How blockchain technology can revolutionize international trade

From time immemorial, technological innovation has shaped the fabric of commerce. The discovery of electricity encouraged mass production, and the advent of steam engines ushered in the era of mechanized production.

From information to communication, technology is used everywhere to make life easier. For this reason, blockchain technology has been chosen by many as the next big thing, given its use cases that cross multiple industry verticals.

Mainly used to keep records of transactions, blockchain technology is a type of distributed ledger technology.

Blockchain makes the difference

According to Statista, blockchain makes data record keeping easier, more transparent and even more secure. Thanks mostly to its resistance to change, blockchain offers time-based information about transactions, whether they are between private individuals, corporate entities, supplier networks, or even an international supply chain.

It is also a common belief that blockchain is just a Bitcoin (BTC) technology. However, this assumption could not be more wrong. Although the technology emerged alongside Bitcoin in 2008, however, today its use cases have evolved far beyond cryptocurrencies. From finance to e-commerce, food safety, voting exercises and supply chain management, its applications cover almost all sectors of the global economy, including areas directly or indirectly related to international trade.

The value chain associated with international trade is extremely complex. Although its transactions involve multiple participants, its other aspects such as trade finance, customs administration, transport and logistics benefit from the adoption of blockchain technology.

According to Statista, cross-border payments and settlements represent the biggest use cases for blockchain technology, especially considering how many previous efforts have been made to digitize commercial transactions.

To date, the potential of blockchain to increase the efficiency of commercial 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 Stadelman, Chief Technology Officer of Komodo — technology provider and open source workshop — told Cointelegraph:

“Blockchain’s biggest advantage is immutability, which means data cannot be deleted or edited once it’s on the ledger. For international trade, this provides an opportunity for more transparency in several major industries.”

Stadelmann explained that the technology ensures that foods can be traced from their origin (ie a farm in another country) to the consumer’s local supermarket. He says it could help improve food security around the world by tackling problems such as outbreaks of food contamination, as 600 million – almost 1 in 10 people worldwide – get sick after eating contaminated food and 420,000 die each year, according to the WHO.

Blockchain can streamline the complex documentation processes that prevail in international trade. Zen Young, CEO of non-custodial web authentication infrastructure Web3Auth, told Cointelegraph:

“It can take up to 120 days to digitize documents for traditional clearance processes and transactions in international trade, but with blockchain-tracked bills of lading, the need for such processes and the potential for double spending is eliminated.”

“Transfer payments and transactions are also faster and cheaper than currently possible through the SWIFT network, blockchain fees are lower and there are no maximum limits, which is especially beneficial for exporting goods,” he said.

A view of the stern of the Ever Ace, one of the largest container ships in the world. Source: Wolfgang Fricke

Zen further added that these factors will help reduce fraud through digitally verifiable and legally enforceable paperless 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 the 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 involving over 150 organisations, including major port operators, shipping companies and logistics providers.

According to IBM, TradeLens has processed over 150 million delivery events and saved users approximately 20% in documentation costs. In addition, the platform has reduced the time it takes to ship goods by 40%.

As blockchain continues to gain popularity 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 the promises, however, there are some weaknesses in the application of blockchain technology in international trade.

Disadvantages of blockchain

The main disadvantage 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.

This is because blockchain transactions often involve multiple intermediaries, which can increase costs. In addition, the time it takes to settle a blockchain transaction can be quite long, which can also increase the overall cost.

Another drawback of blockchain is its lack of scalability. Due to the fact that each block in a blockchain must be verified by all nodes in the network, the system can often bog down when processing large volumes of transactions.

This can lead to delays in processing transactions, which can be a major problem in the world of international trade.

Finally, according to Deloitte, blockchain technology is still at an early stage of development, which means it is subject to a number of risks and uncertainties. For example, there can always be a risk of discovering a critical flaw in the scalability and privacy framework that could create a problem for the financial end of the operation.

In addition, there is also the risk that bad actors could use vulnerabilities in the system 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 technology advances, it is likely that many of these issues will be addressed and resolved.

As more and 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 trading 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.