In an ever changing world, with an increasing demand for insurance and compliance along with a greater risk, there is an increased need to simplify and streamline the processes in order to enable an increase in the output. In this area, as in many others, blockchain technology comes as an innovative break through that is set to revolutionize the manner in which the economic world functions.
What is Blockchain Technology:
Blockchain Technology is a method of decentralizing information in a way that allows for greater participation and simultaneously dissuades fraudulent information. Blockchain was first introduced in 2009 by the creators of Bitcoin, an online currency that enabled internet transactions. While the virtual currency was hailed as an innovative idea, the technology behind it was found to be even more so.
In a blockchain nexus, information is stored as blocks of data that are stored in a linear manner, and cryptographically encoded. Each block generally contains a hash pointer which serves as a link to the previous block. The block also contains a timestamp and transaction data. These blocks therefore serve to decentralize the information and allow it to be easily shared peer to peer in real time.
The blocks are designed to be resistant to the modification of data. When the blocks are used in the form of a distributed ledger, there is generally an agreed upon protocol for the validation of new blocks. If the data on one block is retroactively altered, then the data on all subsequent blocks too would automatically be altered as well. This system prevents the retroactive alteration of data without the collusion of the network majority. Thus a decentralized consensus is achieved.
The immutability of the blockchains make them an excellent means of recording important data and gives them uses that far transcends their original purpose as the technology behind an online currency.
Use of Blockchain technology in Compliance:
One of the main reason that blockchain is a breakthrough for compliance is the chains’ practical immutability. Data, once recorded, cannot be easily altered or deleted. Blockchain can serve as document or proof of the transfer of digital assets as well as a record of physical property. Similarly, the immutability of this technology also lends itself as a means of proof of process, which is an invaluable tool in terms of compliance.
Blockchain can be used to keep track of all the necessary processes, standard operating procedures, that are regulated by a company. This record of actions and their outputs creates an audit trail by which regulators can verify compliance. In addition, regulators can be granted realtime, read only access to the audit trails of financial institutions, thus making them participants in the process of compliance.
All of this would act as contributing factors in reducing the time and effort (and thereby cost) spent on regulatory reports as well as improving their quality and accuracy. It would also generate an increased confidence in the veracity of the information that is provided.
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