ETC showcases the first end-to-end blockchain to enable agricultural commodity trade
- Summary:
- End to end commodity trade shows the way for blockchain innovation
Global commodity trade and finance is still based on documents. Processes haven’t changed that much since the Dutch East India Company was formed in 1602. Orders are received, contracts are signed, letters of credit are issued, certificates and manual checks are written and cashed—all of which takes time and exposes the transaction to mistakes or fraud at multiple points in the supply chain.
For the first time in the agricultural commodities sector, LDC says, the trade included a full set of digitized documents (sales contract, letter of credit, certificates) and automatic data-matching, thus avoiding task duplication and manual checks. The transaction, which mirrored the paper-based process, demonstrated important efficiency improvements for all participants in the chain. Said Robert Serpollet, global head of trade operations at LDC:
Our expectations were high but the results were even higher.
With no paper contracts, certificates or manual checks, the soybean shipment was completed at five times the speed of a paper-based trade using ING’s blockchain smart contract prototype Easy Trading Connect (ETC). Anthony van Vliet, ING’s global head of Trade & Commodity Finance, said:
The fully digitized transaction simulated the traditional 11-14 day process and took only four days to complete but there is more than speed to it. With blockchain, there are significant improvements for all participants on the chain, including reduced fraud risk, lower costs, increased safety, and the ability to monitor the trade’s progress in real time.
The ING Easy Trading Connect (ETC) platform was designed to digitize and standardize commodity transactions. It was first validated with an oil cargo transaction in February 2017, with the subsequent launch in November 2017 of an energy consortium aiming to offer ‘blockchain-based’ services to the energy sector.
The same principle was then applied to develop a blockchain-based platform tailored to agricultural commodities trading, in collaboration with the various participants in such transactions.
This new, adapted ETC platform accommodates the agricultural sector’s complex and rigorous documentation chain flows, covering not only the financing aspects but also the full set of relevant documents pertaining to a transaction, such as the signing and processing of the sales contract at the start.
Blockchain allows organizations to digitally verify, handle and transfer all records of a sale, including the complicated elements such as contracts, inspection information and letters of credit. By replacing middlemen with digital codes, the technology promises to eliminate human error and middleman fees.
Security is built into a blockchain because the blocks of data move instantaneously from one digital owner to another. As sales and lines of financing occur, more blocks are created in different data locations. When a change of sale occurs, all of the ledgers or blocks of data are updated at the same time with the new information.
The usual disclaimer “originally developed to track Bitcoin” applies. Brian Forde, director of digital currency technology at the Massachusetts Institute of Technology Media Lab outs it this way:
That’s all blockchain is — a series of debits and credits of money, it could be debits and credits of concert tickets, it could even be debits and credits of a property title. It’s on the internet and no one person, company or organization controls it.
My take
This is precisely the kind of measurable successful use case the blockchain movement needs if it is to overcome market skepticism, much of which is occasioned by the technology’s relationship to cryptocurrencies, which remains sketchy to most grownups.
I predict there will be many more successful trials in the months as the technology earns wider acceptance in many diverse industries. Certainly, the momentum is with the technology and financial giants who are developing new blockchain services. As ING’s Anthony van Vliet put it:
We are the world’s largest commodity finance provider and given the progress we’ve seen so far in the agricultural and energy commodity trading experiments, we intend to reach out to a wider group of customers and stakeholders like logistics, shipping, storage and inspection companies. The chain will be the most efficient if everyone who is part of it also becomes part of the distributed ledger.
For many global commodity trading and financing players, the siren call of blockchain will be too much to resist. The possibility of reducing time spent on processing documents and data, as well as the ability to monitor the operation's progress in real time, verify data, reduce risk of fraud, and a shorter cash cycle, all translate into economic benefit.
One more observation. I predict that most of these types of blockchains will be closed, running on private networks where the players already know and trust each other. You can bet a Bitcoin on that.