Blockchain for Trade Finance

Blockchain for Trade Finance | ICC, TFG and WTO Guide

Trade Finance Global / Blockchain for Trade Finance

Blockchain for Trade Finance

Welcome to our blockchain hub, a comprehensive guide by Trade Finance Global on the use of distributed ledger technologies (DLT) and blockchain within international trade, trade finance, and shipping. Consortia, networks and technologies have emerged in attempts to digitize trade, yet to date, their applications have been relatively unsuccessful and disjointed. We investigate some of the key opportunities and challenges the in the current ecosystem, as well as an in depth look at what needs to happen for the industry to evolve. Just as TCP/IP, HTML, and HTTP provide shared and open standards and protocols that enabled the Internet to become what it is, so too can blockchain and related technologies create a flatter, smarter, more connected, and overall better world for global trade and commerce.

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Following the launch of TFG / WTO / ICC’s publication “Blockchain & DLT in trade: A reality check” in November 2019 at the WTO Global Blockchain Forum, this updated research study provides an overview and updated periodic table.

The study outlines the main projects, categories into Supply Chain Finance, Trade Finance, Know Your Customer (KYC), Insurance, DLT Digitiisayion of Trade Documents, Shipping & Logistics / Supply Chain, Other Initiatives and Marketplaces. The authors also mapped out 19 standardization initiatives, split by sector or process, general trade, private sector-led and regional / national initiatives, as well as the international standards bodies.

Video – WTO & TFG Launches ‘Blockchain & DLT for Trade: Where do we stand?’

Research – Blockchain for Trade Finance

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Videos – Blockchain & DLT for Trade

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Featured Insights

The way to Digital Silk Road: China focus How is China using technology to build the technical and financial infrastructure for the ambitious BRI? Eugenio Reggianini reports on the BSN and DCEP
Supply Chain 4.0 – What is next for digital solutions in Agritech? Islamic Development Bank and International Islamic Trade Finance Corporation Discuss Agritech Digital Solutions in 2nd Agritech Webinar
VIDEO: Reuters Events – Overcoming the barriers to the digitization of commodity trade In partnership with Reuters Events, TFG hears from Simon Collins, TradeCloud and Movsum Muslumzada, SOCAR Trading about the digitization of commodity trading

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Blockchain, Cryptocurrencies & DLT – Frequently Asked Questions

What is Blockchain?

A blockchain is essentially a decentralised, distributed ledger that permanently records transactions. ‘Decentralised’ means that no single individual or group has excess control over the exchanges. ‘Distributed’ means that the ledger is sent out to many computers. In other words, it’s made public and thus is completely transparent. Whilst everyone can view the blockchain, nobody can amend it.

The term ‘blockchain’ is derived from the way the technology works. Each ‘block’ contains encoded data of groups of valid transactions. These transactions are linked to previous blocks to form a ‘chain’, hence we get the name ‘blockchain’.

It’s not necessary to understand the complexities of how the technology works to understand what it does. Blockchain technology provides a way to transact directly via a peer-to-peer network securely. This means that you can use the blockchain to transact without any middlemen.

What is blockchain?

A blockchain is essentially a decentralised, distributed ledger that permanently records transactions. ‘Decentralised’ means that no single individual or group has excess control over the exchanges. ‘Distributed’ means that the ledger is sent out to many computers. In other words, it’s made public and thus is completely transparent. Whilst everyone can view the blockchain, nobody can amend it.

The term ‘blockchain’ is derived from the way the technology works. Each ‘block’ contains encoded data of groups of valid transactions. These transactions are linked to previous blocks to form a ‘chain’, hence we get the name ‘blockchain’.

It’s not necessary to understand the complexities of how the technology works to understand what it does. Blockchain technology provides a way to transact directly via a peer-to-peer network securely. This means that you can use the blockchain to transact without any middlemen.

How does blockchain work?

Transactions are recorded to a blockchain through 5 important steps:

Step 1: Two parties initiate a transaction by agreeing to exchange something of value. In most cases, this will be a cryptocurrency token or other asset.

Step 2: This pending transaction joins others and creates a ‘block’ which is then sent out to ‘miners’. Miners are computers on the blockchain network that evaluate transactions to earn a reward. This reward is usually new cryptocurrency tokens or a part of the transaction fee. They validate the transaction by solving complex mathematical problems using computer power.

Step 3: If miners reach consensus to validate the transaction, it’s verified and added to the blockchain.

Step 4: A timestamp is added to this transaction block using a cryptographic receipt. As each block has a reference to the hash of the previous block, there is an unalterable chain of records.

Step 5: The transaction is complete and the unit of value is transferred to the receiving party.

Infographic: How does Blockchain work?

Source: By Shivratan rajvi [CC BY-SA 4.0  (https://creativecommons.org/licenses/by-sa/4.0)], from Wikimedia Commons

What is blockchain used for?

Blockchain technology was originally designed as the foundation upon which cryptocurrencies could be built. Since then, and it’s use cases have expanded hugely as the technology has evolved. The invention of Ethereum’s Smart Contracts made it easier for developers to build applications for many different industries, including:

  • Cybersecurity
  • Travel
  • Banking
  • Trade finance
  • Cloud storage
  • Legal
  • Insurance
  • Healthcare

The reason that blockchain has so many use cases is that it provides a reliable, secure and transparent network. This makes it useful for any business that could benefit from a way to transfer data securely, quickly and transparently.

