This is article 10 of 10 forming my final part of my series of articles dedicated to my attempt at helping Payroll & HR professionals understand the potential impact that both blockchain and cryptocurrencies could have on the future of Payroll & HR. I hope you have found the journey an interesting and helpful one. Please do share your thoughts if you have enjoyed them (or not) – I would love to know! I will be creating a full (free) whitepaper soon that will include all of these articles in one place for easy reference so look out for this and let me know if you are interested in receiving a copy!
To view the earlier article in the series – click here:
- Article 1: How will blockchain and cryptocurrency affect the future of Payroll & HR
- Article 2: Will companies start to payroll its employees in cryptocurrency?
- Article 3: How will blockchain affect HR Recruitment Processes?
- Article 4: What are smart contracts and how will they affect payroll and HR?
- Article 5: What benefits could blockchain bring to the payroll industry
- Article 6: Are blockchain Payroll Companies the Payroll Future?
- Article 7: How to build a blockchain payroll system
- Article 8: When should businesses start planning for blockchain?
- Article 9: blockchain for Payroll & HR: The Risks & Costs
Also, check out The Payroll Podcast with Anita Lettink which discusses ‘Blockchain and the Future of Payroll & HR’ in considerable detail if you wish to fast-track your learning. You can subscribe to the Payroll Podcast here: Apple Podcasts
Blockchain for Payroll & HR: My Conclusions
Before we get into my conclusions regarding blockchain, I think we should first tackle cryptocurrency.
You may have read other media articles and feel that paying people in cryptocurrency would be a natural evolution for businesses. After all, companies involved in the crypto industry are already doing this such as Japan’s GMO Internet which announced in 2018 that it would allow workers to take home up to $890 a month in Bitcoin. However, cryptocurrency is also extremely volatile, and it’s not unknown for the price of Bitcoin, Ethereum or any of the better-known crypto-coins to increase or decrease by 10% to 20% in a single day. Therefore, I believe it is highly unlikely that we will see any wide-scale adoption of cryptocurrency as a genuine payment option.
Also, the HMRC has recently warned that traders, investors and holders may have to pay Capital Gains Tax on any profits made in cryptocurrencies. With this in mind, you have to wonder why employers would even want to pay employees in cryptocurrency when there is already a mainstream currency (the good ol’ English Pound), that already does the job well enough and this can be spent more easily on the open market too!
So with Cryptocurrencies covered, let us get back to Blockchain for payroll.
If you have followed my previous nine articles to date on the subject of blockchain, then you will already know that the future pathway for blockchain technology in relation to payroll applications, is challenging to predict for two main reasons:
- Enterprise-level applications of blockchain technology are so new that it means there are few unique, “battle-tested” products available to test in the field.
- Because parts of the technology are based on some very advanced mathematical concepts of cryptography and probability, it is sometimes difficult to explain to those without a computer science background.
While several companies have launched as blockchain-based payroll firms, their client base is unclear.
So what are the pros and cons?
My research tells me that at present, there are still blockchain security and risk issues concerning its use within payroll related applications that need to be ironed-out before widespread commercial solutions will be made available in the marketplace.
The main blockchains such as Bitcoin and Ethereum blockchains are ‘permissionless’ – that is, public and not password-protected which continues to be a significant barrier for many companies in adopting the technology. I am not convinced that any business would be happy for all its transactions to be publicly available to anyone who wanted to view them – but that is what is possible on both the Bitcoin and Ethereum blockchain networks.
Of course, you can create private, permissioned blockchains but these also ultimately have one major flaw, which is, if only a handful of people are allowed to update and validate transactions on a private blockchain, they become single points of control – and therefore single points of failure. I think this could make them an easy potential target for hackers, who could (in theory) gain control of an entire blockchain by attacking only a small number of computers.
There are other risks too.
