Blockchain is coming to grain trading “earlier than most expected”, and will guard the market against “misinformation”, participants in a pioneering deal said – although there remain doubts over the technology.
Andrei Grigorov, founder and chief executive of Cerealia, a Swiss-based group which has developed a grain trading platform based on blockchain, said that prospects were being spurred by legislative as well as technological initiatives.
Besides improvements to the technology itself, the growing sophistication and acceptance of digital currencies, around which trades will be based, and developments in digital rights which Russia, for example, is introducing from January offered a blockchain “breakthrough”.
“Russia, China, Turkey are pushing ahead with this technology,” Mr Grigorov told the Global Grain Geneva conference.
“Blockchain is the tech grain trading has been waiting for,” he said, adding that while he had expected its acceptance would take a further 10 years, he now believes it was “coming earlier than most expected”.
The comments follow the fulfilment three weeks ago of the first grain trade using the Cerealia platform, in which 3,000 tonnes of Russian 13.5% protein wheat was traded for spot shipment from the port of Marmara, with Switzerland-based Korel Trade Company selling to Turkey’s Kavukcu Ulas.
The trade, priced at $210 a tonne, Mr Grigorov told Agrimoney, was achieved through electronic bids and offers handled through the platform, developing through indicative prices to a deal, all undertaken through electronic signatures and encrypted through a so-called hashing algorithm.
Although payment was made via Swift, the conventional money transfer system, future trades would be handled using electronic currencies, with blockchain allowing matching of electronic tokens for payment and for the grain being sold.
It will also be possible through blockchain to create smart contracts which could, “if the quality of the grain is not as contracted… choose the price discount to be applied”, Mr Grigorov said.
‘We did it, and it works’
At Korel, trader Celal Koc – who had previous experience through electronic trading as a foreign exchange dealer - said that “we did it, and it works”.
One advantage of blockchain-based deal was that it allowed simultaneous transfer of grain and money.
In traditional dealing, “you are never quite sure” a trade is sealed “until you see the signed contract, which could be days”, whereas the blockchain system allowed “ease of mind”.
Furthermore, it would boost transparency of a marketplace which is “difficult most of the time”, being based through phone conversations and judgments, and in which “would can find yourself out of the money because of misinformation”.
With blockchain “we will have a marketplace” where pricing information is more visible, “with buyers and sellers and indicative bids”.
However, Baptiste Audren, head of products at KomGo, which has developed a dealing service based around blockchain and other electronic technologies, based largely in the oil industry, said that he was “extremely sceptical of the application of blockchain”.
Blockchain faced challenges in creating the ground rules needed for global acceptance, with the US, for instance, “making it very complicated to get your cryptography approved”.
KomGo, which operates through deals between discrete organisations, said that there were technological wrinkles to iron out too, with the group itself, for instance, coming across difficulties with the simultaneous arrival of trades.
While saying that it might “one day” live up to expectations, it was “not now” meeting these ideas.
‘Not a coincidence’
For Sberbank, Orhan Gunes, head of trade finance, Switzerland, said that two blockchain trades undertaken via the bank – one in natural credit, and the other in crude oil – suggested a future for the technology.
However, he also highlighted that it had been just two countries, Russia and Turkey, which had been involved in these deals.
“I do not believe it is a coincidence” that these two countries, with advanced coding industries and notable commodities trading industries, were involved, Mr Gunes said.