The Accuracy and Efficiency of Blockchain-based Payment Processors
The primary purpose of every organization is to maintain accurate records of all of its transactions. The objective of these records is to maintain track of the past and to help in forecasting and preparing for the future, among other things. The creation and preservation of most firms’ records is a time-consuming and inaccurate process requiring effort. Transactions are presently processed in real-time; however, the settlement might take a few hours to several days, depending on the circumstances. For example, if someone is selling stock in a corporation on the stock market, it may take many days for the transaction to be completed. Buying a home or a car can be discussed and signed in minutes, but the registration procedure (which involves confirming and registering the change in property ownership) might take several days and include the involvement of attorneys and government employees. All of these parties cannot gain access to the ledgers maintained by the other parties in any of these circumstances.
Today, most payments are made through a third-party financial institution, which is true in virtually every industry. Many organizations can profit from adopting blockchain payments, which can reduce payment processing time and increase efficiency. Utilizing a blockchain-based payment processor makes it feasible to avoid the payment delays and time-consuming procedures associated with the traditional payment system. By utilizing blockchain technology, businesses may reduce the cost of safe, rapid transactions while increasing their efficiency.
“Blockchain” is an abbreviation for a distributed ledger system that allows members to safely and permanently record transactions amongst themselves. By letting numerous parties “share” information, Blockchain reduces the need for trusted third parties to verify, record, and coordinate transactions, reducing the requirement for trusted third parties. Because of the decentralized and distributed nature of the Blockchain, information that was previously locked away in secured silos is now accessible to anybody. When a shared digital currency is used in place of traditional money, transaction costs may be reduced, and the possibility of microtransactions. For consumers to make better purchase decisions, data from the whole supply chain must be shared across all stakeholders engaged in logistics. These are only a few of the innumerable possibilities the Blockchain provides.
Blockchain technology may be used to trace a product’s lifecycle and transfer ownership from the place of origin to the store shelf. This is true even if the product is transferred between the manufacturer, a logistics provider, a wholesaler, a retailer, and the customer. Using automation and facilitation, each business transaction would be streamlined and simplified, allowing each participant to have a more direct relationship.
David Chaum, a cryptographer, first proposed a blockchain-like system in his 1982 dissertation, “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups.” In 1991, Stuart Haber and W. Scott Stornetta presented their most recent discoveries on a cryptographically secured chain of blocks at the American Cryptography Conference. A mechanism that would make it difficult to alter the timestamps on documents were sought to be put in place by the government. Because it made it possible to consolidate many document certifications into a single block in 1992, the design created by Haber, Stornetta, and Dave Bayer became more efficient. For more than two decades, Surety’s certificate hashes have been published in the New York Times every week under the company’s corporate name. When Satoshi Nakamoto came up with the idea for the first decentralized Blockchain in 2008, the world noticed.
The Potential of Blockchain Technology for Supply Chain Management
As of August 2014, the cumulative file size of all bitcoin transactions has reached 20 GB, according to reports (gigabytes). According to the Bitcoin Core team, the size of the bitcoin blockchain has risen from 30 GB in January 2015 to 50 GB in January 2016 and 100 GB in January 2017. By the beginning of 2020, the ledger had reached almost 200 GB in size, almost double its original size.
Even though Satoshi Nakamoto used the terms “block” and “chain” separately in his paper, the term “blockchain” became more generally recognized in 2016 as a result of the publication of his work. According to the diffusion of innovations hypothesis, Accenture estimates that blockchains entered the early adopters’ phase in 2016, with a 13.5 percent adoption rate in the financial services industry. When the Global Blockchain Forum was established in 2016, it was organized by the Chamber of Digital Commerce, which brought together several industry trade organizations.
In May 2018, just 1 percent of CIOs stated that their organizations were utilizing blockchain technology, and only 8 percent of CIOs stated that they were “planning or looking at active experimentation with blockchain” shortly. A 2019 study of CIOs revealed that blockchain technology was a “game-changer” for their organization, with 5 percent stating that it was.
As part of its digital record-keeping system, Bitcoin and other cryptocurrencies make use of the Blockchain, which has the potential to transform the financial industry completely. However, there is another area with enormous promise, which is supply chain management (SCM). Supply chains stand to gain significantly from blockchain technology, which provides for faster and more cost-effective product delivery, improves product traceability, improves coordination between partners, and enables financial access for all participants.
