Rakesh Pullabhatla
  • Home
  • About
  • Solutions
  • Blog
  • Articles
  • Slide Deck
  • Contact

Blockchain for finance professionals

9/8/2018

0 Comments

 
Picture

​Introduction

Before we start on Blockchain, let me dispel the biggest misconception out there. Blockchain is not spelled “ B I T C O I N”.

There are several parallels between blockchain and the internet of the 90’s. You can call blockchain as the foundation of a new internet.

As I have already hinted, most people think of blockchain as Bitcoin, this is akin to saying internet is email. Just as email is one of the use-cases of internet, Bitcoin a cryptocurrency, is one of its numerous use-cases. Bitcoin makes money transfer inexpensive, seamless and instantaneous across borders.

You may ask what is wrong with the internet, why repair what is not broken?

Internet was supposed to solve a few problems for us communication, information, distribution, trust and disintermediation. Internet solved all of these issues except trust and disintermediation. We cannot rely on the information on the internet and neither was it able to disintermediate everything. Actually, internet centralized power in certain big corporations Facebook, Google, Amazon etc. Blockchain aims to solve the trust and disintermediation issues.

What is Blockchain?

As a finance professional, you know every transaction in the world has to be recorded in a ledger somewhere. If I bought a Mac with my credit card, it is recorded in my credit card ledger, the Applestore’s ledger and also in Apple’s ledger. These are recorded separately and need to be reconciled. In some real-world transactions there are more than 10 parties involved and the reconciliation is messy, expensive, inefficient and vulnerable. What if this whole transaction and asset registry is recorded in one distributed ledger, which is verified by all business participants, who have vested interest in keeping the information accurate, is immutable and has impregnable security. You have chanced upon blockchain, the “single source of truth”,.

In accounting terms, blockchain is one giant decentralized distributed immutable accounting system. The blockchain is not stored in the cloud but in several peoples computers, think of the P2P music sharing service, Napster of the late 90’s. If one does a journal entry, it has to be verified and approved by a majority of the people participating in the blockchain. Once verified, it cannot be altered. Now, the next journal entry is immutably linked to the previous journal entry so on and so forth in a chronological order. Each journal entry can be called a block and all the journal entries collectively is called blockchain.

To give another analogy, think of excel and its various problems. Excel is the old way of doing things, with different versions of the same file floating across the network or in emails. If you have graduated to Google Sheets then you are using a single version and hence it is highly reliable.

To hack a blockchain, the hacker has to compromise more than 50% of the globally distributed participants and do so faster than new blocks are created. This means blockchain cannot be corrupted, erased or hacked.

Blockchains can be private, public or hybrid to limit access. Private data such as a patient’s medical records can be encrypted and can only be decoded with a patient’s private key.

Why go through this pain of creating such a system?

There is a lot of friction when you have to make entries in different ledgers. Friction adds costs and time delays while at the same time not adding any reliability. Blockchain reduces costs while making the system reliable and trustworthy.

What are its uses ?

There are numerous uses, below are just a handful.

  1. Payments - Send money to anyone in the world instantaneously and inexpensively.
  2. Supply Chain - Track any product from start till it reaches the customer.
  3. Content management - Compensate content creators properly.
  4. Privacy - Personal data is not held by Facebook and Google’s of the world but by individuals.
  5. IoT - Record and analyze immense data produced by IoT systems and provide valuable insights.
  6. Health records - Accessed easily by doctors with your digital identity.
  7. Land registry and other assets - Tracked easily to the owner.
  8. Digital identity - Represented no longer by a userid-password.
  9. Crowdfunding - Funds are raised through ICO’s than through IPO’s/VC’s or other traditional means.
  10. Voting - Making sure that votes are properly accounted for.

Conclusion

A January 2017 World Economic Forum report predicted that by 2025 10 percent of global GDP will be stored on blockchains or blockchain-related technology.

Every company is using blockchain right now from Google, Microsoft, IBM, Walmart, Chase just to name a few. In fact Bank of America, Mastercard, Fidelity and IBM are the top four blockchain patent owners.

This is similar to the 90’s, either you adapt or perish. Blockchain companies will disrupt companies that were disruptors in the internet age and it will happen much faster.
0 Comments
    View my profile on LinkedIn

    Archives

    September 2018
    July 2018
    July 2017
    June 2017
    January 2017
    June 2016
    December 2015
    June 2015
    March 2015
    January 2015
    June 2014
    December 2013
    October 2013
    March 2013
    November 2012
    October 2011
    December 2010

    Categories

    All
    FP&A
    M&A
    S-1
    SaaS
    Startup Financial Operations
    Startup Management

    RSS Feed

   copyright 2010 Rakesh Pullabhatla                                     [email protected]                                                                   
  • Home
  • About
  • Solutions
  • Blog
  • Articles
  • Slide Deck
  • Contact