Blockchain, a technology behind the widely known digital currency Bitcoin, is more actively integrating decentralized data storage and secure communication between business partners. Impossibility to steal, change or delete registered data makes platforms built using this magic technology the most secure business solution.
Driving business with smart contracts
Earlier this year, the Bank of Russia has introduced Masterchain, an Ethereum-based Blockchain prototype created specifically to serve the interests of financial market actors. Alfa Bank, along with Sberbank, Qiwi, Banks Tinkoff and Otkritie, was one of the contributors to this newly developed and tested platform.
Alfa Bank finds Blockchain to be the ideal solution for business structures involving plenty of partners. Therefore, financial players have actively been developing and testing the potentials of this technology.
Recently, Alfa Bank has collaborated with S7 Airlines to test an execution of service payment transactions using smart contracts deploying Blockchain technology.
Alfa Bank provided the participants of the deal with special facilities through its Alfa-Business Online electronic system. Using this system the customer applies for the opening of the letter of credit, and the contractor then submits all necessary documentation upon finalizing of service delivery to the bank. Once the application for opening the letter of credit has been submitted, funds can be withdrawn from the customer’s account and first transferred to a special transition account and later to the contractor’s account.
Key steps of the deal – opening and closing of the letter of credit – have been performed as transactions deploying smart contracts using the Ethereum platform, and were registered in the distributed ledger. Records in the distributed ledger contain a hash of the following information: deal’s identification codes, type of services, and terms and conditions. This allows for all participants of the deal to check its status at any time.
Bringing more transparency
Using two smart-contracts simultaneously is a distinctive feature of the deal: one was used only for initiating the letter of credit and the other for completing it. Deployment of two interacting smart contracts is intended to reduce the potential for code errors and therefore protects the interests of the parties of the deal improving its transparency.
Nadezhda Avdanina, Head of the Center for innovations at Alfa Bank commented:
“Using Blockchain in the bank is building a platform that allows handling transactions in the clearest and transparent way. Technology also helps in securing the interests of participants of the deal from any kinds of failures to perform obligations defined by the contract.”
Dmitry Kudelkin, the S7 Group Deputy Director commented:
“S7 Airlines is the most technologically advanced airline on the Russian air transportation market. We traditionally use the newest solutions and technologies not only to develop our passenger service but also to develop business. By conducting the deal, we have tested the efficiency of smart contracts and realized how this technology could help optimizing business processes and improving the effectiveness of document flow. We are planning to continue cooperation with Alfa Bank in this respect.”
Where there’s a will, there’s a way
Blockchain technology is maturing at an incredible speed. A recent report by Deloitte shows that 12 percent of large enterprises with an annual revenue more than $500 mln, 308 Blockchain-knowledgeable companies that participated in the survey have already integrated Blockchain in their business operations. Approximately 25 percent of companies are starting Blockchain projects in 2017.
Deloitte CIS advised S7 Airlines to start the integration of Blockchain technology into their business strategy. Deloitte experts also provided legal support for the project. Artem Tolkachev, Director of Legal Services for Technology Projects Department at Deloitte CIS says:
“We are glad that Blockchain technology is being more actively integrated into business operations at innovative companies within the Russian jurisdiction. We welcome S7 Airlines’ willingness to experiment with smart-contract implementation in business processes and believe that further use of Blockchain technology will help to significantly reduce costs and improve work efficiency. This deal meets all the legal requirements for conducting of such a form of wire transfer as a letter of credit, clearly, demonstrates application options of smart contracts under Russian law.”
Blockchain technology allows solving two important issues, those of trust and the speed of business operations. Both these issues are extremely important in the area of trade financing. Alfa Bank and S7 Airlines are certain that technology will change their products and services in the nearest future.