Consortia have become a common method for businesses to collaborate on the use of blockchain and DLT technology – which developed out of the technology underpinning cryptocurrencies such as Bitcoin. TFG heard from Deepesh Patel, and BCR’s Michael Bickers to find out more.
Since 2017, groups of banks and other financial institutions have come together to create common platforms that can be used by each member of the network. More than 30 such consortia have been founded, most of them having between 10 and 15 initial members but membership is expected to grow.
How consortiums developed and thoughts for the future
The main advantages seen of joining a consortium are that it presents a relatively low risk and low-cost way of using the technology. And, in order to utilize blockchain’s real effectiveness, the more users there are in the network, the more advantages and value there is to all of them. In trade finance, this includes financial institutions, plus every party in the trade cycle as well as customs bodies and regulators.
Operationally, these consortia are only just beginning to get under way, for these are collaborative ventures tackling complex technological issues in order to create products that members want to have. During 2019 and 2020 it is expected that we will see these consortia picking up speed. As they do so they will start to impact the conduct of cross-border trade.
According to Emmanuelle Ganne, Senior Research Analyst at the World Trade Organization (WTO), blockchain consortia have the potential to transform global trade. As she says in her recent report Can Blockchain Revolutionize International Trade?: “If the projects that are under development succeed, blockchain could well become the future of trade infrastructure and the biggest disrupter to the shipping industry and to international trade since the invention of the container.”
Although not everyone is yet convinced of the use of blockchain and DLT, the networks can bring trust and visibility and in the near future, for example in international trade, we could see these platforms reducing the time of letter of credit processing from days to minutes if not seconds.
The hype behind DLT in trade – doom or gloom?
Distributed ledger technology, colloquially termed blockchain, gained significant attention in 2017, paralleling the hype surrounding the cryptocurrencies that are facilitated by the technology. Inspired by this hype, many innovative initiatives have sought out to capture the functional essence of DLT and apply it to a wide assortment of industries and domains.
One such industry particularly ripe for the disruptive potential of DLT is trade finance, which predominantly remains bogged down by legacy technology systems heavily supplemented with paper-based processes.
In the years since, organizations of all different size and scope have come together to investigate the technology and develop viable Proof-of-Concepts. The relative infancy of these consortia and the blockchain technology they are working with, renders it nearly impossible to determine for certain where the industry will lead. That said, this whitepaper maps the current state of the ecosystem and peers through the fog of uncertainty along the path ahead, which may help with wrangling the behemoths that these consortia may well become.