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How enterprise blockchain is reshaping finance

Today, financial transactions across the globe are becoming more efficient through decentralization and peer-to-peer exchanges, enabled by blockchain and distributed ledger technologies. By design, these technologies have proven to be highly effective in simplifying traditional transaction processes and enabling instant payment solutions on a global scale.

What is Cryptocurrency?

A cryptocurrency, such as Bitcoin, is a decentralized digital currency based on blockchain technology. Unlike fiat currency which is a currency declared legal by a central government and backed by said issuer, cryptocurrency is not backed by any central authority. Using distributed ledger technology that can store and synchronize electronic ledgers across multiple computers (called nodes) globally, rather than a central database, cryptocurrencies also eliminate the need for intermediaries and their associated costs.

Although blockchain evolved with smart contracts several years ago, opening the door for blockchain deployment in a wider variety of industries, banks and financial sectors still account for by far the highest share of deployments. of blockchain today, primarily for settlement clearing, cross-border payments, and digital identity management. According to a Jupiter Research report, blockchain deployments will save banks up to $27 billion in cross-border settlement transaction savings by the end of 2030, reducing costs by more than 11% .

What is Decentralized Finance?

Decentralized finance, also known as DeFi, is the umbrella term used for peer-to-peer financial services using blockchain technology. This makes it an alternative financial system that can compete with centralized services in terms of accessibility, resilience and transparency in a peer-to-peer manner.

Here are some of the key features of decentralized finance:

  • Asset Management: This is considered to be one of the most useful DeFi applications for users. A key aspect of DeFi is giving users control in areas such as buying, selling, and transferring digital assets. As a direct result, consumers are the sole custodians of their data and can earn interest by managing their digital assets.
  • Data Privacy: Unlike traditional centralized banking systems, DeFi allows users to keep their sensitive data private.
  • Know Your Customer and Compliance: Traditionally, Know Your Customer (KYC) rules have been a company’s most important compliance instrument to secure counter-terrorist financing (CFT) and anti-money laundering measures of money (AML), where confidentiality plays a key role. and sensitive role between actors. DeFi uses the Know Your Transaction (KYT) method where the decentralized infrastructure provides knowledge about transactional behaviors and digital addresses, rather than user identities.
  • Data and analytics: DeFi applications display unprecedented transparency for transactional data, enabling data analysis, discovery, and untapped decision-making opportunities. The growing popularity of these applications is leading to the development of dashboards and tools to assess risk, track asset values ​​and compare them for the liquidity process.

Benefit of enterprise blockchain for finance

Dedicated blockchain enterprise platforms have the potential to change the way businesses operate globally, with the ability to build bridges based on transparency, security, and trust with other businesses, industries and economies around the world.

Here are some of the benefits blockchain can bring to today’s businesses and their value chains:

  • Privacy trust and transparency: The shared, immutable source of truth enables all parties in an enterprise network to collaborate, make agreements, and manage selective data, while maintaining integrity and privacy .
  • Security: There is no single point of failure due to its distributed architecture, reducing the need for data intermediaries. It is tamper-proof against fraud and malicious third parties, making it virtually impossible to manipulate or hack.
  • Programmability of business logic through smart contracts: Blockchain technology supports the implementation and automation of business logic through programming code, enabling each step of the business process with precision, security, and step-by-step control.
  • High performance: Modern private blockchain platforms are designed to support hundreds of transactions per second as well as periodic increases in network activity.

Use cases of enterprise blockchain for finance

Many companies have explored the benefits of blockchain for years. However, even though the technology foundations have untapped transformative potential, most companies are still in the testing phase and have yet to deploy production-ready solutions.

Ericsson is one of the first companies to forge blockchain capabilities into its core business and has already adopted the technology in some processes. Much like how enterprise resource planning (ERP) blasted efficiency by integrating internal business processes into a corporate context in the 90s, we are now revolutionizing the way people work by embracing blockchain technology. to integrate business processes between companies, suppliers, third parties and customers. .

Here are two blockchain use cases that are transforming transactional processes in our value chain today:

1. Trade Finance: Blockchain Technology and Letters of Credit

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Global trade can be a complicated process when importers and exporters from various parts of the world need transaction verifications before they can complete the trade finance transaction. Blockchain speeds up the process by allowing all parties to access documents and records as they process them.

Expanding blockchain’s footprint in finance, Ericsson is poised to adopt a digitized, trusted and fully traceable letter of credit (LoC) process, streamlined for trade finance activities. The solution enables real-time visibility and reduction of manual paperwork while improving traceability, efficiency of asset or goods transfers, as well as reducing working capital levels.

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Above: Blockchain technology in letter of credit transactions is based on an application using blockchain to connect banks and businesses for an end-to-end digital letter of credit, without relying on other systems.

International transactions are part of Ericsson’s daily operations. However, the nature of these transactions can be very complex due to the multiple parties involved and the different geographical locations. To protect the performance of trade agreements, secure payments, and properly transfer ownership of underlying assets, a line of credit is used in such transactions.

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Traditionally, issuing a letter of credit often relies heavily on manual paperwork and requires negotiation and iteration by all parties, resulting in long and tedious processes with low visibility and traceability. By implementing blockchain technology, Ericsson is part of the early development of a digitized LoC, which is streamlined for business activities and enables immutable and transparent records of critical transactions and real-time visibility.

The aim is to build a future digital Trade Finance connecting the whole ecosystem between all parties – Ericsson, the customer, the issuing bank and the nominated bank. Leveraging blockchain and existing global trade finance as well as smart contracts and digital signatures, the LoC can be virtually approved and traced for all parties, securing processing with speed and simplicity.

2. Venus – B2B Billing

In 2020, Ericsson integrated blockchain into its enterprise landscape as the first blockchain use case entered full production for business-to-business billing. Venus – the solution’s internal name, inspired by the Greek goddess of beauty – is the first blockchain platform in Ericsson’s corporate landscape.

Venus is part of a business-to-business digital transformation project, adopting blockchain technology in the non-order related invoicing (N-SOR) process.

The solution supports financial processes worldwide, covering more than 180 countries in which Ericsson operates. Massive post-reconciliation efforts are avoided because blockchain helps mitigate potential issues up front, rather than resolving them reactively. As a result, this has resulted in process quality improvements and a ten-fold improvement in lead times.

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Above: The Blockchain platform and Venus solution enable real-time validation of invoices against purchase orders, as well as increasing traceability by eliminating manual steps in non-trade ordering processes.

And then ?

Blockchain has the potential to reshape financial processes – reducing costs and increasing the benefits of control. It’s a new catalyst for moving from order-to-cash, procure-to-pay, accounts receivable, accounts payable, general ledger, reconciliation, and even payroll.

Using blockchain technology, Ericsson is working intensively to improve financial processes by increasing efficiency, reducing reconciliation and generating new revenue streams both in our own value chain and for our customers.

Learn more

Read our previous overview article on how blockchain technology can pave the way for connected industries

Find out why 5G and blockchain can become the building blocks of emerging shared economies

Read the Ericsson Technology Review article: Facilitating online trust with blockchains

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