This is not about bitcoin or cryptocurrency. This article explores blockchain technology and how it can enhance business to business companies.
With a huge growth in popularity over the past year, the benefits of Blockchain technology is undeniable.
But, the bitcoin/cryptocurrency kerfuffle has made it difficult for most people to fully understand the technology behind it, and how it can be incorporated into your business.
In this article, you’ll learn what blockchain technology is and how it can increase security, efficiency, and trust within the B2B space.
What is Blockchain Technology?
Picture a spreadsheet.
Now picture a spreadsheet that’s duplicated thousands and thousands of times across a network of computers.
Now imagine a network designed to automatically update this spreadsheet regularly.
That’s the basics of how blockchain technology works.
Information held on a blockchain exists as a shared database. There is no single location. Meaning, the records it keeps are public and easily verifiable. No hackers can corrupt this information because there is no centralized version.
It’s a databased hosted by millions of computers at the same time, and the data is available to anyone on the internet.
The Google Doc Analogy
This analogy from William Mougayar is extremely helpful if you want to understand Blockchain Technology:
“The traditional way of sharing documents with collaboration is to send a Microsoft Word document to another recipient, and ask them to make revisions to it.
The problem with that scenario is that you need to wait until receiving a return copy before you can see or make other changes because you are locked out of editing it until the other person is done with it. That’s how databases work today.
Two owners can’t be messing with the same record at once.
That’s how banks maintain money balances and transfers; they briefly lock access (or decrease the balance) while they make a transfer, then update the other side, then re-open access (or update again).
With Google Docs (or Google Sheets), both parties have access to the same document at the same time, and the single version of that document is always visible to both of them.
It is like a shared ledger, but it is a shared document. The distributed part comes into play when sharing involves a number of people. Imagine the number of legal documents that should be used that way.
Instead of passing them to each other, losing track of versions, and not being in sync with the other version, why can’t *all* business documents become shared instead of transferred back and forth?
So many types of legal contracts would be ideal for that kind of workflow. You don’t need a blockchain to share documents, but the shared documents analogy is a powerful one.”
A New Type of Internet?
Because Blockchain allows digital information to be distributed–not copied–it’s created the backbone for a new type of internet.
Originally created for the digital currency, Bitcoin, the tech community is now finding more uses for this technology.
The one we’re going to discuss today, business to business.
How Blockchain can Benefit the way B2B Works
Let’s quickly go back to the spreadsheet analogy.
If you imagine a business ledger that updates itself in real-time, and then multiplying your image by billions of data spaces, for B2B companies, it’s like having a virtual bank–moving money, accepting deposits, completing transactions and more.
How is this better than traditional banks?
Well, currently, online banking subjects your business to regulation, monitoring, business hours, and other restrictions.
Here’s how Blockchain flips this tradition method on its head–offering you a range of highly sort after benefits:
1. Eliminate Costly Errors
By storing blocks of identical information across its network, blockchain cannot:
- Be controlled by a single entity.
- Have a single point of failure.
So what does this mean?
Blockchain guarantees the validity of a transaction by recoding it not only on the main register, but a connection distributed system of registers. All of which, are connected through a secure validation mechanism.
So how does this help B2B?
This means no more missed transactions, human or machine errors, or an exchange done without the consent of one of the parties involved.
2. Transparent Transactions
Because blockchain automatically checks itself, it acts like a self-auditing system of digital value. The network reconciles every transaction that happens in ten-minute intervals. Each group of these transactions are referred to as a “block”.
The two important takeaways from this are:
- Transparency data is embedded within the network and is public.
- This data cannot be corrupted.
The benefit for B2B is secure and safe transactions.
Due to the way data is stored, you and your partner can be assured it can no longer be manipulated in any way that could damage you. The data is not the property of anyone, rather it belongs to both businesses involved.
3. Lifelong Digital Identity for Real Goods
You’re able to store digital identities in the Blockchain for any real goods you may have.
For example, machines would be able to obtain digital representation in the Blockchain in order to interact as partners in the future.
Because no one can manipulate the information, you can use this identity to maintain a lifelong machine logbook, which, just like the machine, can be transferred to different owners.
This makes it easy for you to have proof-of-use as well as confirming if a product is genuine or not.
4. Smart Contracts
Blockchain enables you to embed business rules into a contract, including automated execution of contract terms.
You’re able to customize smart contracts on a contract-by-contract basis. Streamlining transactions by cutting out counterparties and intermediaries.
This increases your security and reduces risk of internal hacking.
Because of Blockchain’s non-manipulability. Any agreement is binding and conditions can be set to obligate partners to document certain information, bring in a third part to validate work, or trigger actions like payments when certain milestones are met.
In fact, IBM have invested in a proprietary Blockchain to enable digital contracts. But, it also plans to release an open-source version for anyone to use–so keep your eye out.
5. Faster & Safer Payments/Transactions
Following on from smart contracts, Blockchain technology makes transactions faster for B2B companies.
The current systems in place to regulate and control payments have no kept pace with the digital transformation of the global economy.
And while you’ve probably digitized your systems, you’re payment systems are still mostly centralized. Meaning, if you want to make a payment, it needs to be cleared by a third-party organization.
You know, this process can take days, sometimes weeks to complete.
But Blockchain transactions can be much, much faster.
By removing third party entities, and focusing on peer-to-peer transactions, blockchain technology is built to make transactions between two or parties faster by cutting down the costs and time needed to process transactions.
Instead of having to pass through third parties, your blockchain transaction only needs to be confirmed through the blockchain system.
It’s like three bonuses in one:
- The speed acts like a ripple back through your supply chain and forwards to your customer’s satisfaction.
- It facilitates distribution and logistics, so your increasing your efficiency down to the smallest details.
- And eliminating the need for third party companies, you reduce the overhead reflecting the price of service.
Take firms like SWIFT as an example. They are using blockchain to improve money transfer speeds:
“When it comes to transferring bank payments from one bank to another, we’re able to turn a three-day settlement time into a five-minute settlement time… So, this is really making things faster for that and saving these companies time and money in the process.”
And this doesn’t stop with paying other companies.
Due to the automation, you could pay your employees faster. They would no longer have to wait the traditional 2 weeks after they’ve finished their work. You could paid them every week, or even every day.
6. Highly Secure Supply Chain Management
Because you’ll be able to easily track the movement of goods, Blockchain will offer you a highly secure supply chain management system resistant to fraud.
Think about this.
Every time your product changes hands, it’s documented. Creating a permanent product history from manufacture to sale–potentially reducing time delays, added costs, and human error.
But the benefits of a secure supply chain doesn’t stop here.
It will increase trust with your end user.
You know how critical trust is to any business. If people don’t trust you, they don’t buy from you.
Because blockchain allows anyone to track what went into a product and who handled it, your customers will have more incentive to trust you.
Let’s say your a B2B manufacturing company who sells furniture to schools.
They’ll be able to see:
If you’re a luxury brand, you’ll be able to provide clear proof as to whether it’s genuine or fake. These permanent records, which cannot be altered, create a safer buying and selling environment.
Is B2B and Blockchain a Match Made in Heaven?
Blockchain has huge potential.
Its reliability and scalability gives it the potential to change the existing enterprises and how you run your B2B company.
The ability to accurately track and record data, make faster and safer transactions makes it a no-brainer.
But, like a new tech, blockchain is going to face a lot of challenges as it grows and become part of every day business.
Is it something to get excited about? Definitely.
How long till this becomes the norm? Well, that’s unknown. But, Blockchain is gaining momentum. And increased security, efficiency, and trust will always help you compete in the B2B space.