Risk management is very important for any business or organization. It is important to identify potential risks to find ways of alleviating them. Ways of dealing with risk management are changing with time, though it depends on the industry. Some risks are hard to alleviate such as inflation, cybercrimes, liquidity, etc. Before the conception of blockchain, human intelligence and experts were used for risk management. Blockchain has, however, changed everything.
Why blockchain in risk management?
Blockchain technology is whereby there is an open ledger which is distributed, while at the same time cryptographed, such that there are no changes that can be made in the network. Some of the characteristics of blockchain that is beneficial to risk management include:
As mentioned earlier, the blockchain network is an open ledger meaning anyone can have a copy of the network and know all about the transactions that happen in the network. That means that if any transactions happen in the network, anyone can access that record, and it cannot be changed. This reduces the cases of fraud. Transparency, time-stamped records, and public access increase trust, which is important for any business, especially when dealing with customers.
Blockchain is decentralized, locking out the possibilities of middlemen or third parties, and thus making the transactions instant.
Since there are no third parties involved, the costs become lower. Since there are no third parties, it reduces the risk of hidden costs or changing costs because of inflation.
The blockchain network is highly scalable and has a high storage space. It is, therefore, good for the storage of data even if it is from various markets, making the market to be transparent. Lack of accurate market data is the main risk that businesses get into.
Cannot be hacked
The blockchain network has been made with cryptography making it hard to hack the network. As much as there have been many crimes related to crypto especially exchanges, they are mainly connected to private keys. Blockchain is a distributed ledger meaning that many people have a copy of the ledger making it tamper-proof. This gives managers confidence in security which is a common risk for companies.
This is whereby certain conditions have to be met before the contract comes to effect. This has helped a great deal in avoiding risks, especially when dealing with customers. Smart contracts, are the real game-changers for companies, cutting down on a lot of risks.
Risk managers have a lot to benefit from blockchain technology. Main risks come from data, market conditions, finances, and customers. Blockchain helps to address that effortlessly hence should be embraced in risk planning. The best part is that the technology can be used across different industries.