Blockchain technology has the potential to have a profound effect on treasury and cash management functions.
As well as being the foundation of the much-hyped cryptocurrency revolution, it can be harnessed to minimize the risk inherent in financial transactions by making them more secure and reducing the possibility of human error and fraud.
Blockchain technology provides a means of creating a decentralized – or distributed – record of transactions. This distributed ledger relies upon a network of computers working in concert to provide a consensus on the validity of transactions.
The blockchain consists of blocks of data – essentially unique pieces of code. Every time a transaction is made, a new block is created, which is added on to the chain. This adds up to a permanent, immutable and chronological history of a transaction.
Each block contains a reference to the block that preceded it, making the chain virtually impossible to falsify.
The information stored on each block can include, among other things, payment amounts and the details of those making and receiving the payments.
Because of the peer-to-peer nature of the technology, any anomaly that appears on the chain – caused, perhaps by somebody attempting to tamper with the data contained within a block – will make a transaction invalid.
Using the same principles, the technology can be applied to many areas of business, including currency exchange and smart contracts.