The blockchain is a distributed database that allows for secure, transparent and tamper-proof record-keeping. This immutable ledger can be used to track anything of value, from financial transactions to supply chain data.
The Bitcoin blockchain was the first application of this technology, but without a "smart contract" layer, it is limited to tracking cryptocurrency transfers. Ethereum was the first blockchain platform to include smart contracts, which allow for the execution of complex transactions and the creation of decentralized applications (dApps). Smart contracts allow for the creation of "tokens", which can represent anything from a currency to a physical asset.
Invoice tokenization is the process of creating a token that represents an invoice. This can be done on any blockchain platform that supports smart contracts. The invoice token could even be programmed to automatically transfer ownership when the underlying invoice is paid. This allows businesses to factor their invoices without having to rely on a traditional bank or invoicing company.
With Bulla Network, users can effortlessly tokenize invoices, without incurring gas fees.
How invoice tokenization works
Smart contracts are rarely coded from scratch. Instead, they are usually created using a standard template. In Ethereum, these templates are called "Ethereum Request for Comment" (ERC) standards. ERC-20 was popularized from the ICO boom of 2017 and is the most commonly used token standard today.
ERC-20 tokens are very simple: they have a name, symbol, total supply and each token holder's balance. In order to create an ERC-20 token, you simply need to specify these four parameters, and run a smart contract on the Ethereum blockchain. This will create a token with a unique address that can be transferred like any other cryptocurrency.
The ERC-20 standard, however, is fungible, meaning that each token is identical to every other token of the same type. This is fine for a currency, but not effective for representing a physical asset like an invoice. It also lacks the parameters necessary to track invoices, such as the creditor, debtor, date due, and claim amount.
This is where ERC-721 comes in. ERC-721 is a non-fungible token standard that allows for the creation of unique tokens. Each ERC-721 token represents a different asset, and can therefore be used to track invoices. Bulla Network, the only on-chain tokenized invoice protocol, uses ERC-721 tokens to track invoices. When an invoice is created, a unique ERC-721 token is minted and the relevant data (creditor, debtor, etc.) is encoded into the token's metadata.
A user doesn't actually need to know anything about blockchain or smart contracts to use Bulla Network. The platform is designed to be user-friendly and accessible to businesses of all sizes. All a user needs to do is connect their wallet and choose the invoicing function. A dashboard is automatically created and the user can send invoices, make payments, handle payroll and manage all their Web3 accounts.
Any invoices created then exist on a single source of truth - the blockchain. This immutable record can be referenced by both the creditor and debtor and can be used to track the invoice through its entire lifecycle.
The benefits of invoice tokenization
Tokenized invoices have a number of advantages over traditional invoicing.
The first is that it closes the funding gap for small businesses in two ways. One way is that small businesses and DAOs that employ a global workforce will be able to pay them quickly and easily, with no fees.
In traditional invoicing, businesses have to wait for the debtor to pay the invoice before they can access the funds. This can often take weeks or even months, during which time the business may struggle to cover its expenses.
The other way small businesses benefit is that tokenized invoices can be factored. This means that businesses can offer to have a secondary market pay their invoices for a small fee, affording the business liquidity. At the moment, this can only be done through Bulla Network.
Tokenized invoicing also increases transparency. Both the creditor and debtor have visibility over the invoice's status at all times. This reduces the risk of fraud, makes it easier to track down missing payments and creates an immutable record for easy auditing.
Finally, tokenized invoices are more secure and efficient to administer. Since they exist on the blockchain, they cannot be altered or deleted without permission from both parties. This also eliminates the need for a third-party invoicing company, which can often be slow and prone to error.
Takeaways
Invoice tokenization is a new way of doing business that has a number of advantages over traditional invoicing methods. These advantages include fast, easy global payments and payroll, increased liquidity options for DAOs and businesses as well as transparency and enhanced security.
If you're interested in trying out invoice tokenization for your business, sign up for a free demo of the Bulla Network dApp.
