Blockchain experiment: A step towards the future

by: Karin Kersten

There are many things that Bitcoin is not. It’s not stable. It’s not regulated. Its future is not certain. But there’s one thing that Bitcoin definitely is: proof of concept that the technology behind it – Blockchain – can change the game for the financial industry. And on the basis of that idea, ABN AMRO has initiated an experiment to explore the potential of Blockchain, and the possibilities it may hold for the future of Trade Finance.

Room for innovation

The only place in ABN AMRO where you will still see fax machines is in the Trade Finance department. That’s because these highly complex trades – involving multiple partners, distributors, financial institutions and processors – are dominated by the paper trail. Each stakeholder is responsible for its own part of the trail, and there is little or no transparency. If at any point in an international trade, a shipment gets lost or misdirected, it can take quite some time to locate the responsible party and the lost goods or paperwork. Of course, the consequence is lost time and money.

Blockchain technology may hold the key to do something we’ve never been able to do before: bring a level of transparency, validity, security and cost efficiency to the process that can reduce risks for us, reduce costs for partners, and increase customer satisfaction, all at the same time.

A new frontier

That’s why ABN AMRO, as part of its strategy for innovation, is initiating an experiment to explore the possibilities that Blockchain has to offer. With its highly secure, verifiable transaction structure, Blockchain might allow the entire supply chain to have access to information, contracts, status updates and payment systems. The entire trade process – from order, to shipment, to payment – can be monitored and accounted for. Through shared responsibility, all stakeholders can streamline their stage of the process, resulting in an overall improvement of the entire system.

Testing the waters

That, at least, is the theory. The experiment, which will involve software companies, other Dutch banks, and Blockchain experts, will begin by testing various Blockchain designs and their potential. If we are able to identify a technology that serves all the needs of the trade process, we will build a Blockchain-based solution designed to manage a trade. If all goes according to plan, the final step of the experiment will be to execute an actual trade, using Blockchain from start to finish.

Shared responsibility

Since the trade ledgers on the Blockchain will be de-centrally distributed, every partner in the supply chain can know the trade status with certainty, and can be prepared to execute their part. Letters of Credit and Bills of Lading will be replaced by a token on the ledger, so that everyone has insight into the same information, and the chances of lost or misdirected goods or paperwork can be eliminated. Smart Contracts with digital signatures create a transparent overview that creates trust. And trust is crucial to facilitate trade.

Putting our money where our mouth is

ABN AMRO is already a leader in Trade Finance. That’s why it is especially important that we initiate this kind of experiment. With the strength of our reputation and our international traction, we lend credibility to the innovation process, and encourage other partners to participate. Now is the time for engagement. The more stakeholders that get involved, the more we can utilise that change to benefit our businesses.

The look of success

The act of conducting the experiment is already a success for ABN AMRO and its partners. Only by exploring and testing the possibilities of Blockchain technology can we truly discover what it can do for the industry. We must first verify that it can do what we think it can do. And then we can start to do it.

If we can achieve a successful trade with Blockchain technology, it will open the door to more partnerships, more expansion, and many more possibilities. The network effect will begin to take hold. The more partners we can involve in our exploration, the bigger the impact our discoveries can have. And as suppliers, traders, banks and harbours join us in our quest to gather and share information, our horizons only get broader. It will be the first steps towards a global trade solution that can revolutionise the industry.

Co-author: Sander van Loosbroek, Oelan