Few business trends have received more attention than blockchain. From Bitcoin's recent roller coaster to the controversy surrounding Dogecoin, the technology underpinning cryptocurrency has become a constant topic in the financial press. But what does that mean for small business owners?
The ins and outs of blockchain and cryptocurrency might seem far removed from your day-to-day worries as a small business owner. That isn’t necessarily true. These platforms represent the future. As such, you need to understand what they mean for your startup.
But it isn't just a matter of keeping up with the competition. Don't think of blockchain as a passing trend, something that you roll your eyes at and implement just to stay current. This technology offers concrete benefits for your business.
Don't think of blockchain as a passing trend, something that you roll your eyes at and implement just to stay current. This technology offers concrete benefits for your business.
What Is Blockchain and How Does It Work?
Blockchain's most prominent use comes as the foundation of cryptocurrencies. This includes Bitcoin, Ethereum, and their many competitors.
The technology first hit the scene in 2008. It was presented by an elusive character known by the pseudonym Satoshi Nakamoto. (It's possible that Nakamoto was a name adopted by a group of Bitcoin creators.)
The basic technology keeps track of transactions by adding a "block" of data at the end of a "chain." If you receive a Bitcoin from a customer, that transfer gets added to the list of other transactions. The information is stored, as it might be in a ledger.
Ever have to look up the ownership history of a property? You head down to the records office and flip through dusty old documents noting each time a new owner bought the real estate.
Blockchain represents a digitized version of that process. Each block acts like one of those documents noting when a property changed hands. The chain itself is analogous to the file where all the info is held. Volunteer computers become the filing cabinet and the internet itself becomes the record office.
That's just a metaphor, though. The key for blockchain is that they let people cut out the third-party record office entirely. You no longer have to log your transactions with a verifying authority.
The Benefits of Blockchain
The technology of blockchain has important implications. These go beyond just creating an online record-keeping process. As a small business owner, you can benefit from these advantages. Here are a few of the important ones to keep in mind:
Distributed digital ledger capabilities
As we mentioned, blockchain products don't pass through a central authority. This allows them to function in a "distributed" ledger - one that operates in a decentralized way. This distributed ledger technology (DLT) provides one of blockchain's main innovations.
Trust-building through checks and balances
Businesses run on trust. This can be trust between you and your vendors, or you and your customers, or you and your employees. However, trust gets easier when you have the security of a checks-and-balances system. (Just think of the structure of the U.S. government for a point of comparison there.)
Thanks to its DLT capabilities, blockchain provides just such functionality. It gives you peace of mind and underpins trust between parties.
Safe/secure/low-cost payment solution
When you think of cryptocurrencies, this represents the main value. You can purchase items (or receive payments) in a safe and secure way. At the same time, you can eliminate many of the fees associated with things like wire transfers.
Eliminate the geographical inconvenience of an ATM. As cryptos gain mainstream acceptance, they will provide an easy digital way to make payments. This broadening footprint will eliminate some of the need to run out to an ATM to grab cash.
How Blockchain Impacts Digital Banking
Blockchain doesn't just change the way you deal with your customers. Don't just think of this as an evolution of PayPal or other digital financial services. The technology goes beyond a new option for receiving payments.
Theoretically, blockchain can allow you to operate without a bank at all. However, going this far off the grid comes at a cost. Rather, you want to find a "best of both worlds" situation.
Many digital banks are now integrating blockchain into their services. This allows you to maximize your flexibility while, at the same time, reaching the highest levels of convenience and security.
Here are some of the benefits of a digital bank that has integrated blockchain options:
- Reduces time and cost of payments (especially as compared to traditional wires)
- Facilitates international payments
- Secures transactions
Getting the most out of your business requires leveraging every advantage you can. As such, a digital bank that offers every level of service provides that additional upside. With blockchain capabilities, digital banking can expand flexibility and pave an avenue into the future of business banking.
Prepare for the Future
As a technology, blockchain is just starting to receive broad acceptance. According to an online survey presented by Statista, about a third of companies currently integrate this technology into their operations.
About a third of companies currently integrate [blockchain] technology into their operations.
That figure indicates room for growth. As a result, blockchain should not just be thought of as a technology for today. In looking to the future, it is important to consider what it could mean down the road, as well.
At one time, only a handful of businesses accepted credit cards. Now, that payment method has near-universal usage. Only a few decades ago, it was unusual for a company to support a webpage. In the modern economy, even the smallest of neighborhood businesses have an online presence.
Blockchain can be viewed in this same context. What will it mean for you a few years from now?
Yes, adopting a new technology comes with challenges. Blockchain may seem new and confusing right now. However, understanding how it works and how it relates to your banking experience will help you be better prepared for the future of finance.