Why CFOs are well placed to understand Blockchain and Distributed Ledgers

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Blockchain has had its fair share of hype over the years. The last six years in particular have seen an explosion of projects, some valid, many not. It’s been associated with more scams than any new technologies since the dot com bubble.?

However, in 2021 Gartner published a dedicated hype curve for blockchain headlined ‘More Action than Hype.’ It’s maturing rapidly and finding its niche as a business tool. But where did blockchain come from, and why is it important?

It started out as the structure underpinning Bitcoin, the first peer-to-peer electronic cash system. It’s a key element of the mechanism proposed by Satoshi Nakamoto in 2008 to secure Bitcoin transactions. The genius of Bitcoin was not just the creation of decentralized money, but the emergence of an honest ledger recording every detail in a way that is transparent, trusted, and unchangeable.

Any application using blockchain is running on a ledger, and there is nothing CFOs know more about than ledgers!

Distributed ledger technology predates Bitcoin, of course, but blockchain is a very specialized type of ledger. Transactions are time-stamped and verified by the community (the nodes of the blockchain), and valid entries are added to a group of transactions sitting in a block.?

That block holds additional data including a unique cryptographic hash of the entire contents of the previous block. The block is closed by consensus and a new one opens to add to the chain. Anyone wishing to change prior entries cannot do so, as they would need to change the cryptographic reference in every block in the chain right up to the present day.

It’s an elegant system and one that CFOs are perfectly placed to turn to their advantage.

What can blockchain do for us?

Once we understand that blockchain is simply a verifiable ledger that involves multiple unrelated parties, the whole puzzle falls into place.

• The distributed format ensures that everyone has real-time access to the same data, reducing the costs and time lag of maintaining and reconciling different databases or out-of-date reports. It’s being used in audit, supply chain management, and insurance, among other sectors.
• A trusted, unchangeable record allows verification of details for compliance and similar purposes. It’s used to manage regulatory governance in manufacturing, construction, supply chains, and more.
• Transparency and trust give absolute certainty over the ownership and history of assets recorded on the blockchain. Digital title deeds (NFTs) can hold every touchpoint of a born-digital or a digitally twinned asset. They’re being used to battle counterfeiting, track historic price information, open access to new markets, and even gather data on the use of grant funding.

There is so much potential already being realized in ways we could not have imagined a decade ago. This improved record-keeping can deliver new data for improved strategic decision making, and free up the CFOs resources to concentrate on planning and analysis.

Harnessing blockchain

To get to grips with the nature of a blockchain, it’s very simple to access a public ledger such as that held at etherscan.io. Explore the transactions and drill down through the layers to see how much information is available, and in what format. Reading the original Satoshi Nakamoto white paper, found online, is also illuminating and straightforward. Next, consider your business and ask yourself a few questions.

• Are you moving an asset between custodians, e.g. along a supply chain?
• Are multiple parties involved who need to trust the data?
• Will visibility over the whole supply chain help decision-making?
• Are there complex or costly business processes to simplify?
• Are you receiving timely data that can help you respond to changes?
• Do you need contemporaneous documentation that is date stamped, unchangeable, and trusted?

If the answer to three or more of these is ‘yes,’ then it’s time to explore what this frontier technology can deliver. Blockchain is a rapidly maturing technology that opens the door to transformation. Have you taken your first steps on this path? Tell us your story in the comments.

This was the second article in my latest series "Frontier Technologies for Finance". You can read the previous ones below. Remember to click subscribe to be notified about future articles.

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Anders Liu-Lindberg ?is the co-founder and a partner at the?Business Partnering Institute ?and owner of the largest?group dedicated to Finance Business Partnering ?on LinkedIn with more than 10,000 members. I have ten years of experience as a business partner at the global transport and logistics company?Maersk . I am the co-author of the book “Create Value as a Finance Business Partner ” and a?long-time Finance Blogger ?on LinkedIn with 65.000+ followers and 150.000+ subscribers to my blog. Recently I became an advisory board member at?Born Capital ?to help identify and grow the next big thing in #CFOTech.