2020: Blockchain’s Coming of Age

Blockchain has been heralded as a comprehensive solution to an array of endless challenges. The technology’s distinctive advantage is its ability to streamline the middleman process and validate data integrity. However, it’s important to look beyond the details as the proverb ‘wood from the trees’ suggests and to discover the bigger picture of blockchain technology. This article offers an overview of some real examples of how this technology has notably delivered enterprise value to businesses.

1. Figure Technologies/Provenance – home equity financing

Blockchain technology has enhanced the efficiency in home equity financing and loan provisions for some businesses. The technology engages directly with the consumer, thus avoiding hefty commission fee structures between capital providers and borrowers. The technology can automate much of the process and eliminate overhead costs. In the case of Figure Technologies, this San Francisco fintech company was able to generate home equity-based lines of credit on the Provenance blockchain. Provenance is a private permissioned blockchain which was built and launched in 2018 by Figure. Figure does not own Provenance and other loan issuers are able to operate alongside Figure on the network.1 Thanks to Provenance’s blockchain platform, Figure is issuing over $85m in loans a month on the network. In April 2019, the company secured a $1bn facility from Jefferies to fund further loans.2 Figure plans to securitize these loans and sell them, all on the Provenance blockchain. Provenance serves not only as a register of ownership, it tracks a complete history of each loan and functions as an exchange platform for financing companies to buy and sell loans and other loan securities. Provenance is governed by holders of its investment token, HASH, which plans to sell more of these tokens in registered public offerings in the US.

2. Shenzhen/Tencent – municipal tax system

In China, Tencent and the Shenzhen Taxation Administration piloted a blockchain-based invoice system in August 2018.3 One year later, the system has already issued 6 million invoices for a total value of $553m. 4 5,300 companies in the city have registered to use blockchain invoices, and the service has now proliferated across businesses in finance, retailing, catering and hospitality, as well as the China Merchants Bank and its subsidiaries. The technology has aided the tax bureau in combating the black market of invoice payments and in preventing companies from duplicating invoices when claiming their tax deductions. The project has even expanded to subway tickets, where passenger codes, receipts and ride history are sent to the passenger’s WeChat payment voucher page. Applying blockchain to the Shenzhen metro system is the first step in implementing e-invoicing for all public transit systems in the city including taxis, buses and all other traffic. Blockchain has made it much easier for customers to receive their invoices. Before blockchain e-invoicing, passengers would have to go to customer service for their invoices but now, they are sent directly to their mobile phones, thereby saving paper and effort.

This use of blockchain has also helped the tax bureau to prevent corporate fraud by tracking all invoices onto one blockchain platform. It also reduces audit costs from tracking and handling paper invoices. The system provides a positive feedback loop, whereby the government offers a service to the city’s businesses, helping them track their taxes and also saving them time and money — all incentives for them to use the platform.

3. TradeLens by Maersk and IBM – shipping company platform

Shipping magnate, Maersk, partnered with IBM in January 2018 to build a supply chain-focused blockchain platform using IBM’s Hyperledger. After some corporate structure changes and increased business development efforts, the scope of this project, TradeLens, now covers half of the world’s ocean container cargo. TradeLens is a full-service shipping digitization platform which enables multiple parties involved in the shipping process to collaborate across transactions. It helps to speed up processes, reduce fraud and discrepancies, and lower costs.

Shipping competitors at first were reluctant to join TradeLens because it was originally set up as a joint venture with IBM, where Maresk was the owner of the platform. This stunted the growth of the platform and its adoption in the industry. Only within the last few months did the two firms change the structure of TradeLens to represent a partnership model, relinquishing ownership of the platform. Since that time, the platform has added the second, fourth, fifth and sixth largest global shipping companies to its ecosystem. These names include the Mediterranean Shipping Company (MSC), CMA-CMG, Hapag-Lloyd and Ocean Network Express (ONE) respectively.

According to IBM, with five of the world’s six largest shipping companies on the platform 5 and a total of 100 participants, TradeLens processes over 10 million individual shipping events and thousands of documents a week.6 The platform provides all parties involved in this complex global supply chain with a clear and common view of transactions.

4. World Bank Bonds – securities offering

Global financial institutions are also using blockchain. The World Bank has issued a total of $108m in blockchain bonds in two different offerings, called bond-i, which stands for blockchain operated new debt instrument. The Commonwealth Bank of Australia (CBA) managed both offerings and provided the issuance platform via it’s Blockchain Centre of Excellence. The bonds use a private configuration of the Ethereum blockchain as the underlying technology. Its first transaction was announced on August 24, 2018 and raised $81m.7 Secondary trading for this first bond offering was first reported in May 2019, with all trades being recorded on the Ethereum blockchain. The World Bank worked with TD Securities and CBA to develop this functionality. The second offering of bond-i by the World Bank was announced on August 19, 2019 and raised $33.8m.8 The offering was also managed by CBA with RBC Capital Markets and TD Securities jointly managing the sale.

5. Voltron – trade financing solution

Companies are also turning to blockchain for trade financing. Voltron is a blockchain-based platform to fully digitize the letter of credit process from creation, exchange, approval and issuance. Built on R3’s Corda technology, Voltron is run by a consortium of eight banks including HSBC, ING, Standard Chartered, BNP Paribas, CTBC Holding, Bangkok Bank, NatWest and SEB. Voltron is able to boost revenue by mitigating risks and providing working capital solutions for existing bank customers. With Voltron, banks can offer customers better service and financing options, and reduce costs and time by cutting back on paperwork processing. In addition, Voltron can lower operational and credit risks, and strengthen audit and compliance capabilities through data transparency and tracking of assets.

