29.05.2024

Blockchain and its impact on the future of B2B transactions

Key information:

  • Blockchain is a registry of decentralized encrypted data created in a chain structure.
  • Blockchain is a database based on blockchain. That is, servers connected to each other in a peer-to-peer network sequentially after each other.
  • Cryptocurrency transfers are handled with blockchain thanks to low transaction costs, transaction registry and high data security.
  • We can divide blockchain technologies into 4 types Public, Private, Hybrid, federated (consortium).
  • The use of Blockchain helps significantly reduce the cost of international money transfers. It is also used to simplify data transfer.
  • Despite its many advantages, this technology has or will increasingly have disadvantages caused by moving transactions online without insurers and banks.
  • The desire to regulate the cryptocurrency market could significantly affect blockchain, which is related to digital currencies.
  • Steadily developing new technologies are already having a major impact on the industry and will generate significant competitive advantages for companies in a few years.

Details below!

What is Blockchain technology?

Blockchain is a registry of decentralized encrypted data. We can understand it as a chain of blocks on which data is stored, each subsequent block like a link in the chain is chained to the previous one. Security is provided by a data integrity key, which is an identifier chained to each block stored as a cryptographic hash. Despite the high anonymity of the data, it is any attempt to modify it that will be noticed, and all network users will be informed.

A typical database has a server as the main place where data is stored and processed. This is the most common way of collecting data, which has one particular problem - security. Anyone with the right access to the server can read or tamper with its contents. To the rescue comes blockchain technology, which makes it possible to secure data by encrypting and dispersing it across the network while maintaining data integrity.

Basic principles of blockchain

Blockchain is a database based on blockchain. That is, servers connected to each other in a peer-to-peer network sequentially after each other. Data is sent through each link in the chain from point to point, and a cryptographic identifier is attached to the data to decrypt the data. Transactions cannot be read or modified by all users unless they have access to the data, while each user is informed of the data that has been transmitted.

The stages of sending a file with a blockchain:

  1. Transaction: The first step is to initiate a transaction. Transactions can contain different types of data depending on the application of the blockchain. For example, in the case of cryptocurrencies, transactions contain information about sending funds from one address to another.
  2. Block creation: Transactions are collected into groups called blocks. Each block must be "mined" or "produced" before being added to the chain. Depending on the consensus mechanism (e.g. Proof of Work), this process may require solving a complex mathematical problem.
  3. Validation: Once a block is mined, the transactions inside it are verified by the network nodes to make sure they are correct and follow the rules of the blockchain protocol.
  4. Adding to the blockchain: Once verified, a block is added to an existing block chain, thus creating a permanent and immutable data record. Each block contains a reference to the previous block, forming a string of related blocks.
  5. Dissemination: Once added to the chain, the block is distributed throughout the blockchain network so that all nodes have an up-to-date copy of the chain.
  6. Sync: Nodes in a blockchain network work together to maintain the integrity of the chain. Each node maintains its own copy of the blockchain and works to synchronize with other nodes to reach consensus on the state of the network.

Cryptocurrencies

For those familiar with the subject at a basic level, the first thing that comes to mind is blockchain electronic transactions. With the help of the chain, transactions are handled cryptocurrencies. Satoshi Nakamoto created bitcoin, at this point the most popular cryptocurrency, through the use of blockchain capabilities. All this is due to low transaction costs, transaction records and high data security. Blockchain is an ideal environment for currencies independent of state governments.

Types of blockchain technology

Blockchain public does not require any user privileges and is accessible to any person from anywhere on earth. The main application of this type of chain is cryptocurrencies. As far as security is concerned, with a large number of people having access to the shared source code, it is possible to monitor any changes to the chain on an ongoing basis. The more people, the higher the security of the data, which makes it harder for hackers to get into the contents of the files on the chain.

Blockchain private is used and managed by private companies, providing access to chain data only with prior permission. Only users with the appropriate permissions are allowed to access specific data sets. It is usually smaller than a public blockchain and generally covers only one chain. This makes it possible to monitor the information on the chain more closely. Due to the small number of users, the network is not overloaded, resulting in lower transaction costs, however at the expense of security. Centralization means that only the companies managing the chain have access to it, leaving them vulnerable to potential hacking attacks.

Hybrid blockchain combines features of private and public blockchains. As a result, it features the level of data security characteristic of public blockchains and low transaction costs typical of private ones. The main problem is poor insight into the chain due to privacy, as well as the lack of full control over the chain by the management company.

Blockchain federation (consortium) allows control of individual nodes. Data, such as date and ID number, can be shared between different chains, each of which is under control, and the contents are sent in encrypted form. This preserves privacy, the security inherent in a public chain, and the ability to keep a record of transactions.

Concepts of blockchain technology

Cryptocurrency is a form of digital currency. The blockchain network makes it possible to track and store cryptocurrency (and NFT) records. It is a decentralized system, which means there is no single authority or financial institution that controls it.

Smart contracts are records in the code that control the content sent by the Blockchain. With them, the chain is able to track information about the file being sent, such as its origin and purpose. Once delivered, they can also provide information about the originality and the amount of currency transferred via the blockchain.

