In 2016 Barclays
and Israeli blockchain startup Wave
created one of the first enterprise projects based on blockchain. Ornua
(the Irish dairy manufacturer) and the Seychelles Trading Company
used the digital letter of credit to make a deal on exporting cheese and butter. Letter of credit was opened and closed based on the records in blockchain, and money transfer was performed via Swift, a global payment system.
Documents which confirmed the fulfilment of obligations (certificates of origin, insurance certificates, invoices and waybills) were also stored within the distributed ledger. Partied decreased the verification costs and improved the efficiency of the trading process.
Usually it takes 7–10 business days to process the relevant documents. Encryption and verification mechanisms allow to perform the entire operation in less than 4 hours.
A few months later a similar project was tested in Russia by S7 Airlines
Ethereum smart contract was used to make a settlement between two companies using a digital letter of credit. Alfa-Bank used blockchain records to perform settlements between S7 and its counterparties in fiat money.
Proof-of-concept was designed to prove two hypothesizes:
- that the Bank of Russia would be fine with the unconventional way of creating and closing of the letter of credit;
- that the Alfa-Bank IT system could be linked to public blockchain.
This concept proved that it is possible to protect the companies of the non-performance, while reducing the transaction costs and increasing the speed of deals using the letter of credit. IT systems of all the parties were linked to blockchain.