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Blockchain Technology – The Next Frontier for Supply Chain Finance

Co-author of Financing the End-to-End Supply Chain Erik Hofmann discusses the possibility of the Blockchain

As it’s witnessed in the disruptive innovations of startups, financial technologies (or FinTechs) are massively stirring up the financial industries in recent years. Whereas developments in information technology are changing traditional structures, new business models have the further ability to revolutionize whole markets. From this perspective, multiple disruptive breakthroughs are imminent

One of these new technologies with a disruptive potential is the so-called Blockchain that was invented for the cryptocurrency Bitcoin in 2008. Often referred to as virtual money, the monetary aspect represents just the tip of the iceberg. Its underlying Blockchain technology has the power to transform ledgers as tools to record, enable and secure an enormous range of transactions. Essentially a distributed database, a Blockchain has no central authority, much like the Internet. 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. As the internet revolutionized communication and our access to information, so may the visibility of this innovation reform financial trading, supply chains, consumer markets, business-to-business services, as well as public-held registers.

Following on from this possibility, the new book Financing the End to End Supply Chain is adding a comprehensive understanding to the growing and dynamic area of supply chain finance. Beside relevant strategic aspects and operational relationships between supply chain management and corporate finance, interesting insights to new frontiers for supply chain finance are given – especially on the interesting topic of the shared ledger.

A shared ledger can essentially be a database that keeps track of ownership of financial, physical or electronic assets, such as diamonds, currency, information, or items for shipping. Like in a Blockchain, participants within a network of multiple sites, nodes or institutions keep an identical copy of the blockchain. The ledger is updated automatically in minutes. Any changes to the data in 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 decentralized Blockchain is maintained cryptographically through the use of advanced mathematic ‘keys’ and signatures, and is therefore secure from tampering and revision.

Today, almost anything that exists on paper could be digitalized on a shared ledger. The basic Blockchain approach can be further modified to 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, decentralized actions in supply chain finance concerning transparency, automatization and authentication within the values chain are likely imaginable.

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 the 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 economy.