BLOCKCHAIN CAN CONSIDERABLY SPEED UP RAW MATERIAL TRADING
Apr. 1 2019
Blockchain technology enables the secure exchange of data between a multitude of players. This can be extremely useful in terms of accelerating global raw material transactions, an area in which “paper” exchanges remain the rule.
Raw material trading is one of the essential driving forces behind globalization, covering the procurement and re-sale of commodities as diverse as agricultural products (wheat, rice, soybean, etc), energy, (oil, gas, etc.) and ore.
Despite its globalization, the sector still relies heavily on paper to validate transactions, entailing fairly long processes: letters of credit, dispatch slips, inspection and quality reports and other guarantee certificates must be received, validated and returned. These highly financialized operations involve numerous players: producers, traders, banks, insurers, transport companies, often scattered throughout the world.
The current administrative processes bring with them delays, additional costs and risks. “We are dealing with a highly complex value chain, where there is considerable room for improvement. There is also a need to establish a solid and shared truth about the status, nature and exact stage of the transaction. These are the ideal criteria for the application of blockchain technology”, analyzes Michel-Ange Camhi, Group Chief Data Officer at Bureau Veritas.
A transaction finalized in 4 days... instead of 14
Blockchain, i.e., a distributed information registry, makes it possible to store and transmit information in a digitized chain of coded and authenticated transaction blocks (hence the name). Since everything is decentralized, everyone can add further information at any time. This tamper-proof electronic registry is thus synonymous with the dematerialization and acceleration of procedures.
The time taken to dispatch and validate letters of credit (previously a few days), “can now be reduced to a few hours or even minutes”, assures Michel-Ange Camhi.
However, blockchain technology does not dispense with the need to check the veracity of the information transmitted; on the contrary, it creates new needs in terms of the validation of the different systems and processes used, and rules that apply to all players active within these systems.
Towards widespread use within “2 to 3 years”?
Familiar to the public as the technology behind cryptocurrencies, blockchain actually supports a broad variety of applications. This technology, which is used to permanently log all information exchange, is an excellent tool for ensuring traceability. It also provides a platform for a smart contract, i.e., the automatic triggering of a transaction once a certain number of previously defined conditions have been validated.
In the raw materials sector, with its numerous and complex procedures, the automation of these tasks frees up resources. The numerous benefits outlined above are encouraging operators to act quickly to exploit the possibilities available to them. “I can see the widespread use of blockchain technology for professional applications within the next 2 to 3 years. It is fast, since the first technical common elements have been tested and validated”, concludes Michel-Ange Camhi, who points to the need to have a trusted third party such as Bureau Veritas to validate the genuine nature of the data and comply with the common rules governing these systems.