Gatechain: Applying Blockchain To Trade Finance

Gatechain: Applying Blockchain To Trade Finance

by November 28, 2016
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Zurich-based Gatechain has developed a solution that leverages blockchain technology for trade finance. The solution reduces trading risks, processing time and costs, while guarantying better performance and improving cash flow.

Gatechain Trade Finance Blockchain

Trade finance is the financing of trade, and concerns both domestic and international trade transactions. A trade transaction requires a seller as well as a buyer, and various intermediaries such as banks and financial institutions to facilitate this transaction by financing the trade.

Digitalization and automation of trade processes have been ongoing for many years but the banks’ updated processes are still largely based around the logistics of handling physical documents.

Blockchain technology could bring the benefits of automation to these processes and trades, notably through the use of cryptographic keys and multisignature wallets. This could create a replacement to traditional trade finance documents, which would be stored on a blockchain as smart contracts.

A smart contract, also known as a cryptocontract, is a computer program that directly controls the transfer of digital currencies or assets between parties under certain conditions.

A smart contract defines the rules and penalties around an agreement in the same way that a traditional contract does and can also automatically enforce those obligations.

It does this by taking in information as input, assigning value to that input through the rules set out in the contract, and executing the actions required by those contractual clauses.

In the case of trade finance, the documents are updated by blockchain transactions as it moves through the steps of the trade process.

Two cryptographic keys are used to sign a blockchain transaction, one private and one public. Ownership of the private key provides access to the digital assets stored. Both the keys are needed to create a transaction output, which means transferring the digital assets.

Gatechain’s solutions for trade finance run on a decentralized network which connects all participants in the trade ecosystem. The company has built an application for issuing electronic, tamper-proof documents and smart contracts like the letter of credit or bill of lading.

In the ecosystem, all authorized trade participants operate in a trusted environment where payments and release of goods are automated seamlessly without the need of intermediaries.

Additionally, Gatecoin offers financial and factoring solutions in real-time, to improve cash flow and save time for all parties involved in the transaction.

“We want to offer our customers an entire ecosystem built around the digital handling of trade document which will allow them to become more agile and efficient,” Wassilios Lytras, co-founder of Gatechain, told Moneycab in an interview in September.

“The foundation of our application is production ready and we are currently testing and improving the solution on a weekly basis. We have multiple proofs-of-concept in the pipeline.”

Gatechain is one of the numerous startups that are applying blockchain technology to trade finance.

Similarly to Gatechain, Wave and Open Trade Docs are digitalizing trade finance, providing clients with solutions to manage ownership of documents on the blockchain.

In September, Barclays and Wave became the first organizations to execute a global trade transaction using blockchain technology.

The letter of credit transaction between two of Barclays’ partners Ornua Seychelles Trading Company was the first to have trade documentations handled on the Wave platform with funds sent via Swift.

“One of the biggest headaches in global trade currently is the vast movement of paper required to facilitate transactions, with multiple organizations in the chain,” said Baihas Baghdadi, global head of trade and working capital at Barclays. “That is why we’ve been very keen to partner with Wave in using blockchain technology to save time and money for our clients, and potentially transform trade finance for businesses around the world.”

Wave was one of the eleven startups to have gone through the Barclays Accelerator program in New York last summer.

 

Featured image: Industrial crane loading containers in a cargo freight ship by MOLPIX, via Shutterstock.com.

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