Human resources management has consistently evolved, thanks to innovation in technology. HR tech has played a key role in this evolution. The latest in the lot is blockchain technology. Given the characteristics of these technologies, human resources management is expected to undergo a complete overhaul.
Blockchain isn’t a buzzword anymore. It has permeated various business functions. So it wouldn’t be surprising if it enters human resources management. According to a Gartner report, blockchain will create $3.1 trillion in business value by 2030. So will “blockchain in HR” will be a common phrase to hear? Apparently, it would be.
What is blockchain?
In its simplest form, blockchain is an immutable record of transactions. It enables trusted interactions between unknown participants by combining five designs to authenticate users, validate transactions, and record information to a digital ledger in a way that can’t be corrupted. For this reason, blockchain is a potential means for HR transformation.
Characteristics of blockchain technology
Blockchain offers five unmatchable traits. Though all five traits should be used to create a true blockchain network, a few also do. Here are the five features that a blockchain offers-
1. Distribution – Blockchain users are connected on a distributed network and operate on one computer (called a node). Every time a transaction occurs (between participants of the network) it is recorded on the ledger. Nodes keep a full copy of ledger, which updates as soon as a transaction occurs.
2. Immutability – Records of transactions are cryptographically signed, time-stamped, and added in a sequence on the ledger. These records can’t be changed unless everyone on the network decides to do so.
3. Encryption – All the data on the blockchain network is encrypted. Username, passwords, and transaction-related data is encrypted with the help of hash algorithms.
4. Tokenization – As the popularity of cryptocurrency has grown, people have come to believe that only money can be transferred, which is an incomplete truth. On a blockchain, a value can be exchanged in the form of tokens, which can represent data, money, document, etc.
5. Decentralization – There’s no single authority that dictates the network. A consensus mechanism decides whether a transaction should take place or not. Here one single authority doesn’t have the power, instead, participants of the network have.
Coupled with existing HR tech and artificial intelligence, blockchain technology presents itself as a potential tool for HR transformation.
Use –cases of blockchain in HR
Given the unique features of blockchain, it presents amazing opportunities for HR. Here are a few use-cases by which blockchain can transform HR and take HR tech to the next level.
1. Background and employment history checks: Employees can tokenize their personal identity and keep it as a virtual credential to store their employment history and other data. This will create an immutable record. Employers can then use this information to verify employee details and avoid any fraudulent practices.
2. Employee data and security access
After an employee leaves a company, data remains with the company. If data is available on a blockchain network, the employee can request the “right to be forgotten “ and delete all their data. A few places including EU have adopted GDPR policy which empowers employees to delete all their data. As we progress, human resources elsewhere will take such measures to protect the rights of employees and blockchain will be a big part of it.
3. Smart contracts for contractual work
Temporary work is a growing phenomenon, which means payment can be irregular and keeping account of payment of temporary work will be cumbersome. Smart contracts overcome this challenge by creating immutable rights and obligations for parties involved in a contract. As soon as the task assigned to a party is completed, a smart contract will release the payment from the escrow. This will improve cash flow for companies and make payments seamless for workers.
4. Auditing and reporting
Transactions are encrypted and immutable data is stored on a blockchain, which can streamline auditing and compliance reporting. This will further remove intermediaries like banks, which have control to the extent that they skew data and transactions. Thus, blockchain will eliminate the need to have intermediaries like banks.
Payroll management, overall, is the best use-case for blockchain in HR.