There is a small handful of primary use cases for blockchain technology, according to Francesco Tonin, FX market specialist, Bloomberg speaking at an industry event in Chicago.
“International payments work,” he said, “but it takes a long time, you might need to use a correspondent bank, you might not know where any given payment is at any one time. So five days ago I made the payment, where is it? We don’t know. How much are the fees? We don’t know. Can I see where the problem is? Right now the classic system is you have to pick up the phone. And it can be a difficult process for your bank.”
“This is where blockchain can be interesting because you are dealing with three or four banks for each payment. So you need something where all the banks have the same level of authority,” he said, referring to cross border payment arbitration.
“Blockchain is almost perfect. You’ll have a system of authentication of the information. So every time we ‘write’ in the blockchain: I sent the money on this day, and this is how much, you can go in there and check real-time. No need to call anyone, you can see where it is.”
Another perfect mechanism for blockchain, said Tonin, is in trade finance.
“If you ship a container abroad you have to have inspectors that will have to go in there and check out the content, sign a document, give it to someone on a moped who rushes to some lawyers to get the signature and activate, for example, the letter of credit. There’s a huge amount of manual processes here, that can add up to sometimes 20% of the cost of shipping.”
“Because an inspector does not work for you, you cannot be his referee. You need to be on the same, level field in terms of authority. Again the blockchain solution could be interesting because the inspector would have a cell phone and he could sign on it that the inspection has been made. Immediately this would move on or trigger movement to the bank to carry out the letter of credit. This would be super fast, super cheap and it would be immutable.”
Lastly, Tonin pointed to supply chains.
“Imagine you are a company that needs to source fresh memory from south east Asia. The suppliers all want to be on the same level. You cannot have one supplier managing for their competitors. You need to have all of them working together,” he said.
“Then you have all the different computer manufacturers and none of them is going to be the referee, because they compete. Again you need to have the same authority – everybody – and you can have a supply chain in which you’re bidding out for say one million chips, and the bidding can be completely enshrined in the blockchain. You cannot change your bid after the fact. Automatically someone gets awarded the contract as it is recorded on the blockchain. That’s written in stone. That goes into the procurement system inside the company so everyone can check when the chips are going to be delivered. When they are, accounts payable are made aware and it automatically starts that process.
“In this sense,” he said, “blockchain can really help a lot of the world synchronize.”