From time immemorial, technological innovations have shaped the structure of commerce and trade. The discovery of electricity encouraged 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 leveraged by many as the next big thing, given its use cases that cut across many industry verticles.
Primarily used to keep records of transactions, blockchain technology is a type of distributed ledger technology.
Blockchain makes the difference
According to Statista, blockchain makes keeping records of data easier, more transparent, and even more secure. Mainly due to its resistance to tampering, blockchain offers temporal information about transactions, whether between individuals, businesses, supplier networks or even an international supply chain.
It is also a common notion that blockchain is just a technology for Bitcoin (BTC). However, this assumption could not be more wrong. While the technology emerged alongside Bitcoin in 2008, however, today its use cases have evolved far beyond cryptocurrencies. From finance and e-commerce, to food security, voting exercises and supply chain management, its applications span virtually every sector of the global economy, including areas directly or indirectly related to international trade.
The value chain attached to international trade is particularly complex. While its transactions involve multiple actors, its other aspects like trade finance, customs administration, transportation and logistics all benefit from the adoption of blockchain technology.
According to Statista, cross-border payments and settlements represent the biggest use cases for blockchain technology, especially given the many past efforts to digitize business transactions.
To date, the potential of blockchain to improve the efficiency of business processes is already being explored. For example, the Open Food Chain blockchain project is working to improve food safety through its Komodo Smart Chain.
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Kadan Stadelmann, CTO of Komodo – technology provider and open source workshop – told Cointelegraph:
“Blockchain’s biggest advantage is immutability, which means that data cannot be deleted or altered once it is on the ledger. For international trade, this provides an opportunity for more transparency in several major industries.
Stadelmann explained that the technology ensures that food can be tracked from its origin (i.e. a farm in another country) to the consumer’s local supermarket. He said it can help improve food security around the world by tackling issues such as food contamination outbreaks, as 600 million people – nearly one in 10 people globally – fall ill after eating contaminated food and 420,000 die each year, according to the WHO.
Blockchain can streamline complex documentation processes prevalent in international trade. Zen Young, CEO of non-custodial web authentication framework Web3Auth, told Cointelegraph:
“Scanning documents for traditional customs clearance processes and transactions in international trade can take up to 120 days, but with bills of lading tracked via blockchain, the need for such processes and the potential for double-spending is eliminated.”
“Payments and transfer transactions are also faster and cheaper than currently via the SWIFT network, blockchain commissions are lower and without maximum limits, which is particularly advantageous for the export of goods”, a- he declared.
Additionally, Zen added that these factors will 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, which is called TradeLens, is designed 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 successfully integrated more than 150 organisations, including major port operators, shipping lines and logistics providers.
According to IBM, TradeLens has processed over 150 million shipping events and saved users around 20% on documentation costs. Additionally, the platform has reduced the time it takes to ship goods by 40%.
As blockchain continues to gain traction 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.
Despite its promise, however, there are some weak points in applying blockchain technology to international trade.
The major drawback of using blockchain is the fact that it is often associated with high transaction costs. For example, when it comes to cross-border payments, blockchain technology is known to be quite expensive.
Indeed, blockchain transactions often involve multiple intermediaries, which can increase costs. Additionally, the time required to settle a blockchain transaction can be quite long, which can also increase the overall cost.
Another disadvantage of blockchain is its lack of scalability. Since each block in a blockchain must be verified by all nodes in the network, the system can often get bogged down when processing large volumes of transactions.
This can cause delays in processing transactions, which can be a major problem in the world of international trade.
Finally, according to Deloitte, blockchain technology is still in its early stages of development, which means it is subject to a number of risks and uncertainties. For example, there could always be the risk of a critical flaw being discovered in the scalability and privacy framework, which could pose a problem for the financial end of the operation.
In addition, there is also the risk of malicious actors exploiting system vulnerabilities in order to commit fraud or theft. These risks should be carefully considered by those looking 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 its early stages of development. As the technology matures, it is likely that many of these issues will be addressed and resolved.
As more organizations begin to adopt blockchain technology, the overall cost of using the system is likely to decrease. This could make blockchain a more viable option for those looking to streamline their international business operations.
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.