How is Blockchain transforming B2B transactions?

In today's business world, where speed, efficiency and security of transactions are key, blockchain technology is entering as a revolutionary tool, fundamentally changing the way companies conduct business transactions. Originally known as the basis of cryptocurrencies, blockchain is now penetrating deeper into the industry, transforming business-to-business (B2B) transactions in many ways.

One of the most visible ways blockchain is transforming B2B transactions is through Elimination of middlemen. Traditionally, many business transactions require a trusted intermediary or the intermediation of a financial institution. But blockchain enables direct transactions between parties, eliminating the need to trust an intermediary and reducing the costs associated with their services.

Banks are increasingly interested in implementing blockchain technology, seeing it as a major benefit for international transactions between themselves. While mostly known for its applications in cryptocurrency transactions, the technology is finding increasing use. While blockchain was initially associated mainly with cryptocurrency transfers, it is now also being used in restaurants and stores as a new crypto-fiat payment method. The development of these examples of blockchain use in everyday life for payments has contributed to banks' growing interest in the technology. Thanks to the low cost and speed of international transactions, blockchain makes it possible to significantly reduce the cost of transfers. BitPesa in Africa, for example, has achieved as much as 90% reduction in costs associated with international transfers.

Examples of blockchain usage

  • BitPesa through the use of smart contracts for international transactions, it was able to optimize transaction costs by 90%.
  • Santander Bank in 2018 introduced instant transfers with the help of cryptocurrency company ripple.
  • Pko Bank Polski In 2018, it implemented the world's first commercial blockchain-based service called "persistent carrier." At this point, it has been used more than 50 million times and generated PLN 77 million in profit.
  • LINK4 allows its customers to access public documents using blockchain , an innovative approach to the insurance field. It worked with Coinfirm to implement this system.
  • Positiverse has created an innovative solution that combines RFID, NFC and blockchain, to support supply management. In this way, the blockchain contains all relevant product information and history.

Benefits of Blockchain in B2B

Thanks to the implementation of blockchain technology, B2B blockchain transactions become more transparent and secure. Each transaction is recorded on a decentralized registry, which means it is impossible to falsify or manipulate. This provides greater confidence in the integrity of transactions, which is crucial in business relationships.

Process automation and optimization B2B blockchain transactions. With smart contracts, companies can automate many aspects of their transactions, such as payment terms, delivery dates and inventory management. This not only increases operational efficiency, but also reduces the risk of human errors and delays and guarantees secure settlement of electronic blockchain transactions.

Blockchain opens new prospects for global trade, eliminating barriers related to border crossing and currency differences. By using blockchain technology, companies can conduct international transactions and effectively manage their supply chain.

Challenges and limitations of Blockchain technology

Despite its long presence on the market, blockchain technology is still in the development stage, with various challenges and limitations emerging. The future of this technology will depend on how to deal with the problems encountered and the ability of users to exploit the potential of blockchain

  • Interoperability of regulations: International regulatory cooperation can pose challenges for global blockchain-based projects. The diversity of laws in different countries can make it difficult to harmonize standards and lead to the need to adapt to different requirements depending on the region, which can delay the development of blockchain projects on a global scale.
  • Scalability of blockchain networks: As blockchains grow in popularity, there is a need to ensure their scalability to allow the network to operate efficiently even under heavy transaction loads. Without the right technological solutions, blockchain may face performance and transaction processing problems, which would limit its practical application.
  • Data protection and security: Issues of user privacy and protection from cyber attacks are significant challenges for the further development of this technology. It is necessary to ensure a high level of security of data stored in blockchains and to develop effective mechanisms to protect against cyber-attacks in order to preserve the trust of users and institutions in this technology.
  • Economic efficiency: The energy costs of running a consensus process, especially for proof-of-work protocols, could be a significant constraint on further blockchain development. It is necessary to find ways to optimize energy consumption and develop more cost-effective consensus solutions to minimize the negative environmental impact.
  • Adoption by users: Widespread public trust is crucial to the success and penetration of blockchain solutions into everyday life. It is necessary to convince users of the benefits of blockchain's potential and provide easy and intuitive access to applications based on the technology to encourage their active participation and use of blockchain in practice.

Despite the examples cited, it should not be forgotten that an important part of blockchain technology is the area related to the cryptocurrency market. The development of this market may have an impact on later blockchain opportunities
In business.
Already, governments are considering regulation of cryptocurrencies, which could significantly affect the entire sphere of blockchain activity.

The future of Blockchain in B2B transactions

Although artificial intelligence, cryptocurrencies, smart contracts and blockchain may be associated with technology that is still developing and a fad, it should not be forgotten that these are innovative technologies of the future that are gradually finding their way into business, enabling companies to gain competitive advantage. Blockchain, like other emerging technologies, will have a significant impact on our daily lives and on the business world. Already, blockchain is revolutionizing the finance and banking sectors, and it is increasingly being used in areas other than just transferring money.

Therefore, we can consider that blockchain technology, which is already growing strongly, will become indispensable for companies in the future. In contrast, the routine use of smart contracts is only a matter of time.

 

Damian Krzesinski

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