The Seam and IBM launch the first cotton industry blockchain consortium

Commodities markets rarely feature in blockchain conversations, but if Memphis-based commodities brokerage The Seam and their technology partners at IBM and Hyperledger are successful, cotton will be the first commodity where an industry-wide consortium takes advantage of a blockchain to improve the trade process.

Starting on Thursday, The Seam website-based exchange is open to all industry players. The firm claims to be the first to offer “Agriculture's only real-time price reporting.”

Along with the exchanges launch, the partners have called on the rest of the cotton industry to sign up as consortium members, placing their order books on the unified exchange. If they do, the industry would be able to use a single, shared blockchain to record, track, and trade all of the world’s cotton markets in real-time, and with instant trade execution.

- Mark Pryor, The Seam Chairman & CEO

Located in Memphis Tennessee, just a few miles away from a museum dedicated to the old Cotton Exchange that made Memphis Cotton a worldwide brand for over a century, the Seam has been applying new technology in the agri-business field since the turn of the century.

In December 2000, the Seam opened “the world's first completely online, anonymous exchange for cotton trading,” according to the company. The innovative firm has since moved into additional commodity markets, including peanuts and grains. Straddling the line between Agri-Software and FinTech, The Seam reports trading tens of millions of cotton bales on its current platform, and processing more than US$7 billion before they considered using a blockchain.

The National Cotton Council of America estimates that the global cotton trade in 2016 constituted 35.8 million bales, which is slightly down from 2015. With the US expected to capture just under a third of the volume, world trade amounts to 10.2 million bales in the most recent annual period.

The Seam approached IBM in early 2016 to help fulfill their vision of an industry blockchain consortium, and IBM suggested using the Hyperledger fabric. “Blockchain offers enormous potential to drive innovation throughout the cotton industry,” stated IBM’s Senior Vice President of Research, Arvind Krishna.

- Arvind Krishna, Senior Vice President of IBM Research

Using smart contracts for trades on The Seam platform allows the cotton industry to reduce the trade settlement times down from the standard three days to just a few minutes. Overstock.com’s t0 exchange has done the same for Capital Markets, stating “the trade is the settlement.”

In addition to the long settlement times The Seam and IBM state that the multi-billion-dollar cotton industry has several weak points and bottlenecks. The entire supply chain, they explain, is riddled with inefficiencies.

“Most of those involve the massive information and asset exchange between parties along with many intermediaries that are currently in the critical path of timely transaction settlement,” explained The Seam Chairman & CEO Mark Pryor. IBM’s latest estimates on the possible savings that could be realized by applying blockchain technology to global supply chains, in general, is over $100 billion annually.

- Pryor

While the banking industry has several consortiums like R3 CEV, The Seam’s consortium is among the first to address commodity markets. Kynetix, a commodities market technology company in the UK, was first to attempt a blockchain consortium in November 2015.

While their website still offers the option to use a blockchain, little has been heard of the consortium since, and a recent company article admits that there is a problem with consortiums in the commodity market.

“The trouble is that everybody wants 2-way trust but not everybody wants 2-way transparency,” states Kynetix Co-founder and Director, Matt Dolton. “More than any other asset class opaqueness offers knowledgeable physical market participants the ability to take advantage of their knowledge.”

The argument can be made, however, that commodities are just more products to be tracked across a supply chain, which is already a  well tested use for blockchains today. Startups like the diamond-tracking Everledger and the general-purpose, customer-oriented Provenance have shown that the technology can be applied to global-scale supply chains.

Several other projects track items such as luxury goods, smart clothing, prescription drugs, and most recently, 3D printed parts. With so many varied uses already employing blockchains, it may only be a matter of time before all commodities are tracked via a blockchain as well.  

- Jeremy Awori, Barclays Kenya Managing Director