How blockchain technology can change international trade

How blockchain technology can change international trade

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

From information to communication technology has been used everywhere to make life easier. For this reason, many have chosen blockchain technology as the next big thing, given its use cases that span a wide range of industries.

Blockchain technology, mainly used to maintain records of transactions, is a type of distributed ledger technology.

Blockchain makes the difference

According to Statista, blockchain makes it easier, more transparent, and even more secure to store data records. Because of its resistance to change, blockchain offers time-based information about transactions, whether they are between private individuals, business entities, supplier networks, or even an international supply chain.

There is also a common belief that blockchain is just a Bitcoin (BTC) technology. But that assumption couldn’t be more wrong. Although this technology emerged alongside Bitcoin in 2008, its use cases today far exceed those of cryptocurrencies. From finance to e-commerce, food safety, voting exercises and supply chain management, they apply to virtually every sector of the global economy, including areas directly or indirectly related to international trade.

The value chain involved in international trade is particularly complex. While its transactions involve multiple actors, other aspects such as trade finance, customs administration, transportation and logistics benefit from blockchain technology.

According to Statista, international payments and settlements represent the largest use case for blockchain technology, especially given that there have been significant efforts to digitize trade transactions in the past.

Today, the potential of blockchain to increase the efficiency of trading processes is already being explored. For example, blockchain project Open Food Chain aims to improve food safety through its Komodo Smart Chain.

Related: Crypto contagion scares off investors in the near term, but fundamentals remain strong

Kadan Stadelmann, chief technology officer at Komodo, a technology provider and open source workshop, told Cointelegraph:

“Blockchain’s biggest advantage is immutability, meaning that data cannot be deleted or edited once it is on the ledger. It brings more transparency to international trade in several key industries.

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

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

“Traditional clearance processes and documents for international trade transactions can take up to 120 days to digitize, but the waybills are tracked via blockchain, eliminating the need for such processes and the possibility of double spending.

“Transfers and transactions are also faster and cheaper than currently possible on the SWIFT network, with lower blockchain fees and no maximum limits, which is especially useful for exporting goods,” he said.

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

Additionally, Zen added, these factors will help reduce fraud through digitally verifiable and legally enforceable paperless documentation.

In another case, IBM and Maersk are developing a blockchain-based solution to streamline the global shipping industry. The project, called TradeLens, aims 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 and reduce costs. To date, the project has been successful in involving more than 150 organisations, including major port operators, shipping companies and logistics providers.

According to IBM, TradeLens has processed more than 150 million shipping events and saved users about 20% in document costs. In addition, the platform reduced the shipping time of goods by 40%.

As blockchain continues to gain popularity across industries, it is only a matter of time before its full potential is realized in the world of international trade. With its ability to streamline processes and reduce costs, blockchain has the potential to change the way goods are traded around the world.

Despite its promise, the application of blockchain technology to international trade has some weaknesses.

Disadvantages of Blockchain

The main disadvantage of using blockchain is that it is often associated with high transaction costs. For example, when it comes to international payments, blockchain technology has been known to be quite expensive.

This is because blockchain transactions often involve multiple intermediaries, which can increase costs. Also, the time it takes to complete 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 of the blockchain must be verified by all nodes in the network, the system can often become bogged down when handling large amounts of transactions.

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

Finally, according to Deloitte, blockchain technology is still in its early stages of development, which means it is subject to significant risks and uncertainties. For example, there is always the risk that a fundamental flaw in the scalability and privacy system may be discovered, which could cause problems for the financial end of the transaction.

In addition, there is also the risk that bad actors can take advantage of system vulnerabilities to commit fraud or theft. These risks must be carefully considered by those looking to use blockchain technology in the world of international trade.

Related: Ethereum Merge: How Will the PoS Transition Affect the ETH Ecosystem?

Despite these shortcomings, 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 organizations adopt blockchain technology, the overall cost of using the system will likely decrease. This could make blockchain a more viable option for those looking to streamline their international trade operations.

Ultimately, blockchain technology has the potential to change the way goods are traded around the world. With its ability to streamline processes and reduce costs, blockchain can make international trade more efficient and transparent.