Several parties can record transactions verifiable and tamper-proof way by utilizing blockchain technology. This is a distributed ledger, often known as a decentralized ledger. It is also possible for transactions to be initiated directly by the ledger. Blockchain technology, which is being used by cryptocurrency networks that aspire to replace fiat currencies, can allow an infinite number of anonymous users to conduct confidential and secure transactions without establishing a central authority. This enables supply chains to protect their firm operations from damaging intruders while also increasing their overall efficiency and productivity.
Consider the following hypothetical situation, which illustrates the current world of financial-ledger entries and enterprise resource planning systems, as well as the potential benefits of a world of Blockchain: When a retailer acquires products from an outside vendor and then pays the vendor directly using a bank loan, the order is said to be fulfilled by the retailer. The transaction involves information flows, inventory flows, and monetary movements, all of which are intertwined. There are no financial-ledger entries for each of the three parties due to this flow of information. Even with the most modern ERP and manual auditing systems, it is challenging to minimize execution mistakes, improve decision-making, and settle supply chain conflicts because of a lack of dependable links between the three processes.
The Evolution of Blockchain Technology – From its Origins to Present Day
Thanks to blockchain technology, food products can be traced and validated digitally across the supply chain, from the farm to the shop shelf and ultimately to the customer. In order to make the global food supply chain more transparent, genuine, and trustworthy, IBM, Walmart, and Nestle are all exploring the use of blockchain technology. Several existing applications combine blockchain technology with food technology to address food safety (Chen et al., 2018). They are driven by the desire to establish a food supply system that is safe, sustainable, and transparent, following their own needs and interests. Companies can quickly activate, operate, control, and defend their business networks using IBM’s cloud-based blockchain technology while acquiring end-to-end capabilities. According to IBM and Maersk, blockchains can help prevent considerable resource waste by providing a uniform picture of all transactions across a broad network of computers and servers (Kuo, Kim, and Ohno-Machado, 2017). Blockchain has the potential to assist the transportation sector in a variety of ways, including increased sustainability, decreased or eliminated fraud, enhanced inventory management, and lower courier costs, to name a few examples.
Blockchain technology has yet to be generally accepted, despite the various benefits to its users. This is due to a range of obstacles and limits that have been encountered. There are several difficulties that must be addressed, including the requirement for high energy and computing power, throughput, latency, and high setup costs, to mention a few (Akram et al., 2020). The consensus processes, for example, must be executed every time a new block is added to the Blockchain, which is many times. However, because new blocks are being added to the chain regularly, the chain grows in size and consumes more energy and processing resources. Firms may have problems attaining their sustainability objectives due to the issues associated with combining technology with smaller and lower-powered Internet of Things devices (Niranjanamurthy, Nithya, and Jagannatha, 2019). Increasing computing power needs may result in longer processing times, making the system less effective. It is required to have a large number of participant nodes in order to maintain the essential qualities of decentralization. This causes problems with scaling, particularly in a public blockchain.
The length of time it takes for a transaction to be executed in the Blockchain is transaction latency. If you want to put it another way, it is the number of transactions handled per second. When operating at maximum capacity, the VISA network can handle 56,582 transactions per second, whereas Bitcoin can only handle three to seven transactions per second, highlighting the network’s scalability and throughput problems (Atlam et al., 2018). Due to the restricted number of users in the network, it is possible to misuse the technology by gaining the majority of votes in a competitive environment (also known as a “51 percent attack” or “majority assault”).
Generally speaking, the latency of a transaction on the Blockchain is around 10 minutes, much longer than the latency of transactions on traditional networks. The fact that there are several confirmation bottlenecks in the network only serves to exacerbate the situation. A public blockchain has considerable latency increases when many nodes from across the world participate in it. This is because each node must have access to the Blockchain for consensus to be reached. For a full node to be able to execute the Blockchain, a substantial number of resources are required. These resources include hardware, software, and network infrastructure. The introduction of IoT devices to the Blockchain is hampered by slow transaction processing speeds and substantial latency. Due to the lack of sharding, it is also impossible to perform several activities on the Blockchain simultaneously because one node is essentially doing the same function as the others. It is also known as the “blockchain trilemma,” It is a concept used to explain the issues that decentralized networks encounter. Security must be surrendered to achieve the other two benefits of a decentralized network and scalability, which must also be sacrificed to achieve the other two benefits of a decentralized network. It is challenging to accomplish scalability without compromising on decentralization or security. It is challenging to achieve both security and scalability at the same time because they are opposed to one another. Because security and decentralization cannot be compromised, scalability is generally seen as the most severe challenge to developing blockchain technology and its widespread adoption. On the other side, some academicians believe that in the future, all three objectives may be achieved without any compromises.
