London Metal Exchange To Adopt Blockchain To Address The Concerns Of Industrial Consumers

  • Mar 27, 2019 AEDT
  • Team Kalkine
London Metal Exchange To Adopt Blockchain To Address The Concerns Of Industrial Consumers

London Metal Exchange (LME) extended its support to the Mercuria-led blockchain based system that will help the consortium of metal traders and banks in tracking the physical metal.

Mercuria laid its foundation stone in 2004. It is a Swiss-based group of global energy and commodities traders.

The group of world’s leading energy traders such as BP, Mercuria, RoyCl Dutch Shell, etc., along with significant banks like ING, Societe Generale became an integral part of VAKT previously.

VAKT became the first blockchain based trading platform for physical oil trades replacing the traditional processing of paper-based buy and sell contacts which include invoices, letters of credit, inspection certificate, etc. VAKT offered faster, cheaper ways of physical trading by securely putting the required paperwork on a blockchain based digital platform and completing a commodity trade.

VAKT blockchain was initially adopted for the energy trading and the developer expected it to tap the global market in January’19.

The current efforts of the behemoth metal exchange will enable its industrial consumers, and it will also provide the physical metal traders a way to secure ownership of their inventory.

The industrial consumers of the metal raised concerns about the sources of their metal as a large chunk of metal is stored and traded outside LME warehouses.

Also, the London Metal Exchange has no approved warehouses in China, which is the world’s largest consumer of base metals. The absence of LME approved warehouses in China concerns the industrial consumers of LME metals in China about the supply.

The raised concerns of industrial consumer coupled with NGO which continuously demands environmental and social impact assessment of LME’s supply chain led the mammoth to tap in the blockchain technology that will create an open ledger for the trades and consumers to see and edit.

Blockchain technology which is behind the cryptocurrencies such as Bitcoin is a public ledger that can be seen by all the stakeholders and any changes in the digital ledger is visible to other participants of the ledger; thus, it creates a transparent ledger that can be secured by the encryption. In the blockchain technology, no records can be revised, and any attempt to do so by any member of the blockchain is visible to other members and is relatively secure as compared to the physical documents of ownership.

The adoption of the technology by the LME would reduce the need to have one central owner of the database, and it would also replace the LME’s electronic tracking system LME shield, which could not receive a widespread adoption by the industry.

Having said that, Blockchain technology is not without loopholes such as the absence of available tooling, storage constraints, and limited scalability; however, even with the loopholes the extensive research and capital in the technology are going to help the technology to stay longer in the market and answer many problems of various industries across the globe.


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