Eager to reduce costs, 70 of the world’s leading banks have got together to create a group, R3, which researched the benefits of blockchain technology and brought about “smart contracts”.
In a development that has all the hallmarks of history in the making, the Commonwealth Bank of Australia and Wells Fargo & Co have stated that they have used multiple blockchain apps to transact between banks resulting in the shipping of cotton from China to the United States.
In a joint statement both banks said that Brighann Cotton Marketing bought the cotton shipment from its U.S. division, Brighann Cotton located in Texas.
Although the transaction is simple enough, this is the first time such a trade has been done between banks using blockchains.
For banks this is exciting since blockchain technology could be the harbinger of increased efficiency and most importantly reduced costs.
Blockchains essentially creates a “golden record” of any given set of data which is automatically replicated for all parties in a secure network, thus eliminating the need for third-party verification.
“Existing trade finance processes are ripe for disruption and this proof of concept demonstrates how companies around the world could benefit from these emerging technologies,” said Michael Eidel, Commonwealth Bank’s executive general manager for cashflow and transaction services.
Although the technology is used in bitcoins, it is still a noteworthy development since the banking industry has largely shied away from it. This is partly because the technology makes it hard for law enforcement agencies to track transactions.
This breakthrough came about, with the R3, a consortium of 70 of the world’s biggest financial institutions, researching ways to harness the benefits of blockchain technology.
Blackchains can be especially helpful for cross border trades since it provides accuracy, speed and efficiency and essentially removes the necessity of people handling transactions.
Cross-border trades are typically held up due to processing issues related to the duplication of payment and time zone differences.
One of the avenues that R3 has been researching is to expand the blockchain to include “smart contracts”: payments which are triggered when a set condition is met.