The Future of Blockchain Technology in Business Operations
A key finding of our research is that transaction-level uncertainty is one of the most significant impediments to the widespread adoption of blockchain technology in Iranian industrial SCs. Biswas and Gupta (2019) believe that transaction-level uncertainty is a significant barrier to blockchain implementation. They cite the possibility that transactions will be canceled or that there will be no alternative other than to block suspicious DLT blocks as examples of this problem. Legal authorities may place users of blockchain technology on a blocklist in the future if they are found to be engaged in illegal conduct.
Several prior studies have identified scalability challenges for blockchain technology, including data storage issues, communication issues, and the need for linear transaction logs (Esmaeilian et al., 2020). The following are the two most significant roadblocks to overcome in terms of scale and market-based risks: Biswas and Gupta are two authors that have contributed to this work (2019). Slow transaction processing and block-size limits have been identified as two of the most significant scalability concerns facing blockchain networks.
Expenses for monitoring a blockchain-based global payment system include transaction review and network evaluation, which are two of the costs involved with the system. It is estimated by Ernst & Young (2019) that the difference in expenditures per 100,000 transactions for public blockchain is $17 in the first year of operation for public blockchain. The cost of network evaluation is $1,719 each year for the whole five-year period.
Employing blockchain technology in global payments has a number of advantages, including the creation of extra value while saving money and increasing efficiency in claims, treasury, and compliance procedures, as well as the reduction of personnel costs. In order to reap the full advantages of blockchain, it is necessary to improve each of the following areas: the value of transactions, cost savings, claims and treasury, compliance, and labor.
Conclusion
Many scholars believe that upcoming technologies such as Blockchain offer significant potential for realizing transactions. A key attraction for organizations considering implementing blockchain Transaction practices has been the technological capability for democratization and transaction transparency. Because information can be reliably stored and updated without a central authority, Blockchain may be used to keep track of transactions among stakeholders. There are other problems that Blockchain might assist in addressing, but the establishment of a secure payment system and the requirement for transparent transactions in order to maintain resources and things in the circulation loop for more extended periods are just a few examples. Blockchain technology helps to decrease inefficiencies and waste in the supply chain by facilitating cooperation and integration of transaction processes and greener production.
References
Akram, S.V., Malik, P.K., Singh, R., Anita, G. and Tanwar, S., 2020. Adoption of blockchain technology in various realms: Opportunities and challenges. Security and Privacy, 3(5), p.e109.
Atlam, H.F., Alenezi, A., Alassafi, M.O. and Wills, G.B., 2018. Blockchain with the Internet of things: Benefits, challenges, and future directions. International Journal of Intelligent Systems & Applications, 10(6).
Biswas, B. and Gupta, R., 2019. Analysis of barriers to implementing Blockchain in industry and service sectors. Computers & Industrial Engineering, 136, pp.225-241.
Chen, G., Xu, B., Lu, M. and Chen, N.S., 2018. Exploring blockchain technology and its potential applications for education. Smart Learning Environments, 5(1), pp.1-10.
Esmaeilian, B., Sarkis, J., Lewis, K. and Behdad, S., 2020. Blockchain for the future of sustainable supply chain management in Industry 4.0. Resources, Conservation and Recycling, 163, p.105064.
Kuo, T.T., Kim, H.E. and Ohno-Machado, L., 2017. Blockchain distributed ledger technologies for biomedical and health care applications. Journal of the American Medical Informatics Association, 24(6), pp.1211-1220.
Niranjanamurthy, M., Nithya, B.N. and Jagannatha, S.J.C.C., 2019. Analysis of Blockchain technology: pros, cons, and SWOT. Cluster Computing, 22(6), pp.14743-14757.
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