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As kids, Monopoly money was the things dreams were made of. We all, at one time or another, fantasized about using the flimsy paper money, which seemed infinite, to pay for things. If Monopoly money had real value, we’d all be millionaires.

The twenty first century has seen a lot of previously unimaginable innovations, like computers in our pockets, but currency with real worth and no physical being was one that seemed to come from the mind of children. Bitcoin and blockchain, while revolutionary to the idea of money exchange, are far more complicated than child’s play. However, this complexity is actually transforming industries and becoming much more than an interest of IT professionals.

Financial institutions and the financial departments of major global corporations are deeply considering the impact this technology will have on their operations. Understanding where this technology is going helps illuminate how it fits into the financial world and what it means for the future of business.

Bitcoin vs. Blockchain

It’s important to see the differences between the two technologies before using them in your own organization, because one might apply to your situation better than the other. Bitcoin is a decentralized peer-to-peer digital payment system based on open source software. Without the need for an intermediary, its potential to permeate industries is growing. It is currently the most prominent triple entry bookkeeping system on the market. The value of the digital coins is rapidly increasing. The price in U.S. dollars doubled in a year from $226 in June 2015 to $550 in June 2016.

The other great advantage of Bitcoin is its universal nature. Because anyone in the world can purchase Bitcoin in their native currency, companies and individuals can pay one of the 100,000 merchants without an exchange rate.

Blockchain, conversely, is a distributed database that maintains a continuously growing list of data records and transactions. It is the primary innovation to emerge from Bitcoin to be applied to other areas of business and technology. Within the context of Bitcoin, blockchain serves as the public ledger of all bitcoin transactions. Simply put, it is a “permissionless” database that allows anyone to create new blocks, connect to the network, and send or verify transactions. These are the capabilities that are making waves in the business world.

Blockchain Transforms Finances

This explosion of blockchain technology inspired Goldman Sachs to conduct an investigation into the effects of blockchain implantation on the financial industry. With an increase in interest and funding coming specifically from financially-focused companies, it was worth a look to see what benefits blockchain actually brings to CFOs and their operations.

According to the investigation results, blockchain could streamline the clearing and settlement of cash securities, which would save the industry $6 billion annually. In this case, cash securities meant exclusively equities and leveraged loans. Although the report narrowed in on this area, it is likely blockchain would also help achieve even bigger savings with widespread adoption across an organization.

Cost savings would emerge from IT restructuring — reducing personnel and creating more efficient processes. Using blockchain carefully actually tightens the security of transactions, so there are cost savings opportunities if the proper precautions are taken in securing anti-money laundering procedures, customer identity verification, and other administration details.

This savings potential is why so many financial professionals are investing in the future of blockchain. Its versatility is also a promising feature for exploration in new areas to be applied to things in need of efficiency and innovation.

As a CFO, if you find your company looking for or demanding a transition to more modern practices and money-saving methods, blockchain might be the right move for you. Armed with the knowledge of how it’s affecting the financial industry and why it’s becoming so important to professionals in various industries, you can use it wisely.

Traditionally, an organization’s master finance professional is well-versed in the economies, currencies, and current realities of their finances. Blockchain is just another piece of a constantly evolving future, but knowing where it’s coming from will help you move forward effectively.

 

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