Blockchain Technology: A CFO’s Best Asset?
By Nick Roquefort-Villeneuve, Head of Marketing — Amalto Technologies and Ondiflo
Before we go any further, I want to make sure that you’ve fully recovered from your New Year’s Eve celebration. Tuxedo, evening gown, champagne, and the good old “Auld Lang Syne” at the stroke of midnight. Like Billy Crystal in the last scene of When Harry Met Sally, did you share with her, “What does this song mean? My whole life I don’t know what this song means…” And then you kissed… This song invites us to remember people from our past and raise a toast to them. Every choice we’ve made up to now have led us where we are today. And there’s always gratitude to be found in past experiences and past friendships and acquaintances, even the most uncomfortable ones. Like the song’s title suggests… For Old Times’ Sake.
Without transition, it has become undeniable that Blockchain technology has the potential of revolutionizing the way corporate finance works. Forget Bitcoins and other speculative cryptocurrencies. I refer to Blockchain technology in its private or permissioned form, where businesses can transact with one another inside a closed peer-to-peer network of ledgers on top of which financial and accounting applications run. Blockchain does dramatically enhance IT security, while streamlining and automating processes that are essential to a Finance department. Let’s take a closer look at how Blockchain can become a CFO’s best asset.
Blockchain Creates Transparence and Trust
Every time a data or the elements of a transaction are written to the Blockchain, they are validated through the solving of a complex algorithm (mining process), before being stored in a block that is replicated inside each node of the network, for all participants to view in real-time. Moreover, a Blockchain network does not accommodate functions that could allow anyone who has authority over a node to tamper with the data. Thus, basic functions of data storage such as Create, Update and Delete are not allowed in a Blockchain network. Finally, a blockchain network self-audits every ten minutes, which infers that if a node were to fail, the other nodes would identify the issue and correct it immediately.
So, what does it mean for a CFO and his or her department? Blockchain allows CFOs to trust the numbers stored inside the network. Financial data is accurate, secure and therefore reliable when time comes to generate reports and audits.
Blockchain Creates New Levels of Automation
Trading partners can agree on the way they choose to transact along with the series of processes that lead to the final transaction and have the entire ecosystem automated thanks to smart contracts. Smart contracts are immutable pieces of code that are stored inside the Blockchain network and that get executed as soon as an element that is pushed to the network triggers their execution. Very much like a simple piece of data, all the elements that pertain to the transaction the smart contract executes are validated (verified) by the system prior to being stored. Thus, the Blockchain provides a platform for self-enforcing and self-executing agreements. All transactions can be tracked (from source to end-result), which greatly facilitates any forms of financial auditing. Given the immutability of the smart contract’s code and the data the contract’s execution pushes to the Blockchain network, which in turn validates its pertinence, it is virtually impossible to corrupt the ecosystem, hence eliminating any risk of fraud.
CFOs have access to the movement of every transaction and therefore can generate real-time reports. Such access also increases visibility over payment cycle data and the movement of money down the supply chain, allowing for better predictive analysis and budgeting, and the enactment of any strategic restrictions such as departmental spending limits.
Blockchain Facilitates the Development of Potent Strategies
Blockchain networks store data that can be trusted, for all stakeholders to view in real-time, which provides users with a level of reaction and agility that no other system can offer. For example, the possibility of tracking financial performance of projects in real-time allows CFOs to decide how they suddenly should reallocate funds across the business to maximize returns. Moreover, automation thanks to the execution of smart contracts, for example, increases efficiency and productivity. Reduction or even elimination of manual tasks allows employees to focus on projects that truly matter, including strategic planning and supporting wider business decisions. Finally, thanks to Blockchain technology, reconciliations among departments and subsidiaries become instantaneous, transparent and verifiable.
The CFO is empowered to develop business strategies based on verified and therefore irrefutable sets of data. His or her team can then implement those strategies with much confidence. The CFO can also make the appropriate changes, as shifts happening in the business ecosystem are reflected in real-time through the validation of new data that are recorded inside the Blockchain network.
Is This Happening Right Now?
Blockchain in its private form is still very much in its early adoption phase. Even though a few Fortune 100 companies are currently working on use cases, I do not believe that any of those projects have gone into production yet. At the end of the day, it is a brand-new technology that requires new skills and a lot of technological resources. Moreover, a lack of regulation especially in the financial sector still deters major players from embracing Blockchain to automate their B2B transactions, simply because there is no way of legally giving banks authority over their own node yet. Today, payments must indeed be made off chain. Nevertheless, once pilot projects start getting rolled out at a much larger scale, we’ll be able to fully assess the impact of Blockchain technology and its disruption.
