There are literally thousands of areas of our lives that will change as a result of blockchain technology. The most recent example of this disruptive potential is the Commonwealth Bank of Australia’s experiment in trade finance.
The bank has used the technology which underlies bitcoin and which is rapidly transforming the world of banking to facilitate a trade to sell cotton to China. Together with Wells Fargo, The Commonwealth Bank deployed a new type of blockchain transaction. The trade involved an open account transaction, mirroring a traditional bank letter of credit, between the seller (Brighann Cotton, USA), the buyer (Brighann Cotton Marketing, Australia), and their banks (Wells Fargo and Commonwealth Bank).
Commonwealth Bank says the use of blockchain technology, smart contracts and the Internet of Things (IoT) creates greater transparency between buyer and seller, a higher level of security and the ability to track a shipment in real-time.
The “open account transaction”, or smart contract, will complete as the bales of cotton are unloaded at the docks in Chain which will trigger an update to the electronic contract, transferring ownership of the goods and authorizing the release of payment. The deceptively-simple sounding process is only possible because digital-ledger technology encrypts and stores the parameters of the contract, ensuring all parties are working off the same synchronized version, which cannot be unilaterally altered or tampered with.
All of the phases of the transaction can potentially be coded into the smart contract meaning that they automatically trigger when certain conditions are met, and does not require the voluminous duplicated papers trails and human intervention that have been characteristic of international trade finance.
The Commonwealth Bank and Wells Fargo are two banks among the more than 50 global financial firms affiliated with the R3 consortium, which is developing blockchain applications for use in financial services.