in the network have a single view of the data, and no single party can make changes without the consensus of other members."

Because it's based on blockchain:

  • It provides the ability to record and track events and associated payments in each country related to the insurance policy.
  • No one party can modify, delete or even append any record without the consensus from others on the network.
  • This level of transparency helps reduce fraud and errors, as well as the need for the parties to contact each other to view policy and payment data and the status of policies. 

Blockchain-based smart contracts can be used to automatically execute payments between financial institutions.

Accenture recently released a report that claimed blockchain technology could reduce infrastructure costs for eight of the world's 10 largest investment banks by an average of 30%, "translating to $8 billion to $12 billion in annual cost savings for those banks."

Payments, clearance and settlement in the financial services industry -- including stock markets -- is rife with inefficiencies because each organization in the process maintains its own data and must communicate with the others through electronic messaging about where it is in the process. Because of that, settlement typically takes two days. In turn, delays in settlements force banks to set aside money that could otherwise be invested.

With its ability to instantly share data with each organization involved in a blockchain database or ledger, the technology reduces or eliminates the need for reconciliation, confirmation and trade break analysis as key parts of a more efficient and effective clearance and settlement process, according to Accenture.

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