Notable Voltron transactions include:
● The first transaction helped HSBC and ING conduct a deal with Cargill conglomerate’s subsidiaries. HSBC acted as the issuer for the letter of credit and ING acted as the advising bank. Using Voltron’s platform, transaction time for this deal was reduced from 10 days to 24 hours. 9
● In its deal with Landmark Group, HSBC reduced transaction time by 12 days, or 40% for a shipment from Hong Kong to Dubai. It linked Voltron to Landmark Group’s platform, ReChainMe. 10
● Standard Chartered used Voltron to facilitate a Letter of Credit transaction for the oil industry, shipping crude products from Thailand to Singapore. The transaction took 12 hours, a huge leap forward from the typical five days for oil transactions. 11
● In August 2019, BNP Paribas issued a Letter of Credit and Bill of Lading using Voltron involving a transaction of bulk iron between Rio Tinto in Australia to Cargill in China. 12

6. eMin – eradicating modern slavery
Beyond institutions, governments and non-governmental organizations (NGO’s) have also taken part in the blockchain phenomenon. In 2018, a partnership between Diginex and anti-slavery NGO the Mekong Club created eMin13 , a blockchain-based tool to protect against worker exploitation. Globally, there are more than 40 million people trapped in modern slavery, almost half of these victims are found in the supply chains of modern consumer goods and services, such as textile production and fishing.

The eMin tool allows for migrant workers to store immutable copies of their employment contracts on the blockchain, thus reducing the risk of exploitation from contract substitution and illegal fees being paid. The tools allow workers to access a secure copy of their contract at any time, but also enables companies to audit their supply chain easily with the comfort of knowing the information is immutable and traceable. eMin anonymizes all data, and with permission, can perform periodic surveys to audit for any abnormalities or agreement breaches.

eMin was successfully piloted in Thailand at the beginning of 2019. In October 2019, Diginex announced it had signed an agreement with Verifik8, a data intelligence and analytics provider for agribusiness suppliers, to integrate eMin into its existing farming monitoring tools, which are already being used by 5,000 workers on the ground in Thailand. Over the course of the next twelve months, Diginex expects to roll out eMin in at least five more countries thus improving the lives of thousands more migrant workers.

Conclusion

In the last few years, companies have been slow to implement blockchain as the technology evolves from its initial stage. However, these six large-scale, real world examples show blockchain is becoming increasingly recognized as a transparent and secure way of conducting transactions, offering significant scales of efficiency to vertical industries. These cases all have one trait in common — the growing partnerships between traditional industries and the new innovative ones. As we enter 2020, blockchain will continue to make headway in this emerging digital age, spanning across a wide range of industries with many more case examples on the way.

Footnotes

  1. Hedgetrade. Digital Mortgages Set to Take on the Middleman. (October 2019) https://hedgetrade.com/digital-mortgages-remove-middleman/
  2. Coingape. Provenance Blockchain Lands $1 Billion Deal to Provide and Settle Loans on Blockchain. (May 2019) https://coingape.com/provenance-blockchain-billion-deal-loan-settlement/
  3. Xinhua news. Shenzhen issues first blockchain invoice. (August 2018) http://www.xinhuanet.com/english/2018-08/10/c_137381868.htm
  4. Xinhua news. About 6 mln blockchain invoices issued in Shenzhen. (August 2019) http://www.xinhuanet.com/english/2019-08/06/c_138287177.htm
  5. IBM website. TradeLens Blockchain-Enabled Digital Shipping Platform Continues Expansion With Addition of Major Ocean Carriers Hapag-Lloyd and Ocean Network Express. (July 2019) https://newsroom.ibm.com/2019-07-02-TradeLens-Blockchain-Enabled-Digital-Shipping-Platform-Continues-Expansion-With-Addition-of-Major-Ocean-Carriers-Hapag-Lloyd-and-Ocean-Network-Express
  6. Coindesk. IBM, Maersk’s Blockchain Platform TradeLens Is Shipping to Russia. (July 2019) https://finance.yahoo.com/news/ibm-maersk-blockchain-platform-tradelens-123057018.html
  7. Coindesk. World Bank’s Blockchain Bond Experiment Raises $81 Million. (August 2018)
    https://www.coindesk.com/world-banks-blockchain-bond-experiment-raises-81-million
  8. Inc42.World Bank, ADB Look To Blockchain For Various Applications And More. (August 2019)
    https://inc42.com/buzz/blockchain-this-week-world-bank-adb-look-to-blockchain-for-various-applications-and-more/
  9. Ledger Insights. HSBC uses blockchain for Letter of Credit between Australia and China. (April 2019)
    https://www.ledgerinsights.com/blockchain-trade-finance-voltron-hsbc-letter-of-credit/
  10. BitcoinExchangeGuide. HSBC’s Blockchain-based Platform Voltron To Reduce Transaction Times By 40% with ReChainMe. (July 2019) https://bitcoinexchangeguide.com/hsbcs-blockchain-based-platform-voltron-to-reduce-transaction-times-by-40-with-rechainme/
  11. Standard Chartered website. We’ve completed our first cross-border Letter of Credit blockchain transaction in the oil industry with PTT Group.(August 2019) https://www.sc.com/en/media/press-release/weve-completed-our-first-cross-border-letter-of-credit-blockchain-transaction-in-the-oil-industry-with-ptt-group/
  12. Ledger Insights. HSBC uses blockchain for Letter of Credit between Australia and China. (April 2019)
    https://www.ledgerinsights.com/blockchain-trade-finance-voltron-hsbc-letter-of-credit/
  13. eMin website. www.eminproject.com