The Commonwealth Bank of Australia, Wells Fargo, and Brighann Cotton have claimed the first interbank trade transaction combining blockchain technology, smart contracts, and the Internet of Things (IoT).
The transaction, which took place between Brighann Cotton US and Brighann Cotton Marketing Australia, and their respective banks Wells Fargo and Commonwealth Bank, involved a shipment of 88 bales of cotton from Texas, USA to Qingdao, China.
The trade involved the letter of credit being executed through a digital smart contract stored on a private distributed ledger -- using Skuchain's Brackets system.
The use of IoT in the Brighann Cotton trade involves a GPS device that tracks the geographic location of the goods in transit. The tracking feature allows for greater certainty compared with traditional open account and trade instruments like letters of credit, which focus on documents and data, and can take days to process, the companies said.
Once the goods arrive at its final destination in Qingdao, a notification will be sent and the smart contract will automatically trigger the release of payment. The cotton is still being transported and the payment of around US$35,000 will be made upon arrival.
Commonwealth Bank claims this experiment with Wells Fargo is the world's first global trade transaction to take place between two independent banks, combining all three modern technologies.
Blockchain, best known as the technology behind bitcoin, is a distributed, encrypted database architecture that is considered immune from tampering. A blockchain logs all transactions on a network and stores them in blocks.
The use of blockchain technology creates greater transparency between buyers and sellers as shipments are tracked in real-time, improves security, and reduces the risk of fraud because the ledger cannot be tampered with, according to Commonwealth Bank.
Commonwealth Bank also said the advancement from paper ledgers and manual processes to electronic trackers on a distributed ledger will reduce errors and accomplish in minutes what used to take days, ultimately saving costs.
"This proof of concept demonstrates how companies around the world could benefit from these emerging technologies," said Michael Eidel, executive general manager of Commonwealth Bank's Cash-flow and Transaction Services.
"The interplay between blockchain, smart contracts, and the Internet of Things is a significant development towards revolutionising trade transactions that could deliver considerable benefits throughout the global supply chain."
Chris Lewis, head of International Trade Services for Wells Fargo, did state that there are significant regulatory and legal concerns that still need to be addressed, but said Wells Fargo will continue to explore potential applications within trade finance.
Following the completion of this transaction, Commonwealth Bank and Wells Fargo will continue working with trade finance clients, financial institutions, fintech companies and consortiums like R3, as well players in the insurance and shipping industries, to explore the application of emerging technologies across the global trade ecosystem.
The potential benefits of blockchain technology are also being recognised by Telstra. Last month, the telco giant announced that it is experimenting with a combination of blockchain and biometric security for its IoT smart home offerings. After conducting real-world testing of the Ethereum, Apache Hyperledger, and Ripple blockchains, Telstra confirmed that the use of blockchain would make security across IoT devices more efficient and cost-effective for organisations.
In June this year, the Australian Securities Exchange (ASX) announced that it was building a new post-trade solution using blockchain technology to replace its existing CHESS system. Last month, the ASX confirmed its blockchain initiative was on track for a final decision in the second half of 2017, with the prototype complete and the organisation building an "industrial-strength solution" to use as its equity settlement and clearing platform.
Last month, Visa also announced that it was experimenting with blockchain technology to see how it could be used in cross-border money transfers in Europe.