- Toshendra Kumar Sharma
- October 14, 2022
In the current way of doing business, each party in the chain is keeping books for the purchases goods, adds value and sells these good to the next party in the supply chain. This requires financing of inventory and the necessity of third parties to finance a transaction or at least process a transaction. Opposed to this traditional way of doing business, by using blockchain technology parties can work smarter. This, as a result, reduces costs significantly. Payments in a supply chain can be triggered by a particular, predefined action, occurring at any point in time. In this article, we first explain blockchain and then elaborate on how it can impact corporate finance book-running.
How does it work?
Blockchain technology allows two parties to transact, without making use of a central authority or third party intermediaries. In other words: there is technology available that can enable you to trade directly with any counterparty around the world, in a secured, fast and cost efficient manner. In practice it works as follows: both parties have access to a wallet or some online interface. The buyer can show he has sufficient funds to purchase the required goods. Also, he can display the criteria which the seller needs to meet before the execution of the payment. The seller can see that the buyer has the funds and the criteria he needs to meet to receive payment. Only said: as soon as the criteria are met, the funds are transferred automatically and unconditionally from the buyer to the seller.
The usage of blockchain technology is already extensive, the most famous application on it being Bitcoin. This cryptocurrency is used as an alternative money system, besides ‘normal’ currencies like EUR or USD. The attractiveness of Bitcoin is that there are little processing fees. This is simply because there is no intermediary involved in the transaction.
Bitcoin has a proven track record. However, there are also other areas where the blockchain technology is useful:
- it can be used to provide notary services based on blockchain technology.
- Also, recently 11 large global banks announced they would test a trading system, based on blockchain technology.