Blockchain could be 'revolutionary' to this $2 trillion problem: HSBC

Blockchain has potential to streamline international trade: Expert

Blockchain could be "revolutionary" to international trade and commerce, HSBC has told CNBC, after the bank unveiled a partnership with Bank of America Merrill Lynch to trial the technology.

Blockchain was developed alongside the digital cryptocurrency bitcoin. It works like a huge, decentralized ledger which records every transaction and stores this information on a global network to prevent tampering. Bitcoin, itself, is a virtual currency that allows users to exchange online credits for goods and service

But several organizations have looked into alternative applications for the blockchain, away from the digital currency. Bank of America Merrill Lynch and HSBC published a proof of concept last week showing how blockchain could be used to efficiently complete a trade deal.

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"Over $2 trillion of trade today depends on the physical exchange of documents," Vivek Ramachandran, global head of product and propositions for global trade and receivables finance at HSBC, told CNBC Tuesday.

"What we've shown is blockchain has the potential to take away paper, which could be completely revolutionary if commercialised."

According to Ramachandran, blockchain technology could serve as a trustworthy intermediary to share information between buyers and sellers. This would make international trading quicker and cheaper.

"(Blockchain) makes the system much more efficient," he explained. "It's expensive to adopt it, but the upside is huge."

Companies are making a big bet on blockchain technology. A study by Juniper Research published this week found that $290 million of venture capital has been invested in blockchain tech in the first half of 2016, with more than 30 blockchain start-ups receiving funding.

However, the report urges investors and businesses to be cautious in regards to blockchain.

"While blockchain technology offers the potential for increased speed, transparency and security across an array of verticals, there has to be rigorous and robust roadtesting in each unique use case before any decision is taken," research author Windsor Holden said in a press release on Tuesday.

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