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Companies are exploring the potential for blockchain applications to quickly and efficiently create and verify B2B transactions, track assets, and manage processes.

Blockchain for Everything, Including B2B Payments?ARTICLE

By Mike Faden

Though blockchain technology was originally invented to support the cryptocurrency Bitcoin, companies have seized on its potential to underpin an extraordinary variety of applications, from international B2B payments to verifying people’s identities, managing online advertisements and paying auto tolls. The emerging applications seek to exploit blockchain as a shared, networked digital ledger that enables multiple organizations to quickly and efficiently create and verify transactions, track assets, and generate self-executing “smart contracts.”1

However, many of these applications are still at the development or proof-of-concept phase, and some experts have reservations about how well blockchains will be able to support large-scale applications in daily operational use. This article provides a quick overview of some potential uses of blockchain technology as it moves beyond Bitcoin and digital currencies.

Blockchain for B2B Payments and the Financial Sector

Financial institutions are testing and in some cases already using blockchain technology for consumer and B2B payments, including cross-border payments. Much of this work, including for international B2B payments, has occurred through consortia and external providers that develop software used by the participating banks.2 The potential advantages for banks include fast payments, lower transaction costs, and elimination of the need to maintain large cash reserves at correspondent banks.3

Banks are also exploring the use of blockchain to meet regulatory needs, such as Know Your Customer (KYC) and Anti Money Laundering (AML) regulations.4 The insurance sector also sees blockchain as a way to potentially streamline paperwork, manage consumer and B2B payments, and reduce fraud; some of Europe’s largest insurers are collaborating on a blockchain pilot using common standards to exchange data.5,6

Digital Identity

Government agencies, financial institutions and other organizations are looking to use blockchain applications to simplify the process of verifying people’s identity, using the technology’s ability to store information in a secure and immutable way.7 In Canada, for example, a system due to go live in 2017 aims to let consumers use a mobile app to instantly verify their identity for new services such as bank accounts, drivers licenses or utilities, rather than having to sign additional documents or provide ID in person.8,9 Such digital identities also could play a role in speeding up and simplifying international B2B payments.

Advertising

Beyond B2B payments, several initiatives plan to use blockchain technology to manage and track digital advertising purchases, inventory, and events such as impressions (the display of ads on users’ devices). The companies see blockchain as a way to provide a more transparent, trusted record of activity in the high-speed, complex, online advertising environment, which is increasingly dominated by automated “programmatic” ad placement.10,11

Securities Trading

Stock exchanges are looking at ways to leverage blockchain technology to streamline traditionally time-consuming and inefficient processes involved in trading and managing securities.12 Australia’s ASX, for example, contracted development of a blockchain-based system, initially to reduce cost, time and complexity in post-trade clearing and settlement services for the cash equities market.13 U.S.-based Nasdaq, the London Stock Exchange, and exchanges in Japan, Korea and other countries are all exploring the use of blockchain or already using it in limited ways.14,15,16

Authenticating Valuable Items

Several organizations lave launched applications that use blockchain technology to verify authenticity and ownership of valuable items or intellectual property. There are efforts to create a worldwide decentralized ledger of art and collectibles, which can be used by artists to generate a certificate of authenticity, and by collectors to avoid buying forgeries.17 The Singapore Diamond Investment Exchange (SDiX) is testing blockchain technology as a way to authenticate ownership of diamonds, aiming to use the technology to cut costs and improve process efficiency.18

Supply Chain Tracking and Trade Finance

Blockchain is seen as a way to simplify tracking of items as they move across complex global supply-chains, providing all parties with immediate access to the status and whereabouts of any product or part. The U.S. Postal Service and post offices in several other countries are exploring blockchain for tracking parcels, verifying the identity of recipients, making payments, and other applications.19 Some experts believe that blockchain may be particularly useful for cross-border shipments, which are often harder to track because they are handled by multiple carriers.20 Wal-Mart Stores Inc. is testing a blockchain system to address food safety by tracking the provenance of food items, enabling faster identification of the source if a specific product or shipment causes health problems for consumers.21

Blockchain also holds potential for streamlining trade finance, traditionally a cumbersome and time-consuming process involving manually produced letters of credit.22 Tracking the progress of shipments and relating them to B2B payments remains complex, cumbersome and open to error and fraud.

Internet of Things (IoT)

Many companies are examining the potential of blockchain for IoT applications, viewing the technology as a low-cost, secure way to manage and track millions of devices and the interactions among them, which will often occur without human involvement.23 Many of these devices may need to engage in transactions with each other; simple examples involving consumer, rather than B2B, payments would be a car paying at a toll booth, or an electric car paying to recharge itself.24

Some experts say that this makes the IoT a large opportunity for smart contracts, which are programs stored on blockchains that execute automatically when certain conditions are met – thus enabling transactions at low cost. “Smart alternative contracts might enable an entirely new type of commerce carried out between our computers, cars, phones, and appliances,” as a blockchain expert put it in a Coindesk article.25

The Takeaway

Companies large and small in many different sectors are exploring the potential of blockchain technology for an extraordinarily broad range of applications, viewing it as a technology with the potential to speed all manner of transactions (including B2B payments), increase efficiency, and track and manage processes and assets. However, many of these applications are still in development, and some experts raise questions about blockchain’s ability to deliver promised benefits in large real-world production systems, citing concerns such as scalability, security, technology maturity, and regulatory barriers.26,27,28

Mike Faden - The Author

The Author

Mike Faden

Mike Faden has covered business and technology issues for more than 30 years as a writer, consultant and analyst for media brands, market-research firms, startups and established corporations. Mike also is a principal at Content Marketing Partners.

