PJSC Siberia Airlines, commonly known under its operative name of S7 airlines has executed the first of its kind service payment using Ethereum blockchain smart-contracts through a letter of credit, with Russia-based Alfa-Bank.
“A blockchain record includes a hash (result of encryption) of the following information: deal identifiers (Taxpayer Identification Numbers (INN) of the customer and the contractor and type of works) and commercial terms (value of the letter of credit, date of opening and closing of the letter of credit),” the announcement explains further.
By conducting the deal, we have tested efficiency of smart-contracts and realized how this technology could help to optimize business-processes and improve effectiveness of document flow.
Legally, this transaction meets all the requirements for a letter of credit as a form of bank settlement, and demonstrates the potential of smart contract application in the framework of Russian legislation.
Two smart-contracts were simultaneously used, one to open the letter of credit and the other, closing the letter of credit. The two interacting Ethereum-based smart contracts aid in improving the transaction’s transparency while reducing any potential for code errors, the Oneworld airlines alliance member added.
The bank specifically provided members of the deal with an electronic “Alfa-business online” system where a customer could apply to open a letter of credit while a contractor is enabled with providing the bank documents upon provision of services. A “special cover account” sees funds written off from a customer’s account when the letter of credit is issued, and the funds reach the contractor’s account upon submission of documents confirming the transaction.
In providing a conclusive statement, Artem Tolkachev, director of legal services for tech products at Deloitte said:
S7 airlines deems the opening and the utilization of the letter of credit as the two main facets of the deal.
The airline group’s deputy director general Dmitry Kudelkin added:
Services giant Deloitte acted as the advisory consultant to the airline on blockchain technology, whilst providing legal support to the project.
Meanwhile, Alfa Bank is among several prominent Russian financial institutions that have already engaged in an Ethereum-based blockchain prototype for financial messaging, called Masterchain. Developed by the country’s central bank, the Bank of Russia, the common ledger shared by its banking participants will provide instant confirmations of data actuality while guaranteeing confidence in financial transactions.
With the deal, smart contracts helped record the bank’s actions of opening and executing the letter of credit on a blockchain.
Image from Shutterstock.
The announcement reveals that the agreement took place between the airlines and a counterpart using a letter of credit, through Alfa-Bank. A letter of credit is issued as a bank guarantee that payments will be made to a seller from the buyer. The bank issuing the letter of credit is obligated to cover the amount in the event that a buyer is unable to make the payment.
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