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By Sumit Kumar Sharma, Enterprise Architect and Head of Consulting Services at In2IT Technologies

April 8, 2022

The distributed ledger system behind blockchain, the technology used to secure cryptocurrencies, ensures that all transactions are validated and, importantly, that an immutable record is kept of those transactions. This is essential for securing a digital currency, but it has many applications beyond that, especially for organizations that are innovative enough to find a business case for leveraging blockchain.

The blockchain difference

Any transaction record has always been subject to fraud and/or misrepresentation, because a party holds ownership of a transaction record, and it is only their word that declares it to be valid and true. Transaction records can also be easily tampered with. Blockchain works differently.

According to Investopedia: “The innovation with blockchain is that it guarantees the fidelity and security of a data record and generates trust without the need for a trusted third party.” This is due to the structure of a blockchain, consisting of blocks of a defined storage capacity, closed and linked together when full. This in turn creates a timeline of events as the data is strung together in chronological order.

The start of a revolution

Blockchain is currently being explored by businesses as a way to increase trust and transparency around financial transactions, especially when it comes to areas such as smart contracts. IBM’s definition of smart contracts are “digital contracts stored on a blockchain that are automatically executed when predetermined terms and conditions are met”. This has many uses in the financial services industry, as well as in businesses like real estate and law, where contracts are an integral part of the business.

The same type of process can also be used to automate other workflows, as they follow a simple linear progression whereby if certain conditions are met, other actions are triggered. Blockchain can also be used to improve supply chain management by creating an immutable, chronological timeline of events and locations of goods, to prevent inventory loss, theft, etc. For governments, blockchain can be used to improve record keeping and streamline processes such as requests for official documents.

Go in the right direction

There are many use cases for blockchain technology, many of them in the banking and financial services sector, and this is where the focus is currently in South Africa and across the continent. The South African Revenue Service (SARS) is exploring the potential of blockchain to improve tax systems, and the South African Reserve Bank (SARB) is exploring regulated cryptocurrency to create a pan-African digital currency and an improved market for cross-border transactions.

However, we are only in the early stages of the potential evolution of blockchain technology, and the true potential and impact will not be felt until later. The main advantage of blockchain is that it creates a single version of the truth, which cannot be changed without the change being obvious. If harnessed well, it will make processes such as record keeping and due diligence much simpler and more efficient.

Building the business case

Blockchain is a solution looking for a problem – it needs to be approached from a business perspective first. The question is not what blockchain can do for a business, but how businesses can use blockchain to solve pain points and problems. Areas such as Know Your Customer (KYC) and Personal Information Protection Act (PoPIA) compliance due diligence, the ability to create and maintain a single, trusted and immutable source of truth can be extremely valuable. .

This is especially clear for financial services organizations, as they will be able to reduce fraud and maintain improved and consolidated customer records for better product targeting, cross-selling and up-selling. However, the same is applicable in any business. Blockchain creates a record of transactions that cannot be questioned and can clearly show ownership of things like land, property, or even digital real estate. The concept of non-fungible tokens (NFTs) has become increasingly common, where units on a blockchain are used to identify ownership of digital items such as videos and photographs.

The key is to take a business problem approach, rather than trying to implement the technology for the sake of implementing the technology. It is also imperative to ensure that business boundaries, goals and objectives are understood and communicated to key stakeholders. As with any new technology implementation, having the right IT partner can greatly help with strategy, applications, and change management as we enter a world where blockchain is becoming more mainstream.

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