Interoperability of different blockchain technologies is one of the key demands from trade finance executives, but for those leading the tech race, it is not a priority.
R3 and Hyperledger have emerged as clear market leaders in trade finance, providing the technology for many of the successful pilots and live transactions that have happened to date. Others such as Ethereum, Skuchain and Stellar, have market presence but much less coverage.
In separate interviews conducted over the past week, the top dogs at both Hyperledger and R3 have acknowledged that interoperability is important to those in the industry, but suggested that it is less important for them.
“Right now globally, it’s Corda and Fabric,” David Rutter, CEO and founder of R3, told GTR at Sibos in Sydney last week. “Interoperability among other platforms isn’t strategically important to me now. I can see how it’s important to others, but I just want to provide the best services I can on Corda.”
Rutter’s view is that two clear market leaders is a good situation for the trade finance industry, since the choice is binary, rather than manifold.
“If we end up with 20 or 30 platforms, at some point it would dilute. I’ve heard of banks that had 13,000 distinct systems, so much of this inefficiency comes from running the translator APIs between all of them. You don’t want to have a world in the future that looks like the past. You want to have a few dominant platforms,” he said.
R3 is working on providing interoperability between all the applications on Corda, making sure that is seamless. Rutter says that Fabric “can’t do that”, referring to compatibility between all the apps built on Fabric.
“As people get close to the channel, privacy features of Fabric and the fact that each application instance is a standalone and doesn’t talk to others, there’s a temporary lead that we have. But I respect IBM a lot, they’re throwing a tremendous amount of resources at this, I don’t suspect our tech advantage we have now will last forever,” Rutter said. IBM is a significant contributor to the Hyperledger community. The tech giant, which is one of the preferred blockchain vendors in the trade finance industry, builds blockchain platforms using the Hyperledger Fabric framework.
Accenture last week announced two software solutions that claim to provide interoperability between different blockchain networks. Launched at Sibos, the two solutions come with the promise that “this is a game-changer that can help accelerate the adoption of blockchain technology”.
Brian Behlendorf, executive director at Hyperledger, welcomed such developments, but since Accenture hasn’t open sourced the solutions, he hasn’t had a chance to look at them. He appeared to be amenable to interoperability and to working alongside R3’s solutions, but implied that it would be on Hyperledger’s terms.
“It’s [Accenture’s launch] the right kind of approach, if I have to be on a couple different Fabric networks. Interoperability is easy when it’s all the same network,” he told GTR in Hong Kong yesterday.
Behlendorf expects consolidation in the market, with platforms and technologies merging or being taken over by others.
“Eventually consolidation will hit. As people realise that the budgets aren’t quite as thick to build your own thoroughbred horse from the hooves up, that you need to build on top of other people’s code, there’ll be a natural consolidation,” he said.
With regard to working with Corda, he says “there’s no explicit overture about the future of Corda, you’ll have to ask them”.
He added: “I don’t know if that will mean that at some point Corda comes over, or at some point thinks how to build itself as the 2.0 version of that on top of Hyperledger, or decides to use the cryptography library we’ve built, I’m happy with any of those efforts. I just want to see the amount of wasted effort minimised so we can all get on with our lives and focus on building more productive stuff on top, rather than fighting these plumbing wars.”
Banks have voiced anxiety about backing the wrong horse, so to speak, as the two market leaders have emerged. Money is pouring into blockchain projects, some of which are starting to enter production phase.
Bangkok Bank, BNP Paribas, Commerzbank, DNB, ING, Natixis, Natwest, OP Financial Group, SMBC and Standard Chartered are the banks involved in R3’s open account trade finance blockchain project Marco Polo. This was released in September.
Meanwhile, in October, the Voltron platform was released. This is where R3 and eight banks are attempting to bring documentary trade finance onto the blockchain. They have succeeded so far with a letter of credit, while transactions involving an e-bill of lading on the blockchain are being run at present. The banks involved are Bangkok Bank, BNP Paribas, CTBC Holding, HSBC, ING, NatWest, SEB and Standard Chartered.
Hyperledger has also had much success. In Europe, we.trade went live earlier this year and live trade finance transactions are ongoing. This has been built by IBM. This week, we.trade announced a partnership with another Hyperledger Fabric-based platform: eTradeConnect, the Hong Kong trade finance platform. Both of these platforms seek to digitise open account trade on blockchain.
In China, meanwhile, banks including Minsheng and Citic are using a Hyperledger-based system for transacting domestic letters of credit. According to Behlendorf, there are “billions of renminbi” being transacted in this way every day.
However, some of the banks involved in these projects are using both technologies and, for them, interoperability is of paramount importance.
“Different platforms are all solving different specific use cases. Some are catering to specific geographies or markets, but they’re all very clear. Interoperability is fundamental, it’s the biggest challenge,” HSBC’s global head of product and propositions, Vinay Mendonca, said last week in Sydney.
This adds to earlier comments from the bank’s head of innovation, Vivek Ramachandran, who told GTR last year: “We’re working with R3, we announced a piece of work demonstrating how you can post a letter of credit transaction on the distributed ledger. We’re also working to see how you could have two different ledgers, such as Corda and Hyperledger, being interoperable. This will make the adoption easier, you don’t need everyone on the same ledger.”
Along with scalability, interoperability is a key concern for Samuel Mathew, Standard Chartered’s head of documentary trade products. “We need interoperability between these digital islands. For example an electronic bill of lading from one platform – blockchain or cloud based – is not portable into another and thus requires all parties in the physical chain to be part of the same digital platform.”
At both the Hong Kong Fintech Week and Sibos events, this was one of the common themes. Bank of America Merrill Lynch’s head of global trade and supply chain, Geoff Brady, told GTR that blockchain is the technology that will change the industry, but that the various systems need to be able to talk to each other.
Citi’s global head of trade sales, John Ahearn, echoed those views, saying that there will be consolidation among the platforms, and that if they are to make serious inroads, they will need to be interoperable.