Real-time payments, paperwork reductions among potential benefits
With promises to reduce paperwork, provide improved tracking and visibility, accelerate cash flow and eliminate fraud and financial reporting errors, what’s not to like about blockchain technology?
For those involved in the shipment of goods – from brokers, carriers and shippers to everyone else involved in the supply chain – the blockchain represents a financial revolution.
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Regardless of industry, financial transactions are the backbone of business. They ensure bills are paid on time and that you receive proper payment for your goods or services. But, in organizations that are far-reaching with offices in multiple locations, or in the case of trucking with vehicles in many states, keeping track of all these records, not to mention vehicle repair paperwork, warranty information and more, can be both time-consuming and difficult.
But what if it didn’t have to be? That is where the potential of blockchain could create significant savings for organizations. To be sure, blockchains would never replace a human, explains Joseph Ciccolo, founder of BitAML, which provides compliance services to bitcoin companies.
Using the example of bitcoins, Ciccolo says that those transactions, including the transfer of bitcoins to dollars, still must be monitored by humans called “miners.” For financial transactions within companies, a blockchain could speed the process and help keep information correctly filed, but humans would still need to be involved.
“There is no shortage of ideas,” he says. “There are no shortage of practical applications, but I think we’ve still got a ways to go. I think in a couple of years, you will see a few big success stories.”
“At the end of the day, the cost of regulations and compliance are rising for everybody. But the value for compliance is the same; you’re spending more money on compliance to make everything safe.”
Blockchain does not need to be about currency transfer, though. One of the areas being looked at is regulatory and governmental compliance, including taxes and SEC filings. A blockchain could potentially help when an auditor or Dept. of Transportation inspector comes calling as well, says Jeremy Kirshbaum, research manager with the Institute for the Future.
“If you have the information an auditor wants and it is stored on a chain, you could provide that access directly [and quickly],” Kirshbaum notes. “It could provide trustworthy information of an asset being transferred, for example, if both parties trust the chain.”
It also can easily pull together diverse financial records that may be stored in multiple locations to create a single financial record with tamper-proof qualities.
“At the end of the day, the cost of regulations and compliance are rising for everybody,” Brigid McDermott, vice president of Blockchain Business Development for IBM, says. “But the value for compliance is the same; you’re spending more money on compliance to make everything safe. It’s easier for companies to do the right thing and it’s easier to communicate that information to regulators.”
Paperwork savings
Everything in a blockchain is handled electronically and in near real time, so time spent on paperwork is decreased. This includes time spent on bills of lading, proof of delivery documents and Customs paperwork. It could also potentially lead to a quicker settlement process for shippers and carriers by using what is called “smart contracts.”
“Because blockchains are distributed, you can create smart contracts that execute automatically under certain conditions that don’t need a third-party to manage them,” Kirshbaum says. This is called ethereum blockchain.
According to the Ethereum Project, which is developing just this sort of possibility, an ethereum is a “decentralized platform that runs smart contracts: applications that run exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference.”
The apps run on a custom blockchain and enable “developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract) and many other things that have not been invented yet, all without a middle man or counterparty risk.”
Payments in real time
In the supply chain, such a situation may occur in the following example: A shipper contracts with a broker to move its freight. The broker hires a trucking company to pick up and deliver the freight. The trucking company, however, knows this particular broker has a history of delaying payment. Wanting to secure capacity, though, the trucking company inserts a stipulation into the blockchain that requires the broker to make either partial or full payment upon pickup by the driver. That stipulation is triggered by a driver’s signature and once that signature is recorded, a financial transaction is initiated.