For example, for blockchain to function as it was intended, the code behind a smart contract needs to be free from bugs. If blockchain technology was being used to make a payroll payment, a bug might allow the receiver of a payroll payment using a smart contract to request that payment multiple times and get away with repeat payments before the blockchain system has a chance to update itself. Now, I know that all software, including professional, enterprise-level software, contains bugs but smart contract payments are irreversible, so if this happened to a payroll payment there would be no chance that the company could get its money back if a bug like this were to exist and get exploited.
In fact, in 2017, nearly $55 million-worth of ETH was stolen because of an exploitable bug in Ethereum’s source code, and it became one of the biggest backdoor hacks in history. It came down to the capital T in line 666 which, if it had been a small t, that would have prevented the hack. Unbelievable huh!?
I am making this point because only a very tiny proportion of code is ever technically “perfect” and again, for commercial adoption, I think risk-averse companies may therefore, avoid it until larger clients are on-board and have proven its safety.
There is no doubt too blockchain technology offers significant advantages that people may feel may outweigh the risks.
These include speed, the ability to make fast, cross-border payments and the ability to eliminate the need for a 3rd party acting in the middle of the transactions which would effectively reduce transaction costs. I have highlighted how blockchain transparency may be perceived to be a risk, but it could also be a benefit. For example, with blockchain technology, employees and employers will be able to see the exact status of all payments at all times.
Many could argue that blockchain also offers more security than existing enterprise solutions, after all, enterprise solutions currently in use are hackable too! One advantage of blockchain is the fact that because it is encrypted and distributed, it is virtually impossible to falsify its content.
If the speed benefits are appealing to you, then remember that these speed gains also come at a cost. Blockchain transactions use up significant energy consumption and computing power because they are verified using extremely complex algorithms. In addition, as the size of the blockchain grows, the requirements for storage, bandwidth, and computing power also increases.
Of course, we had the same problems with early computers and phones. A computer that took up the size of a small house and consumed the energy of a small town is now available in a form that is 100 times more powerful, fits in the palm of our hands, and uses almost no power at all to operate – such as a smartphone. In fact, I still remember my mum refusing to for many years to swap her typewriter and tippex strips for a computer (although, like everyone else, she did finally relent). The fact of the matter is, almost no employer or employee could operate without either of these technologies now.
So, will we see widespread adoption of blockchain technology within payroll applications?
Ultimately, yes. But, like the computer example above, I cannot see this adoption happening until many of the issues regarding security, speed, power usage, bandwidth requirements and other issues have been improved and streamlined. I am sure we will see a lot of news in this space coming out in 2019 and beyond as payroll providers sell the many potential benefits blockchain technology could offer payroll departments. However, for me, these companies have yet to prove that blockchain is the right medium to solve current payroll problems or convince me that it is ready in its current form to be a cost-effective solution.
It is likely that if blockchain technology does not take off, you will instead begin to hear more and more about DLT-based databases instead! After all, a blockchain is just a chain of blocks and therefore a type of distributed ledger technology (DLT) right? Well, yes, but not all blockchains are the same. DLT is ultimately a decentralised database that is managed by various participants – and therefore, I believe that this is where we will see quicker progress as new DLT-based products are developed by payroll providers.
With this in mind, get ready for an explosion of new DLT options to hit the market…
I truly hope you have enjoyed this series of 10 articles. I would love to hear your thoughts!
So, what do you think?
As always, whether you love payroll or HR, love what you do, work smart and work hard – just be careful not to overdo it 🙂
Visit our website to access more blogs, whitepapers, The Payroll Podcast and more content about all things “Payroll and HR”.
If you are looking for expert talent in the fields of Payroll, HR or Reward, then please contact me and I would be delighted to discuss how we can help.
Nick Day | Managing Director
JGA Recruitment | JGA Payroll & HR Recruitment
Email: email@example.com | Tel: 01727 800 377
Sources & Credits:
Dom Jolly Image: https://www.radiotimes.com/news/2016-09-12/dom-jolys-trigger-happy-tv-to-return-as-all4-web-series/