On December 29, the Chinese Academy of Sciences and OK Blockchain Capital jointly released the ‘Blockchain Finance Industry Panorama and Trend Report.’
According to the report, blockchain has great potential for transformation in the financial sector, especially in the fields of payment and settlement, supply chain finance, insurance, and credit investigation. However, its application is still in the early stage, and the blockchain technology itself still needs time to develop.
Supply chain finance
At present, the connotation of supply chain finance has been very rich. Almost all financing activities related to the supply chain in the real economy can be incorporated into supply chain finance.
So, what is the supply chain?
A supply chain is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer. Supply chain activities involve the transformation of natural resources, raw materials, and components into a finished product that is delivered to the end customer. In sophisticated supply chain systems, used products may re-enter the supply chain at any point where residual value is recyclable. Supply chains link value chains.
The chain structure of production and marketing is the supply chain.
The emergence of the supply chain means that the market needs a core enterprise to manage the upstream and downstream enterprises. Under its scale effect, the core enterprises cannot only buy goods of upstream enterprises on credit but also ask the downstream enterprises to pay immediately.
By integrating these key elements, we can understand supply chain finance as ‘using core enterprises to underwrite hidden risks of upstream and downstream enterprises.’
Simply put, you can think of supply chain finance as a financing model. The subject is the upstream and downstream enterprises of the supply chain, and the core enterprises dominate the whole process.
Pain points in supply chain finance\
Supply chain finance is an asset transaction behavior between multiple distrustful nodes, which requires the establishment of trust among multiple roles as banks, platforms and logistics enterprises.
In this process, the authenticity of trade is a necessary prerequisite for the existence of supply chain finance. Once false contracts and false transactions appear, all participants will suffer losses.
At present, the more prominent pain point is the authenticity of the transaction. For the bond information of the virtual world, the consistency between the virtual world and the real world must be guaranteed, which is the foundation of financial services and risk control. Supply chain finance needs to ensure that participants, transaction results, and documents are based on transactions in physical assets.
Supply chain finance under the blockchain architecture
The core value of blockchain lies in connecting multiple nodes that do not trust each other to realize value transmission. The non-tampering feature of blockchain enables it to be well applied to supply chain finance and enhance its credit value.
Blockchain can record the complete behaviors of asset transactions, the authenticity of transactions is ensured by making the flow of financial assets visible to all participants.
Since the transaction process of assets has a continuous and complete record, which provides a reliable guarantee for new capital to participate in the transaction, decentralized trading models regulate, and audit capital flows and information flows by fully exposing the codes and algorithms in the system. In this way, the parties involved in the business do not have to worry about one party tampering with contracts, databases or other information, which is the fundamental way to ensure the authenticity of supply chain finance.
Therefore, the characteristics of blockchain technology and supply chain finance have a natural match. The application of blockchain in supply chain finance will ultimately make financing more convenient and greatly reduce the costs.