THE NEWE-MAIL
I predict that in a few short years, most international trade will be conducted through a blockchain... just like most of the world’s communication is done via e-mail.
changed much. Banks act as intermediaries between trading partners. They use letters of credit to guarantee everyone gets paid. Part of the due-diligence process has always involved collecting a mass of paperwork. Both sides have to prove that they truly own what they say they own. They also have to prove that the goods they are selling are of the size, quality, and quantity that the bank is guaranteeing. As you can imagine, trade finance involves sending mounds of paperwork across oceans. Missing a signature? Sorry, please resend the package. It’s a time-consuming process desperately in need of change. Even in today’s digital age, it takes 10 days on average just to handle the paperwork. Sometimes, it can take up to a month. But all of that just changed on September 7. That $100,000 trade for butter and cheese concluded in less than four hours. That’s a huge time-saver that will significantly reduce the price of international trade. Here’s how the deal was done... Barclays Bank used a new technology called the “blockchain” to transact the trade. The blockchain is a digital ledger that is tamper-proof. No single party has the power to change the records. Instead of sitting in one central location, the ledger lives on thousands of computers that automatically update. The blockchain also has a built-in electronic record-keeping and transaction system.
Both trade parties are able to track all documentation via a secure network. That means no third-party verification is required. Barclays’ global head of trade and working capital, Baihas Baghdadi, said that the blockchain will be a game changer: We’ve proved the reality of this technology and the client, Ornua, has asked us when they can do the next transaction in this way, which proves how user-friendly the entire process was. Think about that for a second... Trade finance hasn’t changed since the 1600s. More than $2 trillion a year is conducted via trade finance, and it’s still done with bits of paper flying across the world’s oceans. The first-ever trade deal done exclusively on the blockchain is as big as Ray Tomlinson’s first e-mail.
46 | July 2017
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