Shipchain may allay fears over data control as digitalisation spreads
Digitisation is seen as key to transparency, but concerns over control of data have left carriers, ...
Developers of a new blockchain platform believe their system can help tackle the 80% rate of data forgery plaguing the supply chain’s $2.3trn letters of credit (LC) market.
As financial instruments, LCs act as a guarantee of payment between importers and exporters through a system managed, usually, by banks.
But cofounder of LC Lite Dimitri Kouchnirenko claims four in five LC documents contain discrepancies that add 20% to transport costs through “unnecessary” administration.
“Data forgery and manipulation are regular in the current market, as there are numerous intermediaries and no information immutability,” he said.
Mr Kouchnirenko’s comments came with the launch of LC Lite, which he believes will reduce fraud within the supply chain and speed up data transfer.
The platform enables parties to transfer, track and validate transactional documents directly between one another, thereby replacing traditional interbank messaging systems.
Included on the platform is what Mr Kouchnirenko describes as a “network consensus mechanism”, to authenticate all transactions and LCs by LC Lite-approved validator nodes.
“The cryptographic security underlying blockchain technology renders trade transaction records stored on blockchain tamper-proof, reliable and verifiable by all parties at all times,” he said.
The platform allows importers and exporters to directly establish smart contracts, digitally replicating the LC instrument. Once the contract is digitally sealed, importers submit the title to the trade to investors for the corresponding value, which will then be conditionally credited to exporters.
This amount will then appear on an e-wallet in the exporter’s name, to be released once the conditions are met – usually in the form of goods being delivered.
“LC Lite revolutionises the LC market by offering a secure and cost-effective solution for importers and exporters,” added Mr Kouchnirenko. “Our trading mechanism is designed to provide trust in cross-border trades, allowing trade parties to issue and manage their own LCs, without the involvement of intermediaries.”
A further benefit is that exporters short of cash can sell the value of their e-wallet through LC Lite’s marketplace.
The company will begin rolling out the platform in Asia and the Middle East. Mr Kouchnirenko said: Letters of credit are a huge market, perfectly suitable for implementation on distributed ledger technologies.” he said.