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Blockchain for Banking and Enterprises

Blockchain for Banking and Enterprises

Tue, Feb 21, 20238 min read

Category: Business Stories / Blockchain / FinTech

Although decentralized marketplaces have experienced a hiccup or two in recent months, the foundation for blockchain-based applications is quickly expanding. According to Blockdata, 44 out of the top 100 public firms in six key industries currently use blockchain in some capacity. These corporations range from massive financial institutions like Bank of America to companies like McDonald's and Walmart. But how can the blockchain industry get more than those 44  organizations to join?

A Deloitte study showed that out of executives who are familiar with blockchain, 18% are already part of an enterprise blockchain consortium, 45% are likely to join, and 14% are considering forming one.

Attention-grabbing cryptocurrency headlines tend to hide the potential of blockchain, its underlying technology. But a signal is emerging among the noise, hinting at the massive ramifications of the new technology and its potential to produce ground-breaking applications. This attracts the attention of other business executives from a variety of industries thanks to the leadership of blue-chip technology and financial firms like IBM, Microsoft, Bank of America, and Barclays. 

What does the rise of blockchain imply for the banking sector and enterprises in general? Let’s take a closer look at how blockchain-based applications and products are disrupting the enterprise space today.

Crypto transactions and products at the enterprise level

Cryptocurrency transaction costs have been a big barrier to entry since the emergence of crypto exchanges. There is already ample evidence showing that these fees are deterring newcomers from joining. This issue touches on the crucial tenet of blockchain-based applications: decentralization. High fees go against it since, as demand increases, miners prioritize transactions with the highest fees. Many are turned off by higher costs because they’re unable to pay them. This is just one of the many issues that inspire enterprises to question whether it is worthwhile to enter the market. The leaders in the cryptocurrency industry are aware of this, and efforts are already being made to reduce expenses. Rollups are one of the alternatives that have gained traction; they function by grouping transactions and processing them outside of the layer 1 network. More and more systems adopt sharding, which guarantees that each transaction takes up less space. Some newly developed trading systems enable transactions with no fees. 

What makes an enterprise crypto project successful?

Top decision-makers might be more likely to implement crypto solutions if the user experience is great and the barrier to entry is low. There’s no denying that blockchain is a jargon-heavy business, which many might find difficult to understand. Instead of concentrating on explaining the technology in detail, solution creators should put user requirements first, using a universal, easy-to-understand language.

Another issue is a lengthy onboarding procedure, which might easily discourage a business decision-maker who doesn’t have much free time available. Crypto initiatives need to simplify the onboarding flow and quickly fix any errors. 

Finally, there’s the matter of transactional speed. Despite the fact that blockchain technology is continually expanding, we see reports of slow transaction rates — slower than those of conventional financial institutions. It’s essential that crypto initiatives let consumers know how long a certain procedure will take using countdown clocks and reassure them that everything is operating correctly. Enterprise product owners need to be aware that emerging blockchains such as Solana, Fantom, and Cardano increase transaction speed significantly.

Regulations are a key consideration

The implementation of blockchain technology continues to be hampered by regulatory complexity. Both regional and federal governments have indicated an interest in regulating the cryptocurrency market over the last several years, but they frequently run into obstacles due to the ecosystem's complexity. Most countries have by now released some crypto-related legislation, often based on more general financial rules already in place.

The way different countries handle crypto varies greatly. Some have even gone so far as to declare cryptocurrency trading a legitimate activity. Others have let cryptocurrency platforms operate without a license but have not provided authorities with a comprehensive model.

However, clear legislation is bound to encourage the acceptance of cryptocurrency, as potential adopters would feel safer managing their assets in licensed institutions. Some experts believe that centralized exchanges must lead any legislative reform before the rest of the ecosystem can follow. This would make it possible for business customers to enter the crypto realm safely.

Bermuda and Liechtenstein are examples of nations where centralized cryptocurrency exchanges collaborated with local authorities to enact favorable rules.

Real-world enterprise blockchain applications

Supply chain transparency

To be competitive, manufacturing businesses rely on extensive, worldwide supply networks. Quality assurance and traceability are crucial objectives, particularly with items that directly affect the health and safety of customers. As businesses grow, their supply chains become more complex, often relying on a sizable supplier base and several handoffs before components reach their facilities.

