This article, authored by Cory Popescu was first published on the blog of the Society of Internet Professionals (SIP). http://www.sipgroup.org/. SIP is a not-for-profit, Toronto (Canada) based International organization to connect, learn and share. Our Vision is to provide the opportunity to leverage technology to have an inclusive future for everyone. Since 1997, SIP has spearheaded many initiatives, educational programs, and networking events.
Since cryptocurrencies’ birth, flowing them across the markets have not been easy partly because of their volatility which does not make it suitable to pay for goods and services. Therefore, blockchain transaction and traditional financial economies keep separate ledgers without cooperation between these systems.
In order to grow, bitcoin and other cryptocurrencies need larger markets to carry out their transactions of goods and services. Unless used in large cryptocurrency markets, for example, bitcoin, it would not be able to expand. And bitcoin cannot expand until it trades in its own currency markets. With this paradigm, we can think of expansion utilizing the cryptocurrencies in specific trade finance transactions -meaning buys and sell products between two companies in different countries and use a bank to guarantee- which for centuries are controlled and guided by traditional financial and banking system.
Having been presented in a previous blog, some of the blockchain features relate to the transactions’ performance efficiency which takes place with high security. The speed and simplicity of blockchain operations lure, and not only, top bankers to conclude trade finance exchanges which otherwise can last weeks or even months even using correct data. As an amazing medium of transfer, the cryptocurrencies can be used with small fees to conclude small – for instance, six figures – transactions in only a few hours.
This is the case of Barclay’s facilitating a $100, 000 deal – more info in the references – of cheese and butter between an Irish food company and a trading company. The transaction finalized in four hours and with a high level of security because of the following reasons:
-The blockchain made available from Barclay’s consisted of a digital ledger that is tamper-proof, meaning that no party in the deal have the power alone to change the transaction books.
-Blockchain has a built-in transaction system and digital record-keeping.
-Secure network to transmit all documents between parties.
Using the traditional financial system, this considered small transaction would conclude in weeks with considerable higher costs including the intermediary costs. Using the new technology eliminates the need for the middlemen providing significantly more efficiency dealing in smaller transactions as there are no more steps added to the supply chain or long supply chains are irrelevant for the open, decentralized networks.
With such success in trade finance, new favourable opportunities manifest and are related to more efficient transactions between small companies from different countries regardless of the countries’ levels of development.