Sources

1.“CIO Explainer: What Is Blockchain?,” The Wall Street Journal; https://blogs.wsj.com/cio/2016/02/02/cio-explainer-what-is-blockchain/
2.“U.S. start-up R3, banks test Ripple's cross-border payments technology,” Reuters; http://www.reuters.com/article/us-banks-ripple-blockchain-idUSKCN12K20H
3.“Inside Ripple's plan to make money move as fast as information,” American Banker; https://www.americanbanker.com/news/inside-ripples-plan-to-make-money-move-as-fast-as-information?brief=00000158-07c7-d3f4-a9f9-37df9bc10000
4.“Indian Banks Partner With Microsoft For Blockchain Banking Platform,” ETHNews; https://www.ethnews.com/indian-banks-partner-with-microsoft-for-blockchain-banking-platform
5.Blockchain in insurance: applications and pursuing a path to adoption, EY; http://www.ey.com/Publication/vwLUAssets/EY-blockhain-in-insurance/$FILE/EY-blockhain-in-insurance.pdf
6.“Insurers and reinsurers launch Blockchain initiative,” Swiss Re; http://www.swissre.com/reinsurance/insurers_and_reinsurers_launch_blockchain_initiative.html
7.“Spain’s Biggest Banks Back Red Lyra Blockchain Initiative,” Silicon; http://www.silicon.co.uk/security/spain-red-lyra-blockchain-213501?inf_by=59416714671db8d5748b49c8
8.“Canada’s big banks testing Toronto-based digital identity network powered by blockchain,” Financial Post; http://business.financialpost.com/news/fp-street/canadas-big-banks-testing-toronto-based-digital-identity-network-powered-by-blockchain
9.“IBM and SecureKey Technologies to Deliver Blockchain-Based Digital Identity Network for Consumers,” SecureKey and IBM; http://securekey.com/press-releases/ibm-securekey-technologies-deliver-blockchain-based-digital-identity-network-consumers/
10.“The adChain blockchain launches to rescue ad tech,” MarTech Today; https://martechtoday.com/adchain-blockchain-launches-rescue-ad-tech-199424
11.“For emerging ad exchange NYIAX, it’s back to the future,” MarTech Today; https://martechtoday.com/emerging-ad-exchange-nyiax-back-future-198874
12.“How Stock Exchanges Are Experimenting With Blockchain Technology,” Nasdaq; http://www.nasdaq.com/article/how-stock-exchanges-are-experimenting-with-blockchain-technology-cm801802
13.“ASX selects Digital Asset to develop distributed ledger solutions for the Australian equity market”, Digital Asset; http://www.digitalasset.com/press/asx-selects-digital-asset.html
14.“Leading clearing houses join London Stock Exchange in exploring the Blockchain,” Brave New Coin; https://bravenewcoin.com/news/leading-clearing-houses-join-london-stock-exchange-in-exploring-the-blockchain/
15.“How Stock Exchanges Are Experimenting With Blockchain Technology,” Nasdaq; http://www.nasdaq.com/article/how-stock-exchanges-are-experimenting-with-blockchain-technology-cm801802
16.“Nasdaq and Citi announce pioneering blockchain and global banking integration,” Nasdaq; http://business.nasdaq.com/media/CitiConnect and Nasdaq for Blockchain PR_tcm5044-43669.pdf
17.“Blockchain To Change World of Fine Arts As We Know It,” Cointelegraph; https://cointelegraph.com/news/blockchain-to-change-world-of-fine-arts-as-we-know-it
18.“Singapore Exchange Pilots Blockchain Verification,” Rapaport Diamonds.Net; http://www.diamonds.net/News/NewsItem.aspx?ArticleID=59004&ArticleTitle=Singapore+Exchange+Trials+Blockchain+Verification
19.“Blockchain Technology: Possibilities for the U.S. Postal Service,” U.S. Postal Service; https://www.uspsoig.gov/document/blockchain-technology-possibilities-us-postal-service
20.“Blockchain and package tracking: a win-win situation!”, FinExtra; https://www.finextra.com/blogposting/14167/blockchain-and-package-tracking-a-win-win-situation
21.“Blockchain seen as tool in food safety,” Phys.org; https://phys.org/news/2017-06-blockchain-tool-food-safety.html
22.“How Blockchain Can Restore Trust In Trade, UPS; https://longitudes.ups.com/how-blockchain-can-restore-trust-in-trade/
23.“The Blockchain in the IoT Report,” BusinessInsider; http://www.businessinsider.com/the-blockchain-in-the-iot-report-2017-6
24.“Making Sense of Blockchain Smart Contracts,” Coindesk; http://www.coindesk.com/making-sense-smart-contracts/
25.Ibid.
26.“A Primer on IOTA (with Presentation),” IOTA; https://blog.iota.org/a-primer-on-iota-with-presentation-e0a6eb2cc621
27. “How Safe Are Blockchains? It Depends,” Harvard Business Review; https://hbr.org/2017/03/how-safe-are-blockchains-it-depends
28.“Blockchain technology: 9 benefits & 7 challenges,” Deloitte; https://www2.deloitte.com/nl/nl/pages/innovatie/artikelen/blockchain-technology-9-benefits-and-7-challenges.html

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