{"id":5642,"date":"2019-02-06T11:46:00","date_gmt":"2019-02-06T11:46:00","guid":{"rendered":"https:\/\/kynetix.com\/?p=5642"},"modified":"2019-09-11T08:56:12","modified_gmt":"2019-09-11T08:56:12","slug":"how-to-create-trusted-digital-warehouse-receipts-in-commodities","status":"publish","type":"post","link":"https:\/\/kynetix.com\/warehouse-receipts\/how-to-create-trusted-digital-warehouse-receipts-in-commodities\/","title":{"rendered":"How to Create Trusted Warehouse Receipts in Commodities"},"content":{"rendered":"

[vc_row][vc_column][vc_column_text]Article on how to create trusted warehouse receipts in commodities original<\/a>[\/vc_column_text][\/vc_column][\/vc_row][vc_row][vc_column][vc_column_text]Warehouse receipts have been around for hundreds of years, being incorporated into English\u00a0law in the late 19th century. Warehouse receipts are used extensively in the commodities sector, alongside other logistics documents such as bills of lading, to help provide evidence of ownership, possession and other legal rights of goods stored in warehouses, vaults, etc.<\/p>\n

Sometimes called warrants or warehouse warrants, (which can have a different legal meaning, depending on the purpose, issuer and jurisdiction), these documents have remained stubbornly paper-based, resulting in a slow-moving, costly and inefficient system. There are a variety of reasons for this, not least the questions of the legal status of non-paper (i.e. electronic) records of deposit.<\/p>\n

However, that situation is changing. Legal opinion is beginning to form that electronic or digital records might be legally acceptable. Given the rise of blockchain\/DLT and the number of major organisations investing in digital initiatives, it will surely only be a matter of time before this becomes fact.<\/p>\n

This is not the whole story. There are plenty of other issues above a solid legal basis which are required to create trusted digital documents of title\/possession.<\/p>\n

So what are the key elements required to build trust in digital commodities? Here we set out some thoughts based on our experience to date.[\/vc_column_text][\/vc_column][\/vc_row][vc_row][vc_column][vc_column_text]<\/p>\n

Mutual trust and co-dependence<\/h2>\n

For a system of warehouse receipts to work effectively, there needs to be network of like-minded (or, at least, goal-sharing) and equally trusting participants. Many historic exchanges started as mutual gatherings of organisations looking to provide a venue where trading can take place providing the easiest of access. For example, the London Metal Exchange only de-mutualised when Hong Kong Exchange Group bought it in 2012.<\/p>\n

Of course, this isn\u2019t something that technology can necessarily deliver, but the right technology approach – for example with easy, low-cost access, and high transparency built in – has been shown to help build trust between participants.<\/p>\n

\u00a0A well-ordered and controlled warehousing network<\/h2>\n

A key issue with commodities and storage, in particular, is the warehouse network. The most effective systems we have seen involve independently owned and operated warehouses which must comply with a series of rules and standards and be registered and approved by the market operator.<\/p>\n

An inspection regime, insurance requirements, rigorous operating procedures and security requirements all must be complied with. It also adds considerably to the trust levels when the warehouse companies stand to benefit from being part of the network, as they then have an incentive to follow the rules and become a more attractive service provider.Trusted technology platform<\/p>\n

To be digital, obviously there must be a trusted software platform, provided by a known and trusted company with a proven track record in the relevant technology, not simply an online website where commodities storage can be registered.<\/p>\n