Wells Fargo and Commonwealth Bank of Australia claim to have completed the world’s first interbank trade transaction combining blockchain, smart contracts and the Internet of Things

Commonwealth Bank of Australia, Wells Fargo and Brighann Cotton Cotton claim to have completed the first interbank trade transaction using a combination of blockchain technology, smart contracts and the Internet of Things (IoT).

The deal was between Brighann Cotton US Cotton US, Brighann Cotton Brighann Cotton Marketing Australia Australia and their respective banks Wells Fargo and Commonwealth Bank of Australia for 88 bales of cotton shipped from Tennessee, US to Qingdao, China.

The letter of credit involved in the transaction was executed via a digital smart contract stored on a private distributed ledger — using Skuchain’s Brackets system.

The Brighann Cotton Cotton deal used a GPS device that tracks the geographic location of goods during transport. This tracking capability can bring greater certainty to traditional open accounts and trade instruments, such as letters of credit, which focus on documents and data and can take days to process.

Once the goods reach their final destination in Qingdao, a notification will be sent and the smart contract will automatically trigger the release of payment. The cotton is currently in transit and once it arrives, the payment of approximately $35,000 will be made.

The Commonwealth Bank of Australia claims that the trial with Wells Fargo is the first global trade between two independent banks to combine three modern technologies: blockchain, smart contracts and the Internet of Things.

Blockchain, best known for being the underlying technology of Bitcoin, is a distributed, encrypted database architecture that is considered tamper-proof. Blockchain records all transactions that occur on a network and stores them in blocks.

The Commonwealth Bank said using blockchain technology would allow tracking of shipments while creating greater transparency between buyers and sellers, improving security and reducing the risk of fraud because the ledger cannot be tampered with.

Commonwealth Bank of Australia similarly said the move away from paper ledgers and manual processing to distributed ledger electronic trackers would reduce errors and complete processes that would otherwise take days in minutes, ultimately reducing costs.

Michael Eidel, executive general manager of cash flow and transaction services at Commonwealth Bank, said:

“This proof of concept demonstrates how global banks can benefit from these emerging technologies. The interplay between blockchain technology, smart contracts and the Internet of Things is an important development for existing trade transactions and could bring huge benefits to global supply chains.”

Chris Lewis, head of international trade services at Wells Fargo, said there are still some major regulatory and legal issues to be resolved, but Wells Fargo will continue to explore the potential applications of blockchain in trade finance.

Following the completion of the transaction, CBA and Wells Fargo will continue to work with trade finance clients, financial institutions, financial technology companies and consortiums such as R3, as well as participants in the insurance and shipping industries to explore the application of emerging technologies in the global trade ecosystem.

Telstra, Australia's largest telecommunications company, is also realizing the potential benefits of blockchain technology. Last month, the telecommunications giant announced that it was experimenting with combining blockchain technology and biometric security systems for its IoT smart home appliances. After real-world testing of Ethereum, Apache Hyperledger, and Ripple blockchains, Telstra confirmed that blockchain can make IoT device security more effective and enable organizations or institutions to achieve higher cost-effectiveness.

In June this year, the Australian Securities Exchange (ASX) announced that it was creating a new post-trade solution that would use blockchain technology to replace the existing CHESS system. Last month, the ASX confirmed that it would make a final decision on blockchain in the second half of 2017, by which time the ASX would complete a prototype and create an "industrial-grade solution" as its equity settlement and clearing platform.

Last month, Visa also announced it was experimenting with blockchain technology to see how it could be used for cross-border money transfers in Europe.