Banks claim to have used Internet of Things and Blockchain technology to make the first cryptocurrency trade after several years of testing.
Commonwealth Bank of Australia (Commonwealth Bank), Wells Fargo and Brighann Cotton have carried out, what they claim is the first worldwide trade transaction between two independent banks combining the Blockchain, smart contracts and Internet of Things (IoT).
The transaction involved a shipment of cotton from Texas, USA to Qingdao, China, using the efficiencies of a distributed ledger – Skuchain’s Brackets system – for all parties.
The trade involved an open account transaction, mirroring a Letter of Credit, executed through a collaborative workflow on a private distributed ledger between the seller (Brighann Cotton (US)); the buyer (Brighann Cotton Marketing Australia); and their respective banks (Wells Fargo and Commonwealth Bank).
The trade introduced a physical supply chain trigger to the terms of the transaction to confirm the geographic location of goods in transit before a notification is sent to allow for release of payment. The tracking feature adds a new dimension, providing all parties with greater certainty compared with traditional open account and trade instruments like Letters of Credit, which focus on documents and data.
The banks said that the use of Blockchain technology creates transparency between buyer and seller, a higher level of security and the ability to track a shipment in real time. They added that the advancement from paper ledgers and manual processes to electronic trackers on a distributed ledger reduces errors and accomplishes in minutes what used to take days.
Michael Eidel, executive general manager of Commonwealth Bank’s Cash-flow and Transaction Services, said existing trade finance processes are ripe for disruption.
“We strive to stay at the forefront of disruptive technologies to understand how they can be used to enable greater efficiencies and solve the real world challenges our customers face,” he said. “The interplay between Blockchain, smart contracts and the Internet of Things is a significant development towards revolutionising trade transactions that could deliver considerable benefits throughout the global supply chain.”
Cameron Austin, general manager of Brighann Marketing added: “The combination of these emerging technologies could eliminate many inefficiencies currently experienced in international trade. The benefits of lower costs and improvements to security through reduction of errors, risk and time, enable a company to achieve greater efficiency and have more predictable working capital.”
“Early hype claimed that ledger and Blockchain technology would transform all areas of financial services,” David Bannister, principal analyst, financial services technology, Ovum, told Internet of Business. “This was followed immediately by counter-claims that it had no applicability at all. Unsurprisingly, this led to a general agreement that the technology is not a magic formula to solve all of the financial industry’s issues, instead finding that blockchain is suited to specific use cases.”