Technology

Blockchain HR: How Decentralization Will Affect HR Structures in 2023

The unmatched pace of change in the business world has increased uncertainty, complexity, and ambiguity in existing structures and practices that put the HR profession at a crossroads. The work-from-home concept and lockdowns that followed the COVID-19 pandemic impacted workforces globally and revealed that yesterday’s HR practices and technologies are incapable of dealing with modern challenges. 

The HR practice straddles a challenging line between maintaining existing functions and procedures and responding to emerging opportunities. Decentralization is one opportunity that can deliver innovative organizational solutions to address emerging human capital issues.

Let’s explore emerging human capital challenges and how decentralization can impact HR structures, management systems, and potential future directions.

Emerging Human Capital Challenges

The growing popularity of the gig economy, working from home or away from central locations, contracts, or freelance jobs demands an HR system specifically designed to minimize interruptions. The need is for innovative, decentralized HR platforms that are flexible and can respond to real-time changes. The transition from Web2 to Web3 has introduced composable platforms built on distributed ledgers.

The blockchain-based digital transformation offers a new perspective on automating processes and scaling structures that are sometimes too big to be tamed by centralized HR departments. The remote-first realities leveraged COVID-19 and revealed the untapped potential for evaluating and supervising employee performance while dealing with remote attendance. The changing work structure demands that HR departments lay a strategy that aligns human capital with the growing pains of remote work.

What Is Blockchain?

Blockchain is a type of distributed ledger technology that distributes data across hundreds of thousands of devices instead of depending on a single server. The main advantage of blockchain is reliability and transparency, meaning that no one can fake records because they’re stored in all participating devices.

While financial transactions are blockchain’s most common use case, many other projects can benefit from this emerging technology. The success of blockchain in HR lies in its ability to establish a transparent network of computing nodes that can be used to store and record all kinds of data, from employee verification to payroll monitoring and evaluation.

Potential Use Cases for Blockchain in HR Functions

Decentralization radically alters existing HR processes and opens new governance paradigms that seamlessly connect all workers, activities, and in-house communications. The above is accomplished without stacks of papers, e-mails, or phone calls, as activities move transparently and automatically. Prospective use cases for blockchain in HR include the following:

Background checks: Distributed blockchains will enable permissioned applicants to acquire virtual credentials or tokenized identity with an immutable record of their credentials and career history, thus eliminating the chances of fraud.

Employee data security: Personal data such as performance or medical records can be encrypted and only shared in a tokenized form with verified permission.

Smart contracting: HR staff and contract or temporary workers can sign immutable and enforceable rights and obligations in the form of self-executing smart contracts to release payments from an escrow fund once tasks have been completed. These contracts are automated to create less work for HR and to guarantee compliance once the terms are met.

Payment and benefits: HR staff can encrypt and store data immutably on the blockchain, which is more streamlined and reliable for compliance reporting. Furthermore, workers will no longer cede control of their money flow to banks, which can skew transaction values in their favor.

The Future of HR in a Decentralized World

As businesses get used to working without daily commutes, we look forward to the virtualization of the workforce courtesy of the metaverse, where workers could use avatars to work, learn, socialize, trade, and transact. As that happens, the reality of the decentralized Web, nonfungible tokens (NFTs), etc., is ushering in a new way of doing business. Some potential future ways decentralization will affect HR practices are:

Recruitment

Current recruitment methods take up a lot of time and resources, as HR departments mainly depend on recruiters or third-party agencies for information. Blockchain will eventually make recruiters redundant because it creates the option of eliminating third parties and all back-office elements of recruitment. The process can be streamlined if most of the information that HR requires is available on the blockchain. This could also make résumés obsolete, as grades, certificates, experience, and work history will become readily available and verifiable. 

Referencing

HR practitioners can access candidates’ academic and employment records they have uploaded onto the blockchain and eliminate the chances of anyone falsifying their information. The result will be a more transparent referencing process and will increase the chances of hiring the best talent for any position.

Tracking Attendance

Because blockchain technology is already being used to store biometric data like iris scans and fingerprints, HR will, in the future, use the same technique to store unique employee data and track remote workers’ attendance and expenses for claim purposes. Such a technique would give HR real-time visibility, eliminate disputes about the accuracy of records, and strengthen trust in payment authorization. The result will be fewer errors and frustrations caused by inaccurate attendance and payroll data.

Self-Service for Workers

There’s also potential for HR managers to avoid doing all tasks and give remote employees an essential role in doing some errands their managers currently do. This could include updating personal information, submitting leaves and the time worked, or entering claims. This would give everyone the responsibility for their individual needs and eliminate chances of misinformation.

This structural or geographical empowerment would help HR practitioners promote a better working environment, promote better relationships between leaders and employees, and enable them to concentrate on tasks that add value to the organization.  

Prepare for Potential Disruption

Just like the Internet brought changes that completely transformed how businesses and society disseminate information, blockchain and Web3 protocols represent a similar breakthrough in a world where the workforce is decentralized and distributed.

As employee requirements change to include new work and compensation models and possibilities of co-owning companies via token ownership, it’s become relevant for HR to consider implementing processes that provide incentives for both sides. HR and digital transformation leaders must study blockchain and its applications to prepare for potential disruption in their practice.

Cory Hymel leads all things Web3 as the Director of Blockchain at Gigster, a company dedicated to helping drive mass market adoption of blockchain. With over 600 engineers, Gigster provides Web3 strategy and development to everyone from start-ups to Fortune 500 companies. Follow him on YouTube, Twitter, and LinkedIn, and read his blog at https://gigster.com/blog.