From time immemorial, technological innovations have shaped the fabric of trade and commerce. The discovery of electricity stimulated mass production and the advent of steam engines ushered in an era of mechanized production.
From information to communication, technology has been used everywhere to make life easier. For this reason, blockchain technology has been tapped by many as the next big thing, given the use cases that crisscross numerous industry points.
Blockchain technology is mainly used in transaction tracking and is a type of distributed ledger technology.
Blockchain makes the difference
According to Statista, blockchain makes record keeping easier, more transparent and even more secure. Mainly because of its resistance to change, blockchain provides time-based information about transactions, whether they are between individuals, business entities, supplier networks, or even an international supply chain.
It is also a common idea that blockchain is only a technology for Bitcoin (BTC). However, that assumption couldn’t be more wrong. Although the technology emerged alongside Bitcoin in 2008, its use cases have evolved much further than cryptocurrencies today. From finance to e-commerce, food safety, voting exercises and supply chain management, its applications span virtually all sectors of the global economy, including areas directly or indirectly related to international trade.
The value chain associated with international trade is particularly complex. While the transactions involve multiple actors, other aspects such as trade finance, customs administration, transportation and logistics all benefit from the adoption of blockchain technology.
According to Statista, cross-border payments and settlements are responsible for the biggest use cases of blockchain technology, especially given that numerous attempts have been made in the past to digitize commerce transactions.
As of today, the potential of blockchain to improve the efficiency of trading processes is already being explored. For example, the Open Food Chain blockchain project is working to improve food security through its Komodo Smart Chain.
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Kadan Stadelmann, Chief Technology Officer of Komodo — technology provider and open source workshop — told TBEN:
“The biggest advantage of Blockchain is immutability, which means that data cannot be deleted or edited once it is in the ledger. For international trade, this offers the opportunity for greater transparency in several major industries.”
Stadelmann explained that the technology allows food to be tracked from its origin (ie a farm in another country) all the way to the consumer’s local supermarket. He says this could help improve food security around the world by tackling problems such as food contamination outbreaks, as 600 million – nearly 1 in 10 people in the world – get sick after eating contaminated food, and according to the WHO 420,000 die every year.
Blockchain can streamline the complex documentation processes common in international trade. Zen Young, the CEO of non-custodial web authentication infrastructure Web3Auth, told TBEN:
“Digitizing documents for traditional customs clearance processes and transactions in international trade can take up to 120 days to complete, but with bills of lading tracked via blockchain, the need for such processes and the potential for double spending has been eliminated.”
“Transfers and transfers are also faster and cheaper than is currently possible through the SWIFT network, blockchain commissions are lower and with no maximum limits, which is especially beneficial for exporting goods,” he said.
In addition, Zen added that these factors help reduce fraud through digitally verifiable and legally enforceable non-paper documentation.
In another use case, IBM and Maersk are working on a blockchain-based solution to streamline the global shipping industry. The project, called TradeLens, aims to digitize the entire shipping process on a blockchain.
The ultimate goal is to create a more efficient and transparent supply chain that can speed up delivery times while reducing costs. So far, the project has been successful in onboarding more than 150 organizations, including major port operators, shipping companies and logistics providers.
According to IBM, TradeLens has processed more than 150 million shipping events and saved users an estimated 20% in documentation costs. In addition, the platform has reduced the time it takes to ship goods by 40%.
As blockchain continues to gain ground in various industries, it is only a matter of time before its potential is fully realized in the world of international trade. With its ability to streamline processes and reduce costs, blockchain has the potential to revolutionize the way goods are traded around the world.
However, despite its promises, there are some weaknesses in the application of blockchain technology to international trade.
The major disadvantage of using blockchain is that it often comes with high transaction costs. For example, when it comes to cross-border payments, blockchain technology is known to be quite expensive.
Blockchain transactions often involve multiple intermediaries, which can drive up costs. In addition, the time it takes to settle a blockchain transaction can be quite long, which can also add to the overall cost.
Another disadvantage of blockchain is the lack of scalability. Because every block in a blockchain must be verified by all nodes on the network, the system can often crash when processing large amounts of transactions.
This can lead to delays in transaction processing, which can be a major problem in the world of international trade.
Finally, according to Deloitte, blockchain technology is still in its infancy, which means that there are a number of risks and uncertainties associated with it. For example, there can always be the risk of discovering a critical flaw in the scalability and privacy framework that could pose a problem for the financial end of the operation.
In addition, there is also the risk that malicious parties may exploit vulnerabilities in the system to commit fraud or theft. These risks should be carefully considered by those who want to use blockchain technology in the world of international trade.
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Despite these drawbacks, it is important to note that blockchain technology is still in the early stages of development. As technology matures, it is likely that many of these issues will be addressed and resolved.
As more and more organizations start using blockchain technology, the overall cost of using the system is likely to drop. This could make blockchain a more viable option for those looking to streamline their international trading activities.
Ultimately, blockchain technology has the potential to revolutionize the way goods are traded around the world. With its ability to streamline processes and reduce costs, blockchain has the potential to make international trade more efficient and transparent.