This article provides a brief guide to the security features of blockchain and five examples of how the technology can improve key financial processes.
How secure is blockchain?
The inherent security of blockchain technology is due to its decentralised nature and the 'hash' system. Information on a blockchain exists as a shared ledger available to anyone with an internet connection. Records are genuinely public and hosted by millions of computers simultaneously, meaning that data cannot be lost or corrupted.
The hash provides a block with its own unique digital identity, much like a fingerprint. As each block contains the hash of the block before it, these links secure each chain. If someone attempts to alter the information within a single block, the hash of that block becomes invalid breaking the entire chain.
For a visual breakdown of how blockchain works, take a look at the guide below from accounting software specialist Sage:
Like any network, blockchain is technically prone to vulnerability. However, as a network of computers simultaneously saves the data, it would take a significant amount of computing power to solve the complex mathematical puzzles. To alter a blockchain, you would need to have control of 51 per cent of the computers on the network. This is almost impossible, proving the high level of security offered by blockchain.
How can corporates benefit from blockchain?
While blockchain was initially created to handle cryptocurrency payments, it’s potential far exceeds this initial intention. Blockchain is still a relatively new technology, but one-day businesses could use blockchain to better manage global supply chains, contracts, and central financial systems.
1. Smart contracts
Self-automated and extremely secure, smart contracts are computer programs that can create, confirm, and process agreements without involving a third-party. By bypassing a third-party, smart contracts offer businesses a way to streamline and reduce the costs of processing contracts. Some companies like Share&Charge, Propy, and Fizzy AXA already use this technology in their business practices.
2. Fiat payments & money transfers
Ripple uses blockchain technology, similarly to how the technology is used to process cryptocurrency payments, to facilitate real-time cross-border fiat payments. As such, blockchain can process payments quicker, cheaper, and more securely than other traditional forms of money transfers. Ripple’s popularity has certainly caught on and today over one thousand companies, like Santander, UniCredit, UBS, and Royal Bank of Canada, use its technology to send and receive money.
3. Cryptocurrency payments
Blockchain was initially conceived to support cryptocurrency payments so continues to help business process such payments. Cryptocurrency, itself, can be quite problematic due mainly to market volatility. Some companies, like Overstock.com, Expedia, eGifter, Newegg, and Microsoft, have recognised the benefits of accepting alternative forms of payments. Most SMEs use third-party platforms like BitPay and CoinBase to immediately convert cryptocurrency into fiat currency to avoid issues with market volatility.
4. Distributed cloud storage
Blockchain allows all sorts of data to be stored securely, including written text, and as it's impossible to corrupt or change this information. Anyone connected to the Internet can access the data providing that they have the correct decryption code. This type of cloud storage provides companies with more significant levels of privacy and accuracy and reduced costs compared to more conventional cloud systems. Storj already offers companies this service.
5. Digital identity & signatures
Blockchain offers companies a more secure method of verifying employees’ identities. While traditional pin codes or passwords are easily corrupted or bypassed, on blockchain employees must use cryptography and unique digital signatures to access files/information. Companies like ShoCard already provide this service.
For more information on how blockchain works and the impact it could have on your company, check out Sage’s in-depth guide to blockchain, cryptocurrency and Bitcoin for businesses.
Like this item? Get our Weekly Update newsletter. Subscribe today