You have probably heard of people trading NFTs, digital art, and collectibles, for insane prices recently. However, expensive art and collectibles are not all they are good for. In fact, NFTs could have fantastic applications in trade finance.
What is an NFT?
A Non-Fungible Token, or NFT, is a digital token that can be used to represent ownership; allowing us to tokenize items like art, collectibles, and even real estate. In fact, anything that can be owned can be tokenized into an NFT, which then represents ownership.
NFTs work and on and are secured by the Ethereum blockchain and their very nature ensures that any NFT can have only one owner at a time. As they exist on a blockchain, there is also no way for them to be modified or corrupted, or for someone to present a fake copy.
They are called non-fungible tokens because each token is unique and not interchangeable. A fungible item is not unique and maybe interchanged with another of the same kind, a 10-dollar note, for example. A non-fungible item is unique and cannot be interchanged, such as a bill of lading.
Potential Use in Trade Finance
In a digitized global trade system, which is on its way, NFTs can be used to show proof of ownership or “possession” of important documents, which could revolutionize trade finance.
Take, for example, a bill of lading. This document is proof of ownership of the shipment. The consignee must present it to the shipper in order to claim the goods. While electronic bills of lading do exist, their usage is almost non-existent, often for practical reasons. Now, imagine if bills of lading were tokenized as NFTs. They could be instantly sent across and used to irrefutably show ownership. This would also make the processing of LCs so much easier.
In fact, it is even possible to tokenize an entire shipment, and all of this would occur in a decentralized, immutable fashion that anyone can trust and use. Of course, this example is overly simplified and many nuances have been glossed over, however, the basic idea is sound and could soon end up being used in the industry.
Looking Towards a Digital Future
At Euro Exim Bank, we are very excited about the trends we are currently seeing, in terms of a global shift away from paper-based systems. From our inception, we have been pioneers in digital trade finance services. As one of the early adopters of blockchain, we have witnessed first-hand how technology can transform the industry, and NFTs may well be the missing link the industry needs to achieve a 100% digitized mechanism for global trade.
