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An overview of blockchain tech and its HR potential

Demystifying blockchain’s use in HR.

Yessi Bello-Perez


Photo by Pietro Jeng on Unsplash.

Unleash Your Curiosity Blockchain technology holds great promise for HR — but what is it and how can the industry leverage its potential?

  • Over the past decade, blockchain has been lauded for its potential to transform every industry — including HR.
  • But how does blockchain technology actually work and what are its use cases in the HR industry?
  • Discern hype from reality.

Imagine you’re walking down the street and you see someone get mugged. The thief, concealed behind a balaclava, grabs the victims’ possessions and makes a run for it. You, along with everyone else on the street, have witnessed a robbery in broad daylight. Imagine then that you all decide to write down exactly what happened. 

Although simplistic, this is a useful way to explain how blockchain technology works. A blockchain is a decentralized, immutable data ledger where multiple, independent parties (nodes) prove something (a transaction) took place by recording exactly the same result.

Over the past 10 years, blockchain technology has become somewhat of a buzzword. It’s been lauded for its potential to maximize efficiency across all industries and because it essentially removes the need to trust any one person or company it means there’s no central point of failure. In the financial world, for example, blockchain technology holds the potential to transform the clearing and settlement of trades. In terms of HR, blockchain tech could potentially help store and verify data — but more on that later.

Blockchain: How it works and what it does

Blockchains have several different applications but perhaps the most common, or well-known, is their ability to transfer funds using digital currencies such as Bitcoin. The Bitcoin blockchain is a cryptographically secure register of transactions that is operated by a decentralized peer-to-peer network. Without going into too much detail, you should know that Bitcoin’s open-source was first published in January 2009 by an anonymous creator, or creators, known as Satoshi Nakamoto. With the Bitcoin blockchain, Nakamoto wanted to circumvent mainstream financial institutions.

Blockchain allows for trustless interactions between unknown participants by leveraging five fundamental design elements to authenticate users, validate transactions, and record that data in a ledger that can’t be changed or corrupted by a single participant.

The five elements for a true blockchain include:

Distribution: All participants in a blockchain are connected via a distributed network and run nodes, a series of computers that operate a program to enforce the business rules of a blockchain. These nodes also keep a full copy of the ledger, or blockchain, which is updated when a new transaction takes place.  

Encryption: The participants control their personal identity and other information, and share only what is required for a given transaction. 

Immutability: Every complete transaction is signed cryptographically, time-stamped, and added to the ledger. This means that records can’t be changed unless all participants agree.

Tokenization: Value is exchanged using tokens, which represent several different assets including data, cryptocurrencies, or a user’s identity.

Decentralization: As mentioned, there isn’t a single entity that controls a majority of nodes or dictates the rules.

Ok, but what does it mean for HR?

You’re probably wondering why blockchain technology is remotely useful or relevant for HR. Well, this is where it gets interesting.

The technology can prove useful when running background and employment history checks. Essentially, in a distributed blockchain network participants could tokenize their identity and provide an employment history that can’t be tampered with. Then, prospective employers could use this to verify work history and disregard applicants whose claims aren’t backed up by data on the blockchain.

Blockchain could also help optimize payments. By using smart contracts, HR teams could automatically release payments from escrow once employees finish certain tasks or come to the end of their employment agreement. This way, it’d be easier for workers and companies to manage their cash flow. By using blockchain tech, employees and employers would also be able to bypass banks and other mainstream financial institutions.

Every HR department holds a substantial amount of employee data, including private identifiable information. Due to its encrypted nature, blockchain technology could be a valuable tool to store data securely. This data could also be shared with those who’ve been granted permission. In light of regulation, and statutes such as the European Union’s General Data Protection Regulation (GDPR), blockchain would allow workers to enforce their “right to be forgotten.”

Things to remember

There’s no denying that blockchain is an interesting technology and while it holds great promise for industries including HR, it’s important to remember that it’s still in its infancy.

You may have already heard the line that “blockchain is a solution looking for a problem to solve” and the truth is, I’d have to agree.

This is where discerning the hype from reality proves vital. Before you consider implementing blockchain-based solutions within your organization you have to ask yourself why you’re doing this and whether it really is the best way to solve an existing problem.

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