HSBC has completed its very first financial trade deal with agricultural group Cargill, using blockchain technology in what is to be a major breakthrough in opening the door to a $9tn trade market. The deal took place within a few hours of German online bank Bitbond announcing that it had allowed its members to transfer loans anywhere in the world using cryptocurrencies. The timing is quite telling of HSBC, who seek to remain a formidable presence in a rapidly evolving decentralized market, a market that’s in dire need of disruption, especially in one of the most inefficient and the costliest markets of today, trade-finance.
Letters of credit (LOC) amount to the tune of $2 trillion in trade and commerce, but are extremely inefficient due to their century old system of paper ledgers. Banks and corporate entities are starting to see the efficiency of blockchain, and how it eliminates timely transactions, paperwork, massive production costs, and fraud. Blockchain shows over and again that vast amounts of time, energy and capital and be alleviated by those willing to adapt to this technology.
HSBC and Dutch bank ING completed the deal for Cargill last week when a shipment of soybeans was transported from Argentina to Malaysia via the global commodities trader’s Geneva and Singapore subsidiaries. While there have been previous trade deals that use blockchain in conjunction with other technologies, the Cargill transaction marked the first use of a single, shared digital application rather than multiple systems.
The transaction was executed on a platform called Corda, which was developed by R3, a New York-based blockchain consortium whose members include more than 100 banks, regulators, and trade associations. These members form an association specifically tailored for centralized institutions.
R3 and blockchains like Ripple (XRP) are working to keep skin in the game for a fading hierarchy of central planners. Institutions that see an opportunity to make even more money through the advancements of FinTech will perhaps ultimately fail due to their inability to adapt towards a decentralized future. A fair distribution of wealth is always blind to the all-seeing eye of finance.
This trade deal is a milestone in the history books for centralized markets, but could be seen as a bit of a catch 22. On one hand, it would breath new life into centralized institutions, which would be counter intuitive to real fundamental crypto, but lucrative for the former as it would open a massive amount of wealth to the emerging crypto-verse in what is sure to be a domino effect for other like minds interested in self preservation.
HSBC’s head of innovation and growth in commercial banking, Vivek Ramachandran, goes on to say, “the next stage is actually encouraging as many participants as possible sign up to the “utility”, adding that banks, shipping companies, ports and customs operations would have to take up the same technology before it could gain widespread usage. “We don’t envisage the platform as anything other than a utility”.
The blockchain is only an enabling technology for different products, and each product should be evaluated in many aspects before evaluating the chances for adoption — technology, regulations, the cost of the service, security, but the most important one is the product market fit,”
With a multi trillion-dollar industry that’s needing to evolve or face extinction, it shouldn’t be too long before everyone starts drinking the Krypto Kool-Aid!