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Blockchain technology refers to the system of information stored in a digital ledger manner. The ledger is always duplicated across the entire network system of the Blockchain. The growth in the use of Blockchain has associated the underpinning as in the crypto-currencies. The concept of the Blockchain as it goes beyond the virtual money. Blockchain's use will come with several changes, especially in finance and a paradigm shift in buying practices.
The Blockchain use comes with new ways to organize economic activities as it associated time and cost. Much evidence shows that Blockchain's use will change how finance is practiced and applied in finance. Some financial management sectors, such as human resource management, will be greatly impacted by blockchain technology.
How blockchain work
Shift in financial business as a result of blockchain technology
Blockchain's use offers a contemporary technology that comes with a huge potential to build a foundation and create businesses' unprecedented models. The major concern is particular is the setting up of new systems that will remove all the forms of limitation and intermediaries as in the ecosystem. Also, it comes with the business models that give much focus on security over the performance. Such changes in the system are expected to affect several industries (Weking et.at, 2019). The use of this Blockchain will remove the essentiality for reconciliation as it will enable direct transactions between the marketing partners.
The use of this technology will change how transactions are done. This is because it enables the users to continuously trace the transactions and the assets autonomously and hence providing a secure model. Such systems enhance the resilient and security features in the use of such technology.
The technology can transform the monetary industry and alter the fields of its applications. The Blockchain strongly affects the monetary services as in the concerns on the auditing and accounting realms. The elimination of a third-party reduces the transaction cost. The use of the Blockchain enables cross-border transactions without the necessity of having an account for the currency exchange services.
The Blockchain will cause a shift in the monetary sector has it concentrated on the delivery chain, which is taken as the most important non-financial blockchain application. It is believed to be effective and delivers the returns on investment in the early stages of blockchain development. The blockchain technology comes with several implications as in the business impact. In this way, the Blockchain comes with several implications to the marketing models. It offers multiple benefits to innovate and hence shift in the business practices as predicted by the experts.
The use of blockchain technology will shift the monetary business practices as it offers an alternative approach to the authentication of assets. In this way, it is set apart from the means of centralized transaction that used to rely on an individual organization. Therefore, Blockchain substitutes for the trust as with the entities as a result of the central transaction systems. It is more effective as a layer of encryption is used in sealing all transactions. The Blockchain ensures better security as it offers the combination of the complex and the decentralized mechanism and, therefore, promotes trust among the system members.
On the other hand, it imposes some restrictions on the design and the outlook for the business models. Blockchain's use comes with new incentives in the conversion, such as in the blockchain-based business models (Kizildag et.at 2019). Some of the implications include a significant reduction in the cost associated with disintermediation.
The Blockchain is associated with the organizational concept of distributed autonomous organizations besides security improvement and cost reduction. The fact that they exist without central governance is coordinated through smart contracts that will revolutionize the monetary sector. This is advantageous as the organizations can replace the intermediaries and enable the financial bodies to service at a low cost.
The use of the Blockchain will cause a shift in the financial business practice as the blockchain business enables the use of both tokenization and cryptography. The use of tokenization in this model covers the substitution of confidential data. Cryptography changes the business model's value since it comes with better authentication in the transactions as in the network system (Weking et al. 2019). In general, Blockchain's use has the potential to shift how financial business is conducted as it offers several opportunities in altering the existing models of business. The Blockchain comes with such benefits as integrating multiple features, interoperability, and enhancing the financial department's scale and performance.
How blockchain will change the way finance is applied and practiced
The blockchain's rise is predicted to change the marketing system, just like what the internet did to media. The Blockchain will reshape how operations are conducted in accounting and the finance sector. One reason is that its usage will have the potential to secure financial transactions in the coming years. A blockchain is associated with financial transparency and compliance as it offers a decentralized ledger for the business. Over the past years, Blockchain's use has been gaining traction as with the business leaders as more proof of concepts and hence emerging in the finance for the business.
The use of a blockchain will change the way financial transactions and practices are conducted as it eliminates the common challenges as in the financial sector. Its usage comes with the development of smart contracts. The transactions will be eased as agreements between the sellers, and the buyers will be inscribed as in the computer-coded language. This is then followed by decentralization and distribution across the blockchain network (Weking et al. 2019). The smart contracts are helpful as it allows the finance managers to create, monitor easily, and comply with the financial agreements. The Blockchain allows for creating this and hence better financial transactions, which boost the cash flow in the financial sector.
The blockchain technology will change how finance is applied and practiced as it comes with financial transparency. All the financial transactional data are stored on a single accessible system, ensuring transparency between the supplier and the vendor. The disputes and errors associated with transactions are eliminated. The erroneous data entries can, therefore, be easily retraced and blocked. The errors associated with the double-entry system can be easily dealt with the use of the Blockchain, which makes it a better.
The financial sector is an area that requires maximum accuracy, as there is a need for financial data accuracy. Blockchain's use is effective as it ensures that the financial reporting's are secure and accurate as it uses timestamps and cryptography on all the transactions. Therefore, it eases the creation of reports and the monitoring of the finances in an easier manner. Unlike the traditional finances, the use of the Blockchain comes with no commissions on the digital wallets. They are more effective in that it eliminates the forms of third party payments, and hence the business does not need to pay additional interest or commissions in making transactions. Besides, it will save the business money and guarantee the security of all the transactions.
