UK-based bank HSBC issued a letter of credit (LoC) for American agricultural commodities trader Cargill to Dutch bank ING. Conventional exchanges for paper-based documentation related to letters of credit usually take between 5-10 days.
"With blockchain, the need for paper reconciliation is removed because all parties are linked on the platform and updates are instantaneous", he said.
While there have been several instances of proof-of-concept transactions performed using the blockchain, this one between HSBC and ING is the first that indicates its commercial applications, a spokesperson said to CNBC.
HSBC and ING said the technology is "perfect" for trade because it keeps an unchangeable log of the transaction and details of the products being bought or sold.
Bearing in mind that the Cargill transaction took just 24 hours to accomplish, it would make no sense really for businesses to keep depending on a traditional system that consumes time excessively. Blockchain technology has the potential to enhance the efficiency by reducing the risk of fraud, while cutting down the number of steps in the process.
What's more, the Blockchain platform used is already being supported by 12 banks, who are working with R3 and their partners to continue the development to bring the platform to market more broadly. This consortium now holds more than 100 different banks, trade associations, and regulators. According to Ramachandran, HSBC has another client lined up for another similar transaction.
Blockchain is the underlying distributed ledger technology that powers Bitcoin and other cryptocurrencies (see WikiTribune reporting).
Citing statistics from the United Nations, HSBC claims that digitizing trade could reduce transaction time by 44 percent, reduce costs by 31 percent and save the industry $257 billion per year.
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