As we can see from the disruptive innovations created by startups, fintechs have been massively stirring up the financial services sector in recent years. While developments in information technology are changing traditional structures, new business models have furthered the ability to revolutionise whole markets. Even more disruptive breakthroughs are imminent.
One of these new technologies is blockchain, invented for the cryptocurrency Bitcoin in 2008. Often referred to as virtual money, the monetary aspect represents just the tip of the blockchain iceberg. It’s this underlying technology that has the power to transform ledgers as tools to record, enable and secure an enormous range of transactions.
Like the internet, it has no central authority. Instead it is a shared record of information distributed over a vast network of users. It has the ability to deliver a new kind of trust to a wide range of services. And just as the internet revolutionised communication and our access to information, so may the visibility of this blockchain innovation reform financial trading, supply chains, consumer markets, business-to-business services, as well as publicly-held registers.
The new book Financing the End to End Supply Chain – (co-authored by Simon Templar, Charles Findlay and myself) – seeks to add a comprehensive understanding of the growing and dynamic area of supply chain finance. Along with explaining relevant strategic aspects and operational relationships between supply chain management and corporate finance, insights into new frontiers for supply chain finance are given – especially in this very interesting topic of ‘shared ledgers’.
A shared ledger can be essentially a database that keeps track of ownership of financial, physical or electronic assets, such as diamonds, a currency, information or items for shipping. A blockchain is basically a distributed database. Participants within a network of multiple sites, nodes or institutions keep an identical copy of the block chain. The ledger is updated automatically within minutes. Any changes to the data in the form of a new transaction are stored in a ‘block’ that is generated after verification by a ‘proof of work’ within the system. The continuously growing decentralised blockchain is maintained cryptographically through the use of advanced mathematics ‘keys’ and signatures and is therefore secured from tampering and revision.
Today, almost anything that exists on paper could be digitised on a shared ledger. The basic blockchain approach can be further modified into incorporate rules, smart contracts and an array of other applications, as the information can be updated and processed by one, some or all of the participants, according to rules of the network.
For that reason, scalable, decentralised actions in supply chain finance concerning transparency, automation and authentication within the value chain are attainable.
Financing the End to End Supply Chain explains the disruptive potential beyond this technology and introduces practical examples for consumers, merchants, financial institutions, companies and supply chains. Although blockchain is still in its infancy, like the internet in the early years Blockchain will give rise to new business models and ideas in all areas of the economy.
Erik Hofmann is the co-author, along with Simon Templar and Charles
Findlay, of Financing the End-to-End Supply Chain: A reference guide to supply chain finance, published by Kogan Page. Readers of SCF Briefing may order the book at a 20% discount by using the discount code SCFB16.
Read our review of this book here.