“Proof Of Concept” Means Door Wide Open To $9 Trillion Trade Finance Market
For cryptocurrency investors, the Holy Grail of price appreciation will happen when blockchain-based currencies go mainstream and reach widespread adoption. More evidence has emerged today that mass adoption is indeed rapidly approaching.
Just a few hours after German online bank Bitbond announced it now allows users to transfer funds anywhere in the world using bitcoin and other cryptos , a move which is anticipated to result in a rapid adoption of blockchain technologies within the bank-disintermediation space, CBNC reported that in a somewhat parallel transaction, UK-based banking giant HSBC has completed the world’s first commercially viable trade-finance transaction using blockchain, in the process opening the door to mass adoption of the technology in the $9tn market for trade finance.
HSBC claimed on Monday it had performed the world’s first commercially viable trade finance transaction using blockchain technology.
The bank issued a letter of credit for U.S. food and agriculture firm Cargill. The trade finance transaction involved a bulk shipment of soybeans from Argentina to Malaysia. The letter of credit was issued from HSBC to Dutch lender ING.
Letters of credit are issued by one bank to another to guarantee that a payment will be received by a seller under a set of conditions. Traditionally this process would take a large amount of time, numerous paper records, and a lot of back and forth between the various parties involved. Blockchain technology promises to change that.
Blockchain, the technology that underpins bitcoin, enables transactions to be recorded across a vast network of computers. In the case of bitcoin, it records all of the transactions that happen on the network, creating a public ledger. Banks have taken the principles behind bitcoin’s blockchain – such as the idea of decentralized ledger – and tried to apply it to processes that they are carrying out.
For this transaction, HSBC used a platform developed by blockchain start-up R3 called Corda. R3 works with a consortium of banks to come up with blockchain solutions to a variety of problems.
“The need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous,” Vivek Ramachandran, head of growth and innovation at HSBC, said in a statement. “The quick turnaround could mean unlocking liquidity for businesses.”
HSBC and ING said that the exchange was performed in 24 hours, compared to the five-to-10 days it normally takes to complete such exchanges through a paper-based system.