Several blockchain-based proofs of concept (PoCs) and prototypes for letter of credit (L/C) processing have been announced over the last year.

Many participants in the emerging area of blockchain-based trade finance agree that for the rollout of commercial operations, a widely acceptable platform and a set of rules are all needed.

In some quarters however, the underlying assumptions behind blockchain-based L/Cs are under challenge.

Industry views

Global head of ING's blockchain programme, Mariana Gomez de la Villa, has said security issues, compliance requirements and risk assessment processes required of banks are factors slowing blockchain's progress towards commercial use.

Associate director at R3, Henry Roxas, points to another barrier. "You have these digital islands that work well when everyone is on the same network, but when there is a lack of connectivity and some participants are not on a particular solution, things revert to paper," he says.

Fundamentally flawed?

Others believe the real barrier to blockchain's progress is that the concept is based on a flawed argument.

According to Alexander Goulandris, CEO at paperless trade solutions provider essDOCS, "the benefits people talk about are the benefits of digitisation. But you don't need to use a distributed ledger technology to get them, you can use a digital database solution."

"The problem everyone is that PoCs prove, at a basic level, that the technology works, but the PoCs do not prove that there is a huge advantage using blockchain over a cloud-based digital database solution. We haven't got any validation of that," Goulandris concludes.

This article represents the views of the author and not necessarily those of the ICC or any of the other partners in DC-PRO.