Are cryptocurrencies and blockchain the same thing?

Contrary to popular belief, blockchain and cryptocurrencies aren’t one in the same. Many people think that this is the case as the two terms come up in the same sentence quite often – they’re closely linked.

Cryptocurrencies are digital currencies – they’re units of value that take the form of tokens. The blockchain is the digital ledger that stores a record of all cryptocurrency transactions. Blockchain is also used in other applications outside of cryptocurrencies.

What are cryptocurrencies used for?

There are several use cases for cryptocurrencies, including:

Cross-border payments:

Sending fiat currencies internationally often comes with excessive fees for international transfers. It’s also a lengthy and time-consuming process to complete through regular banks. Cryptocurrencies allow you to send money across international borders directly. The exchange is completed almost instantly and with minimal fees.

Anonymous transactions:

Cryptocurrencies offer higher levels of anonymity than fiat currencies. This makes them ideal as a medium of exchange for transactions where a high level of anonymity is preferred.

As an investment vehicle:

The cryptocurrency market is hugely volatile, but it has seen massive growth over the last decade. It’s an accessible market for beginner investors who are willing to invest in high-risk, high-reward assets.

What are the most common cryptocurrencies?

Bitcoin is the most popular cryptocurrency. As it was the inaugural cryptocurrency, it benefited from a first-mover advantage which has allowed it to remain the leading cryptocurrency by market capitalisation.

According to CoinMarketCap, the top 5 cryptocurrencies by market capitalisation as of July 2018 are:

  1. Bitcoin
  2. Ethereum
  3. XRP
  4. Bitcoin Cash
  5. EOS

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Contents

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Latest News

18Jan

TFG Weekly Trade Briefing, 18th January 2021

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Your Monday morning coffee briefing from TFG. Concern continued to grow over new variants of COVID-19. The UK has closed… Read More →

13Jan

BAFT Releases Best Practices for New Financial Asset on Distributed Ledger Technology

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Investigating the use of distributed ledger technology to expedite the digitization of trade finance, the BAFT Innovation Council established the… Read More →

12Jan

The way to Digital Silk Road: China focus

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How is China using technology to build the technical and financial infrastructure for the ambitious BRI? Eugenio Reggianini reports on… Read More →

11Jan

38 minutes – City Bank and ITFC record first-ever Shariah-based Blockchain Letter of Credit transaction

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City Bank has become the first Bangladeshi bank to execute a cross-border Letter of Credit (LC) transaction under a Shariah-based… Read More →

21Dec

TFG Weekly Trade Briefing, 21st December 2020

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Your Monday morning coffee briefing from TFG. Talks between the UK and the EU on their future relationship continue without… Read More →

15Dec

Contour adds HSBC as first full production member of the network

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December 15: Contour, the global trade finance network has today announced that HSBC has become the first full production member… Read More →

27Nov

Supply Chain 4.0 – What is next for digital solutions in Agritech?

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Islamic Development Bank and International Islamic Trade Finance Corporation Discuss Agritech Digital Solutions in 2nd Agritech Webinar… Read More →

26Nov

VIDEO: Reuters Events – Overcoming the barriers to the digitization of commodity trade

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In partnership with Reuters Events, TFG hears from Simon Collins, TradeCloud and Movsum Muslumzada, SOCAR Trading about the digitization of… Read More →

24Nov

VIDEO: Talking Heads of Trade: BNP Paribas on the ‘now’ and ‘next’ – Jean-François Denis

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In partnership with BAFT, TFG hears from Jean-François Denis, Global Head, Trade Solutions, BNP Paribas, about how the bank has… Read More →

18Nov

10 days to 24 hours – TradeSun joins Contour to simplify African paper-based LC transactions

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Contour announces a partnership with TradeSun, to simplify the handling and authentication of paper-based documents into R3 Corda. … Read More →

17Nov

The application of blockchain in trade finance: opportunities and challenges

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The present article discusses the potential benefits of using blockchain technology for trade finance activities and highlights significant challenges facing… Read More →

02Nov

John Denton, ICC and Xiaozhun Yi, WTO – Where do we stand now in the race for digital trade?

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A commentary and foreword by ICC’s Secretary General John W.H. Denton AO and WTO’s Deputy Director-General Xiaozhun Yi, following the… Read More →

02Nov

TFG and WTO Launches Updated DLT & Trade Periodic Table, upgrading stage of maturity of the projects

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Hong Kong, China. Trade Finance Global (TFG) and World Trade Organization (WTO) have today launched their updated Periodic Table of… Read More →

02Nov

Survey reveals lack of legal clarity and regulatory framework is the biggest trade challenge during the pandemic

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A recent 2020 study and supplementary Covid-19 survey by TFG and WTO reveals the biggest challenges facing DLT trade-related firms… Read More →

02Nov

KYC [DLT] – The hottest KYC projects in trade finance (yes, they use blockchain!)

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This article features two hot Know Your Customer (KYC) projects which are currently being deployed to fight fraud, counter-terrorist financing… Read More →

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