If you follow technology… or finance… or digital era trends at all… you’ve probably heard about something called “blockchain.”
We’ll post this today on our tech blog because blockchain is, after all, about technology – actually, software – at its core. Because it will eventually affect the supply chains many of us work with, and because it’s likely to affect all of us soon enough, today we’ll provide some simple background – and perhaps clear up confusion – about this burgeoning new technology.
If you know about blockchain at all, chances are it’s because it’s the structural foundation for something called “bitcoin.” Bitcoin has gained notoriety for being a new form of cryptocurrency that’s been in the news mostly because of its favored role by folks engaged in certain darker parts of the economy, where anonymity in fund transfers is a desirable trait.
But blockchain also has the potential to change the way companies make and verify transactions (hence, our earlier nod to supply chains). As Blythe Masters, CEO of Digital Asset Holdings said in an interview with the Wall Street Journal’s Kimberly Johnson (6-20-16), the simplest way to think about what this technology is all about is actually very unexciting.
And that is: a new, clever form of database architecture. We all use databases every day in business extensively, from our CRM applications to our accounting systems. They are mostly just two dimensional tables of rows and columns. They’re “siloed and generally centralized,” and usually managed by folks with the administrative rights to do so.
But here’s the thing about the new blockchain database technology: When multiple parties to a common transaction interact, they are each, notes Masters, “inclined to keep their own separate records of their respective piece of a joint transaction, and that leads to tremendous inefficiencies.” An enormous amount of time, and not just in financial services, can be spent reconciling differences between records kept in these separate databases, all of which ultimately refer to the same base transaction between the parties.
Blockchain, then, provides the ability to coordinate that information in a centralized place… “where only the entities with the need and right to know their respective piece of the information can access it.”
Blockchain uses the modern science of encryption to create what’s called a “distributed ledger” to enable the parties to any transaction share a common infrastructure. This has great appeal to banks, exchanges, and market-infrastructure providers. With a distributed ledger commonly but securely available to all, you can cut a significant amount out of the cost of a transaction, not to mention reduce the time it takes (and time equals money, eventually) to complete a transaction that has been agreed to by the common parties in the marketplace.
In our concluding post, we’ll look at the implications of blockchain on supply chains (and thus, ERP). Stay tuned…