The Challenges in Managing Financial Data
Managing and maintaining financial data has been a primary concern for companies for years. A minor change or data entry error by any of the parties involved often goes unnoticed as there is typically no tracking or reconciliation system in place. And with traditional data archiving methods being vulnerable to data theft, recovering this data is often a costly affair.
The Emergence of a New Concept – The Blockchain
The “Fintech” community (a new term coined as a combination of Finance and Technology) has been trying to adopt a secure and tamper-proof solution for financial data storage and recovery, and Blockchain - distributed ledger technology – is currently all the buzz. A Blockchain is a continuously growing chain, or list of records called blocks, that are linked together and secured using cryptography.
Distributed ledgers (DLs) are a specific implementation of the broader category of shared ledgers, which are simply defined as a shared record of data across different parties. A shared ledger can be a single ledger with layered permissions or a distributed ledger consisting of multiple ledger maintained by a distributed network of nodes, as depicted in the illustration above. We commonly use the term distributed ledgers and specifically use the term Blockchain when referring to DLs that use a Blockchain data structure.
The DLs are defined as permissionless and permissioned, on which the participants (called nodes) would require approval to make any changes to the ledgers. The below table illustrates the difference between the two types of DLs as mentioned above:
From a data migration perspective, Blockchains by default admit only data that is cleansed, validated, and usable for business logic. The efficiency of the Blockchain is dependent on effective data management.
Key Benefits of Blockchain
- Decentralization: A transaction in the Blockchain network can be conducted between any two peers without the intervention of a central entity. This reduces transaction costs.
- Persistence: Every node has a valid copy of the ledger. Nodes cannot delete or rollback transactions once they are part of the Blockchain.
- Unchanging: It is not possible to alter a single bit within a block without changing the hash value of its header.
- Anonymity: Users can preserve some level of anonymity by using their generated address (through the public key).
- Auditability: Every transaction is validated and recorded in the ledger. Each of them includes a timestamp and information of previous records. This mechanism improves the traceability and the transparency of the data stored in the Blockchain.
Looking to the Future
In the future, Blockchain could easily be adapted in various other branches of businesses such as supply chain management, E-governance, CRM, contract management, and more.
With SAP’s new innovative application, the SAP Leonardo has embarked on the journey to provide customers with a comprehensive secure and speedy transaction and data management solution by harnessing the abilities of Blockchain – distributed ledger technology.