Digitized Trade
By Bonorum Platform on The Capital
I always look at these [blockchain] systems like we’d like to do some of it too, ourselves. — Jamie Dimon
Everyone makes a lot of noise about Bitcoin, cryptocurrency, and blockchain being the future of finance. Everywhere you look, there’s a new exchange opening up or another crypto-focused neo-bank being established. While it’s true that blockchain payments are poised to revolutionize the finance industry, we’re equally interested in seeing how blockchain can be used for practical and real-world purposes. And because of the current environment of regulatory uncertainty, we at Bonorum feel that our focus and energy is best spent on developing blockchain tools that can immediately impact real-world trade transactions.
So What the Heck is a Blockchain?
Right off the bat, you should know that blockchain is more than just Bitcoin or Ether or any other cryptocurrency into which people are throwing their life savings. Think of a blockchain as a blank notebook. Like any notebook in your bag, you can open it up and write information to it. Unlike a normal notebook, though, this one is stored not just in your bag, but also in the bags of thousands of other people all over the world. And whenever you or anyone else with that book writes any new information in the book, and as long as you or anyone else can verify that information, every copy of that notebook all over the world is updated with the new information at the same time.
The beauty of a constantly updated, shared notebook, or ledger, is that it’s incredibly hard to mislead people with it because so many people have copies of the notebook. This means that by using a distributed ledger, any transaction or information that is stored on it can be trusted as being genuine.
We know that this is an incredibly shallow look at what a blockchain is, but for the purposes of this article, it’ll do. Within the blockchain discussion, there are topics such as consensus protocols, public vs private classifications, and many others. For more information, you can always go here or here. In the meantime, just think of blockchain as a distributed list of information that has been verified as genuine.
But How Can Blockchain be Used in Trade?
Okay, now that you’re experts in blockchain, let’s look at how we can apply it to real-world trade. We’ve seen most of this in Post 6, where Bonorum’s co-founder, Denis, explained the benefits of blockchain as it applied to issues he has faced in his career.
Payments & Finance
The easiest, and perhaps, most significant impact blockchain will have on trade is on how it’s financed and how banks will benefit from using distributed ledgers.
Providing payments to suppliers through the use of smart contracts will ensure cheap and fast transactions that are automated while providing increased transparency. No longer will there be a reliance on SWIFT messages to confirm if a transfer has been completed or not as clearing and settlement of payments happen almost instantly. And with the use of direct payments on blockchain, buyers and sellers can avoid the confusion of using correspondent banks and the old (and costly!) system of wiring money from one account to another. Interbank transfers and cross-border payments will no longer be held hostage to intermediaries.
For those suppliers or buyers looking for loans, this is another area where blockchain can provide significant improvements over the current banking system. Credit histories, past performance, and other relevant information can be stored and accessed through blockchains to ascertain credit risk.
Documentation & Secure Storage
Companies can upload and store documents that are verified on blockchain. This allows all relevant parties to look at that information instantaneously and contemporaneously. This means that documents such as bills of lading, customs certificates, invoices, commercial contracts, and more can be accessed and verified as genuine without needing physical documentation. This is especially crucial in trade and trade finance as current systems are entirely paper-based and reliant on having original and physical copies of multiple documents. This prevents payments from happening instantly as each document needs to not only be verified, but also received physically.
Furthermore, those documents can be securely stored, requiring identity confirmation and login permissions just to view the documents. So not only will these systems secure trade documents, but they will protect identity documents as well, thereby making KYC and AML regulations much easier to comply with. With blockchain recordkeeping, regulatory reporting, data sharing, and data security become much simpler and more accessible to those who need it.
Supply Chain Management & Traceability
With blockchain, it’s possible to track any material from its point of origin to its current location. This, too, is a boon for international trade where the point of origin and current location for any product/material/shipment is important in order to process payments between buyers and sellers. Logistics and governmental/regulatory control measures are integral to the buying and selling process in any trade transaction.
These are just a few areas of focus we’re exploring at Bonorum. It’s clear to see that in order to make the entire process of trade more efficient, transparent, and cheaper, the elimination of multiple paper-based processes through the use of blockchain will be necessary. As blockchain technology matures and becomes more widely used in real-world applications, Bonorum will continue searching for ways to add value for businesses and people involved in trade.
This blog post is the seventh in a mini-series looking at Global Trade Finance. For more posts on trade finance and the Bonorum Platform:
Part 1 — Introduction
Part 2 — What Is Trade?
Part 3 — Trade Finance Instruments
Part 4 — Why Trade?
Part 5 — Problems With Trade Finance
Part 6a — An Example
Part 6b — An Example
Part 7 — Digitizing Trade
Part 8 — Show Me The Yield!
Part 9 — What’s Bonorum?
Part 10 — Meet The Team
All articles and posts have been written and produced by team members of the Bonorum Platform. Click here to learn more about Bonorum and how it can help you as business or as an individual.
