Blockchain technology is changing business as we know it. From startups raising money via initial coin offerings and bitcoin to smart contracts and fraud prevention, SMEs have every reason to consider introducing the tech in their corporate infrastructure. “Blockchain technology is critical to the future of business,” says Grace Wong, co-founder of Liven, the online payment gateway utilising cryptocurrency. “The web 3.0 revolution is already underway and is beginning to supplant the fundamental business process that drives major large and small-scale enterprise.” Importantly, for entrepreneurs looking to expand abroad, blockchain can be the panacea they need.
While it might be disrupting all sectors already, what exactly does blockchain mean? “Blockchain [is a] technology that provides a public ledger of every transaction,” explains Johnny Hon, chairman of The Global Group, the international VC firm. Every record is encrypted and time-stamped and the ledger’s contents can only be updated by adding another block linked to the previous block, creating a block of chains. No one can retroactively go back and change the ledger once it’s been created.
The concept dates back to 1991 but didn’t rise to prominence until late 2008 when the person or persons going under the pseudonym Satoshi Nakamoto penned a paper outlining how a hashcash algorithm, a way of verifying work used in spam protection, could be used to add blocks to the chain without a single centralised authority. Instead, a number of linked computers, or nodes, that validate the new block and maintain the chain. A few months later Nakamoto, who’s real name remains unknown despite several attempts to uncover it, launched bitcoin.
Since then blockchain has moved way beyond just cryptocurrencies and is seen by some as the foundation of the future’s digital infrastructure. “[The] technology has the potential to touch every part of business, from verification of assets to supporting background checks of employees, to verifying the entire supply chain of a potential business,” Hon adds.
And if you’re running an SME with global aspirations, this technology can help you massively. For starters, it guarantees more safety and security than you might be used to. “Entrepreneurs and their businesses in many industries can benefit from blockchain that handles authentication and reconciliation issues encountered on numerous occasions,” Hon says. For instance, because the ledger cannot be altered retroactively without altering all prior blocks, blockchains are highly resilient to cyber attacks. And that’s not all. “Crucially, it will protect against identity and data fraud as the decentralised data stored on multiple computers and networks is significantly more secure than traditional systems,” he adds.
One of the challenges businesses face with international companies is being unable to trust trading partners with timely payments. Blockchain might be the answer to that. “Blockchain’s major asset is that it creates trust between multiple parties without the need for middlemen and for businesses this primarily means a simplification of cross-border trade,” says Igor Pejic, head of marketing at BNP Paribas Personal Finance, the banking company.
One of the ways businesses can do this is by using smart contracts executed by blockchain technology. Unlike conventional contracts, smart contracts consist of software code which are inalterable after they’re deployed. This ensures neither party in a deal can walk away without doing their part. “In a smart contract, you and the other party pre-define algorithmically a what-if scenario,” explains Pejic. For instance, when the goods are received, the payment is released automatically. “This can save litigation costs and valuable time by ensuring the other party holds up their end of the bargain,” he adds.
Indeed, using blockchain means reducing the amount of resources and time entrepreneurs put in for administrative tasks. “While long transaction times are irksome for individuals, they can be threatening to smaller companies,” Pejic says. “If you must wait for two weeks for your money to travel halfway throughout the world, you might be haunted by liquidity problems. Moreover, shorter transactions reduce counterparty and settlement risk. The algorithm forces the other party to settle the transaction, so you need not trust them. And since transactions are immediate and don’t take weeks, the likelihood that your transaction partner will default in the meantime is negligible.”
While reducing time and unnecessary costs are some of the advantages, one of the main attributes of blockchain is that it can replace money with digital cash – hardly shocking as the technology was literally made to support bitcoin. Companies can use blockchain to transfer money directly between peers without any intermediaries like banks. And making convenient international remittances will no doubt be a reason for your business to adopt blockchain. “Blockchain is helping us move away from traditional payment processes and methods of interaction such as telephone or email and progressing us towards intelligent electronic ones,” Hon declares. “In a world increasingly dependent on high speed [and] reliable connections, blockchain will be crucial.”
Additionally, another key characteristic of the blockchain technology is that it’s not constrained by currency conversions. Consequently, payments for goods from distant buyers and payroll to overseas employees becomes easier and can be completed at a fraction of the current costs. This is becoming increasingly useful as global currencies keep fluctuating. “When expanding to countries with volatile currencies [like] Venezuela it’s possible to mitigate currency risks,” Pejic says. For instance, the fluctuating currency in Venezuela drove the government to launch its own cryptocurrency, the Petro, to save it from economic crisis and many locals have even resorted to using bitcoin for their day-to-day transactions.
The South American country is hardly alone. Turkey, Iran and Zimbabwe too are on the brink of converting to using cryptocurrency to solve their woes. “Even in cases with a low currency risk, traditional remittances are significantly biting companies’ balance sheets,” Pejic adds. “Using blockchain-based remittance networks is so far the clearest use case.”
Banks are also increasingly looking to blockchain to transform outdated systems and capitalise on cryptocurrency. For instance, The Bank of England said it could increase GDP by 3% by introducing a central bank digital currency. Even traditional banks are realising its benefits. JPMorgan Chase announced the launch of its own digital coin, JPM Coin, which can be used for transfer of payments instantly over a blockchain network.
Looking at these advantages, it’s easy to see why entrepreneurs are investing more into blockchain. Furthermore, to help increase blockchain’s adoption across multiple industries and enlighten businesses of the technology’s potential, Hyperledger, an open source collaboration initiative, was established in 2016 by the Linux Foundation. In fact, it’s supported by blue chip member businesses including IBM, American Express, Intel, Deutsche Bank and Accenture. The main goal is allow enterprises to build customised blockchains that would answer specific needs instead of letting companies solve issues on their own. And it already had 230 organisations as members as of July 2018.
Indeed, blockchain makes international dealings more conducive for SMEs. And given how it could boost trade by more than $1tn in the next ten years, according to World Economic Forum, it’s testament that head honchos must prioritise upgrading their systems to being blockchain-friendly.