The Commonwealth Bank of Australia (CBA) has used blockchain technology to complete a trade transaction with a major US bank to facilitate the sale of cotton to China. Blockchain technology is often associated with the cryptocurrency Bitcoin but it can be used broadly to track ownership and authenticity of documents as well as digital and physical assets. CBA is claiming it as 'the first global trade transaction between two independent banks'. Here are the details.
Banks around the world have been toying with the idea of using blockchain to bring greater transparency to financial transactions that are made around the world. Perhaps more importantly to the banks themselves, blockchain increases efficiency and reduces cost; all involved parties work off the same ledger, the information is verifiable and there's no paperwork involved.
The world first blockchain transaction that CBA announced was with US bank Wells Fargo and involved a shipment of cotton from Texas, US to Qingdao in China. The transaction, which was a proof-of-concept, used a distributed ledger by Skuchain's Bracket system. CBA and Wells Fargo didn't just use blockchain technology for this transaction; there were some internet-of-things components as well. According to CBA:
"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."
CBA expects this transaction to kick-start a blockchain trend in the financial sector .
"The interplay between blockchain, smart contracts and the IoT is a significant development towards revolutionising trade transactions that could deliver considerable benefits throughout the global supply chain," CBA general manager of cashflow and transaction services said.
While there is a lot of interest in blockchain technology from a number of industries, it's not foolproof and there are limitations. Here's what Stephen Wilson is a PhD Candidate, UNSW Australia had to say about the technology:
"For anything of value other than bitcoin to be transacted via the blockchain requires additional layers of agents, third parties and auditors — things that just don’t square with the trust-free architecture. Lofty claims are made for blockchain’s ability to decentralise all sorts of things. But in truth, blockchain only decentralises the adjudication of the order of entries in a ledger. It is not a general or native 'Internet of Value' as claimed by authors like Don and Alex Tapscott. It was expressly designed for electronic cash; it has no native connection to real world assets. Few businesses have escaped the call to evaluate blockchain technologies. If you’ve been persuaded to have a look, then as a first step, re-examine your security and record keeping needs. Take the time to understand what blockchain does, and all the things it leaves to be done by other systems. If your business is decentralised and your assets are purely digital, then blockchain has a lot to offer, but otherwise, it’s just another database."