How Blockchain Can Prevent Storage Scams That Hit Banks

Blockchain is a distributed ledger that holds records of digital data or events in a way that makes them tamper-resistant. While many users may access, inspect or add to the data, they can’t change or delete it. The original information stays put, leaving a permanent and public information trail, or chain of transactions.

Blockchain technology enables participants who do not necessarily trust each other to engage in transactions without a trusted intermediary. This powerful disintermediation could find many uses in the supply chain management field, especially in warehouse receipts, which are suffering from massive-scale forgeries.

Paper fraud in metals trading
When we think about modern financial markets, we naturally imagine cutting-edge gear and high-tech technologies. While that is certainly the case in some markets, the metals corner is a unique and striking market that still depends almost entirely on printed paper.

Therefore, metal traders must rely on documents known as warehouse receipts to guarantee the existence and ownership of every pound involved in a transaction. However, the paper-based nature of these receipts makes them an easy target for fraudsters.

Besides, these receipts can also be used as collateral to obtain loans, as banks are allowed to lend money against metal commodities supposedly sitting in a warehouse. Major problems arise when these warehouse receipts have been faked, and it has happened more than once.

Qingdao affair
In 2014, some banks revealed almost $648 mln of fraud involving copper, aluminum and alumina stored in the Chinese port of Qingdao that had been used to raise finance multiple times. Now again, in 2017, some banks are facing multimillion-dollar losses after being tricked into making loans secured by goods that didn’t exist.