Traditionally, companies have interacted with banks, credit card companies, and other intermediaries to transact business and pay for goods and services with third parties. These intermediaries keep ledgers as well as the companies that interact with them, and once a month, all of these stakeholders reconcile their books and records to one another. Blockchain is changing all of that.
What is Blockchain?
Blockchain technology is an internet-based peer-to-peer network that uses individual computer cryptography to create blocks. These terminals, called nodes, simultaneously verify and record transactions on the blockchain in real-time. Blocks can represent smart contracts or exchanges of value where companies pay for goods and services without the need for an intermediary. This effectively creates a distributed ledger where verification of transactions happens in real-time on the network and eliminates the need for after-the-fact reconciliations.
In a blockchain environment, exchanges of value are done in cryptocurrency rather than in traditional money that we think of when paying for goods and services. Bitcoin is the most popular and well-known cryptocurrency; however, today, hundreds and hundreds of different cryptocurrencies exist. Because of the magnitude of cryptocurrencies available, tax laws and other regulations are having a difficult time keeping up with the technology. Additionally, the intended users of cryptocurrencies have been treating them more like investments instead of a medium-of-exchange, which has slowed the adoption of blockchain at large.
In addition to disrupting the traditional currency market, blockchain is impacting how contracts are processed. “Smart contracts” are blockchain’s way of using computer code to execute the terms of a contract. These contracts between two parties, are customized, agreed to and executed without the use of an intermediary. For example, if a person need to obtain a court-registered document, they currently would go to a lawyer or notary, pay for their services to help facilitate obtaining the document needed, and then wait until the document is received. By using a smart contract, you can request a document and have it authenticated and paid for without the need of the intermediary lawyer or notary.
How is it being applied
Currently, the companies having the most success in applying blockchain systems are extremely large corporations. For example, Walmart is using blockchain and smart contracts to create a supply chain food traceability system for its grocery stores. When a food outbreak occurs, it traditionally takes authorities and companies anywhere from 7 days to several weeks to find the source of these problems and pull the associated product to protect the public. By using blockchain, Walmart has cut the identification process from 7 days to just 2.2 seconds.
Additionally, brokerage houses are experimenting with blockchains that manage the custody and settlement of stock transactions. Traditionally, when individuals purchase or sell a stock, the actual settlement of the transaction happens a few days after the execution of the order has occurred. Blockchain verifies and evaluates the ownership of stock and the availability of funds between the two parties and instantaneously transfers stock for consideration, eliminating the two- to three-day settlement process.
A new way to do business
Blockchain is a disruptive technology that challenges the status quo of how transactions and contracts have historically been executed. Because blockchain allows for facilitating transactions in a digital environment, it is garnering more and more favor as companies move towards automation, artificial intelligence, and other technology innovations. As blockchain applications evolve and the technology continues to enter the mainstream, blockchain can profoundly change transaction processing and how records are kept.
To learn more about blockchain or the services Goldin Peiser & Peiser can offer to help your company, contact Jason Cope at 214-635-2508 or use the contact form below.
Note: This content is accurate as of the date published above and is subject to change. Please seek professional advice before acting on any matter contained in this article.