Blockchain, Banking, & e-Bills of Lading: Is This an Efficient, Effective, & Secure Path to International Trade Finance?

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Summary: The e-bill of lading efficiency impact is huge for anyone trading internationally. For years this industry has been couriering document packets around the word. An immutable ledger to facilitate ownership transition and cargo release is game changing, especially for some high value industries. The adoption of blockchain facilitates that.

Upon its inception, the development of the electronic bill of lading revolutionized international trade. Now, e-bills of lading are widely considered the industry standard for transferring title, as the advantages over paper documentation include speed, safety, and cost-efficiency. Yet as advanced as modern e-bill of lading systems are, the path to international trade finance can be made even more efficient and effective using secure technologies that originate from the blockchain.

An Overview Of Blockchain Technology

Illustration of blockchain information on the digital ledgerOriginally developed in the early 1990s to provide secure digital timestamps for documents to prevent backdating or other manipulation, a blockchain is a digital ledger of transactions that are compartmentalized into nodes, or “blocks” of transactions and then networked together in a “chain”, with each node being hosted in a separate location.

The entire network uses error-checking to ensure each node’s records are identical, as only when all nodes are in consensus is the data considered accurate and secure. While anyone can access the database to read the information contained therein, it’s this decentralized nature that ensures there is no one ultimate authority that can alter records.

The Potentials & Limitations Of The Blockchain

Blockchain technology offers several advantages over current database systems. Blockchain ledgers are highly transparent, as all transactions recorded in the ledger are completely visible to anyone who accesses it. This also enhances traceability, as it is a simple matter to follow the trail of data as it is transferred from one registered account to another. The technology is also highly efficient due to its accessibility and ability to share data across a wide spectrum of manufacturers, shippers, resellers, and end users. Financial transactions, even international ones, are near-instantaneous and highly affordable in comparison to standard methods.

Yet as much potential that blockchain technology has, there are some limitations. The blockchain ledger is very much still in its infancy. Blockchains are indifferent to the quality of the data that a ledger contains; information entered in error, or information entered with the express purpose of committing fraud, is treated as equally as information entered accurately. Additionally, blockchain is noted for its anonymity, which can be a disadvantage. The entity controlling a blockchain address need not identify itself accurately to gain access to that address – as long as they have control of the access credentials, they have full reign over any data owned by that address.

Emerging Applications For International Trade Finance

Bitcoin in front of digital chartsToday, blockchain is most famously leveraged for the creation and tracking of cryptocurrency, digital tokens that can be used in lieu of fiat currency wherever these tokens are accepted. Cryptocurrency has become its own financial market like Forex, with investors trading one currency against another in the hopes to build profit, but this is a vast simplification of what blockchain can accomplish when applied to international trade finance.

Leveraging a blockchain ledger to further facilitate the transference of e-bills of lading is the clearest example of how this technology can be used to continue to build speed and efficiency in the transfer of carriage. Instead of keeping track of cryptocurrency tokens, a ledger can record the transfer of an e-bill of lading from one party to another more quickly and with fewer barriers to entry for those involved, all while providing a clear and transparent record of each transfer that is protected securely by the blockchain itself.

What Community Banks Need To Consider Going Forward

The use of this still-nascent technology has begun to spread throughout the worlds of manufacturing, logistics, and retail. Companies have already organized blockchain-based technologies, one example being Walmart Canada has leveraged it to resolve supply chain issues, creating a secure, automated system to manage invoices and payments to and from dozens of third-party freight carriers.

With this trend continuing to grow in the future, there will be an increasing demand for financial institutions that can interact with these digital ledgers seamlessly and efficiently. There are already a handful of community banks that have begun to capitalize on this demand, such as Commercium Bank and Avanti Bank and Trust, both of which are based in the United States and are positioning themselves to provide US dollar stablecoin currency to facilitate transactions domestically and potentially across the globe through their blockchain-ready infrastructures.

Banks that choose to follow in their footsteps can help pave the way for more widespread use of cryptocurrency in ways that provide higher levels of stability and transparency. Working to back blockchain-generated digital tokens by a fiat currency like the US dollar will transition the technology away from the purview of being traded like securities and instead establish it for use as an actual currency, which will further increase the viability of using blockchain tokens for use as payments in commerce. This is the likely future for trade finance, and it all begins with the adoption of using blockchain ledgers to facilitate the transfer of e-bills of lading – something that has already begun.

At Hartman Executive Advisors, we are working with companies in supply chain, logistics, and finance to ensure they are ready for this digital revolution. If you are looking to prepare your company for the future of commerce, contact our team for a free consultation.

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