A seemingly routine and insignificant soybean shipment from the USA to China has been made mildly famous as the first commodity deal facilitated by blockchain technology.
Feted as “the first full agricultural commodity transaction using a blockchain platform” by the consortium of banks, brokers, and vendors involved, it affirms the original value of Bitcoin and cryptocurrency overall, before the market hysteria began.
Blockchain proves to be Useful tech for Commodity Traders
While pilot runs using the blockchain platform have been investigated by the commodity and energy fraternities for some time now, the shipment of soybeans marks the first end-to-end real-world transaction. Behind the scenes and against the unrelenting backdrop of bitcoin market volatility and overblown hype, corporate players have been consistently working with blockchain technology for their own ends. The soybean deal announced January 22 involved agribusinesses Louis Dreyfus Company and Shandong Bohi Industry, with participation from bankers ABN Amro, Societe Generale and ING.
Interestingly, the transaction happened on the back of tech developed by the banks themselves, the group announced. In the complex and paper-heavy world of shipping, the group’s own Easy Trading Connect (ETC) platform digitized contracts, letters of credit and a host of other mandatory paperwork, shortening this administrative aspect of the trade to around 20 percent of a typical transaction.
In a separate announcement on January 22, 2018, Canadian-British BTL revealed that European energy trading businesses Eni Trading & Shipping, Mercuria, Total, Gazprom Marketing & Trading, Petroineos, Vattenfall and Freepoint are involved in a trial run of their blockchain technology, employed primarily in back-office trade settlement. Although still in its early stages, the rollout is emblematic of the more somber, hype-devoid and legitimate application of cryptocurrencies for vendor benefit.
While BTL, having piloted previous gas trading with BP and other clients, stated that the latest trial is showing as revenue-positive, no figures were made available for evaluation.
Blockchain in a Nutshell
A bold and novel approach, blockchain technology (also known as distributed ledger technology), may now be synonymous with bitcoin, but is has far greater application and intrinsic value than the current market morass allows to be seen. With a shared database, decentralized control, and complicated cryptography, its broader promise has of necessity been slow to unfold.
Highly secure and easy to use, it is also a very different model for currency, policed as the ledger is through group authentication. This has huge implications and enables, among many things, the elimination of a string of charges typical in a transaction as well as the need for the intermediaries in many instances. Basically, a vendor of theoretically any size can enjoy savings, ease, and security on the blockchain platform. These remain good reasons for a business to keep refining and enabling blockchain transactions.
Louis Dreyfus Company CEO, Gonzalo Ramírez Martiarena, explained:
“The next step is to harness the potential for further development through the adoption of common standards, and welcome a truly new era of digital trade flow management on a global level.”
Blockchain is Here to Stay
Banks, for one sector, stand to benefit substantially from the blockchain. Although not yet mainstream, Santander UK estimated in a 2015 report that around $20 billion could be saved by employing blockchain technology, no small figure. Echoing this sentiment, Martiarena added, “Distributed ledger technologies have been evolving rapidly, bringing more efficiency and security to our transactions, and immense expected benefits for our customers and everyone along the supply chain as a result.”
MD of global IT & Delivery at Gazprom, Catherine Newman, is also on record as recently saying, “Although it is early stages yet, the proof of concept with BTL represents an exciting and potentially disruptive prospect in the near future.”
Big banking players such as HSBC and Deutsche Bank are collaborating too, to introduce blockchain technology to trade financing. Citi has also generated a startup geared towards servicing foreign exchange markets via the blockchain platform.