Numerous examples demonstrate the negative effects of opaque supply chains. A 2015 e.coli outbreak at Chipotle affected 55 customers, forced the restaurant's closure, and resulted in the loss of $8 billion in stock value in only three months. Due to a defective gas pedal, Toyota had to recall 4 million vehicles in 2009, which caused a $2 billion revenue loss and a 15% decline in the share price.

Even if Chipotle and Toyota's disasters couldn't have been avoided, root cause analysis may have taken less time, money, and effort if blockchain had been used. Both companies could have avoided expensive recalls if they had used blockchain to keep track of their supply chains and quickly find the companies that made the defective products. 

Example case study: Walmart 

Walmart’s blockchain application enhances the transparency of its Chinese pork supplier. Setting the groundwork for their blockchain experiment was a recent recall of 100,000 tons of tainted Chinese goods, followed by Walmart's global initiative to enhance food safety. The company used Hyperledger to connect the digital records of each RFID-tagged animal to the blockchain in collaboration with IBM and Tsinghua University. The application showed all partners in the supply chain, the chain of custody for each animal by keeping track of important information like the farm where the animal came from, the batch number, the factory and processing data, the expiration date, the storage temperature, and the details of the shipment.

The pilot's blockchain program allowed the enterprise to confidently confirm whether a product is genuine and safe, and when it expires. The company knows which items to recall and which may be safely left on the market in the event that a farm or factory has a food contamination concern.

Faster financial transactions for trading

Trade finance provides a particularly attractive use case for blockchain technology since it’s typically document-intensive and dependent on bank middlemen. Trade finance is significant for enterprises participating in complicated transactions with substantial counterparty risk. Trillions worth of products cross international boundaries each year, which is made possible by trade finance in the form of credit, insurance, or guarantees. Trade finance includes a range of actions intended to reduce risk between trading partners, particularly those who haven't traded before. For example, the letter of credit guarantees that the seller will be paid when the items are received, especially if the buyer experiences financial difficulty. The intricacy of a typical trade finance transaction is shown by a sample trading situation and the necessary paperwork and cash flows.

Global corporations' treasury divisions oversee these transactions using centralized and ineffective procedures. One of the most important international banking networks, SWIFT, alone facilitates 40 million transactions a year between counterparties.

In contrast to that, blockchain technology enables a rapid flow of payments, reduces costs and risks (credit and liquidity), and increases process transparency. These solutions give the corporate treasurer more peace of mind and more time to focus on activities that add value instead of dealing with the hassles of settlement and reconciliation that come with older systems. 

Example case study: Bank of America, HSBC, and IDA

Bank of America collaborated with HSBC and the Infocomm Development Authority of Singapore (IDA) to use Hyperledger for streamlining and accelerating the trade financing process. All participants in a trade finance transaction can communicate information on a permissioned ledger rather than sequentially transferring letters of credit as trade partners currently do. When an importer publishes a letter of credit to the ledger, a series of conditional events occur that are all automatically recorded on the blockchain and lead to a completed deal.

The pilot initiative demonstrated blockchain’s potential to automate the manual processing of import/export documentation, enhance security by lowering errors, improve convenience for all parties through mobile interaction, and increase the predictability of companies' working capital.

What does the future of business crypto hold?

When it comes to enterprise adoption, blockchain applications are still in their infancy, as evidenced by the number of newly formed consortiums and enterprise pilot programs.

Undoubtedly, companies from all industries will continue utilizing blockchain technology in 2023. Business executives are aware of the advantages that blockchain technology can provide, from accelerating the introduction of new goods to enhancing supply chain network transparency. 

 As businesses build on such early achievements, the examples we mentioned above are likely to chart a line of rapid expansion over the next few years. And take-up rates are probably going to increase exponentially if we see lower transaction costs, better user experiences, and new regulations.

Wrap up

Similar to the PC or internet, blockchain carries the potential to revolutionize enterprises, allowing for a step-function increase in productivity and revolutionizing transactional processes between people, businesses, and governments.

Blockchain is on its way to significantly altering ownership, transparency, and security for shared records like contracts, increasing the records' value and the processes they regulate. Technology has changed the way people think about trust by making it about a shared record or contract. This has opened the door to another change in banking and other business sectors.

Sylwia Bień-Chudarek
Sylwia Bień-Chudarek

Head of Growth

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