Impact of blockchain technology on financial sector
The Blockchain will act as a form of distributed ledger technology and transformational how the transactions are done and practiced. Some of the benefits of it are established financial institutions, lower costs, improved transparency, and faster transaction execution. The use of this technology holds the promise of a new asset with no need for a central authority. Therefore, the Blockchain will displace any form of financial transactions on the traditional corporate database in the financial transactions. This makes the use of cryptography a great opportunity.
Impact on financial transaction
Blockchain's use will replace the traditional financial transactions as Blockchain will reduce the massive duplication, which is associated with conflicts and confusion, delays as in the financial services (Liu et al. 2019). The use of a blockchain means using one shared ledger, which means they are more efficient. It comes with the ability to eliminate all forms of intermediaries and hence lowering the transaction cost and hence powerful financial intermediaries.
A Blockchain can enhance the accounting profession through the reduction of the cost associated with maintenance. They provide absolute certainty of the asset's ownership and history and, therefore, the best method in transaction record keeping. Besides, the Blockchain could help the accountants gain clarity over the obligations and clarity of the available resources in the valuation of assets and record-keeping. With its ability to automate trends and machine learning, Blockchain leads to better transactional level accounting.
It will also eliminate reconciliations as in the systems and therefore provide certainty in the history of transaction and hence allow for the increase of scope as in the accounting systems. The use of the Blockchain offers a replacement for bookkeeping and reconciliation in the financial sector. The use of a blockchain has implications for auditors since it has applications on the external audit. The use of Blockchain means a profound change in the manner in which the audits are conducted.
Functions of financial management impacted by blockchain technology
The Blockchain will revolutionize and redefine the traditional CFO role finance function. A Blockchain is expected to structure the data without the need for a central authority. This is because the Blockchain offers a distributed database in which the data is recorded in the continually growing records. Instead of the data being collected in a single file, the data is stored in a block. Traditionally, the CFOs have three major roles: the development, execution, and enablement in financial management. The roles usually compromise providing insight, determining the organizational strategy, funding the organizational strategy, and communicating with the external marketplace.
The use of Blockchain has proved to have an impact on each of these segments as it redefines the traditional CFO roles and changes the finance functioning. The future finance function is expected to make use of the Blockchain to increase the IT security, management of the value chains, and streamlining the contract enforcement in the financial institutions (Treleaven, Brown and Yang 2017). One of the roles associated with CFO is creating a trustworthy financial basis for the company through the provision of insight.
A blockchain replaces CFO's use due to its trustworthiness, which is always aligned with the finance functions. Each of the used blockchains results in a unique identifier and is usually incorporated into the next block to verify integrity. Therefore, the blockchains take that role as it protects the data integrity in the systems, which ensures no single point of failure. The accuracy of the financial data is determined by specific blockchain technology.
For the CFO function of providing insight, the use of the Blockchain takes the role of financial managers in making business decisions. It is beneficial because it makes sound business decisions through the use of a proper distribute ledger that improves the reporting speed, access, and validity. Blockchain's use replaces the traditional CFO role as it is a more valuable source of data for the department of analytics and hence enables key strategic and operational functions in making sound and near real-time decisions. This reduces the required investment and increases all the actionable insight into big data analytics and data initiatives.
The funding of organizational strategy is always critical for finance in leading all the initiatives that align with the business's strategic and core goals. The use of the Blockchain could offer the foundation for transforming the organization from the silo system to the network system. The network system associated with the Blockchain increases both the integration and visibility across the organization. The blockchain-based application deals with such agile finance by providing the capacity to track the performance of the different projects in near real-time, allowing the finance leaders to maximize returns on the investments.
The Blockchain is taking over the audit tasks as they are made increasingly automated besides leading to significant cost savings. The future will depend on the legal and regulatory in the evolution of the inputs (Liu et al. 2019). For the development of the business strategy, the Blockchain controls the overall business strategy. Its usage could impact future strategies by enabling the use of transactions and altering with the general business models. All the financial business is embedded in the physical, digital, and financial assets, allowing all the transactions to run smoothly and automatically.
The Blockchain is changing the finance as it comes with the use of ledger technology, which can transform and establish financial institutions and lower costs. Additionally, it leads to faster transaction execution, improves transparency, and ensures audibility in all operations. The financial functions are enhanced for the better as blockchain impacts on the sector positively. The Blockchain's use holds the promise of offering new and native digital assets without the need for a central authority. The Blockchain can replace the business activities build on the traditional corporate system databases as of all the business and the financial service functions. The Blockchain is expected to be the foundation for new applications and services, as in the finance databases.
The use of blockchain technology is expected to revolutionize the fiscal department. As a form of the distributed ledger, the Blockchain has the power and the ability to transform the finance sector and the financial institutions by bringing lower cost, ensuring faster execution of transactions, and through the improvement of the operations. Blockchain's use offers a contemporary technology that comes with a huge potential in building a foundation and creating unprecedented models of businesses. The Blockchain's rise is predicted to change the fiscal system, just like what the internet did to media. The Blockchain will revolutionize and redefine the traditional CFO role finance function.
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This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2020 Ian Muiruri