IBM is building blockchain technology that will be used by seven of Europe's largest banks, including HSBC and Rabobank, to facilitate international trade for small and medium-size enterprises, the company said on Tuesday. The project will mark one of the first real-world use cases of blockchain technology in financial institutions. The potential of blockchain has been praised by the banking industry over the past couple of years, but the first real applications are beginning.

Blockchain is a general term for a distributed digital ledger that can record transactions and is tamper-proof. It's the underlying technology that makes cryptocurrencies such as bitcoin and Ethereum possible, but it has also been talked up by banks as a way to streamline processes and make them more efficient and cheaper. IBM is building this new blockchain, Digital Trade Chain, to help parties track, manage and transact internationally. When a merchant sells goods to another party and those goods arrive, the blockchain triggers a payment to take place, explained Wiebe Draijer, chairman of the executive board at Rabobank, one of the participating banks. "We take care of the payment that's still the old payment technology," Draijer told CNBC in a TV interview on Monday, "but the whole infrastructure, the administration is done on the blockchain. And ultimately we will also move the payment into that blockchain solution, when the payment in blockchain is ready to be robust for large-scale application." Seven banks — Deutsche Bank, HSBC, KBC, Natixis, Rabobank, Societe Generale and Unicredit — are part of the consortium.

IBM Chairman, President and CEO Ginni Rometty delivers a keynote address at CES 2016 at The Venetian Las Vegas on January 6, 2016 in Las Vegas, Nevada. Ethan Miller | Getty Images