IBM Engineers: Blockchain Can Streamline International Trade
Blockchain continues to turn heads and attract interest. This time, IBM shares its views on how the technology could affect the trade finance industry. IBM’s Tom Appleyard and Simon Stone lead a blockchain presentation at a Hyperledger meetup in London.
What does blockchain bring to the table?
In essence, blockchain has four main qualities that add value to a business network:
- Consensus. All ledgers in the network are kept in sync and all agree to the whats and whens of a transaction.
- Provenance. There are records of where each asset has been.
- Immutability. Anything written on the ledger cannot be undone. This means you cannot delete records and you cannot insert them halfway through the blockchain.
- Finality. Anything written in the blockchain cannot be disputed.
Aside from the four main qualities mentioned, here are other properties that IBM clients want from blockchain:
- Shared ledger. The shared ledger is an append-only distributed system of record shared across business networks.
- Smart contracts. Smart contracts are how legal contracts in the real world are integrated into the blockchain. These are business terms embedded in a transaction database and executed with transactions.
- Privacy. Privacy is the ability to control who can access the ledger and what portions of the ledger they can see. This ensures appropriate visibility and that transactions are secure, authenticated, and verifiable.
“With blockchain, [the network] becomes a much more efficient system.” —Tom Appleyard, IBM
What’s the problem with trade finance now?
Trade finance is a well-established process which involves multiple participants who handle the transfer of goods from an exporter to an importer. This is how a trade finance network would look like now.
Given the diagram, we can see that the process includes a complex set of regulations and plenty of manual, inefficient, and error-prone document-based processes along each step of a transaction. This is all because each participant in the network has its own ledger and its own set of rules and processes which then have to sync up with the ledgers of other participants.
“The process as it stands includes a very complex set of regulations and there’s also a lot of manual inefficient processes around document exchange.” —Simon Stone, IBM
How does blockchain improve this situation?
IBM uses the interaction between an exporter and an importer to demonstrate how participants, documents, and events are handled in a blockchain network.
In this scenario, documents such as the letter of credit issued by the importer’s bank, the bill of lading issued by the shipping firm, and the phytosanitary certificate are generated and stored in the blockchain. As flowers move from exporter to the importer, transactions will occur and these transactions are also recorded in the blockchain. In effect, this builds a shared and trusted ledger containing records of the whole process and is available to all participants.
Summarizing it all up
Converting any trade finance network to a blockchain network will lead to these key benefits:
- Increased speed. The shared ledger replaces physical documents and processes which lead to virtually real-time updates in information.
- Reduced errors. Smart contracts lessen the potential issues caused by human error in each step of a transaction.
- Privacy. Availability of information and the level of information is defined per participant.
- Transparency. End-to-end visibility of pertinent transactions to relevant stakeholders (authenticating participants).
- Network neutrality. There is no single owner of the network. Participants can just “plug-in” to the information value chain to enable trade.
- Resiliency. Blockchain’s decentralized ledger is immutable and validated by all participants, building trust.
So what has blockchain provided? Efficiency. Simon sums it all up saying, “It’s given us a faster turnaround time for [all] these processes.”
Want details? Watch the video!
Table of contents
- Blockchain as a Single, Persistent Publish / Subscribe Queue
- The Difference with Blockchain
- Managing Risk and Building Trust for Blockchain in Finance
- Blockchain Adoption: Industry Requirements and the Role of Prototypes
About the experts