Since time immemorial, technological innovations have shaped the structure of trade and 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 has been used everywhere to make life easier. For this reason, blockchain technology has been touted by many as the next big thing, given its use cases that cross numerous vertices of the industry.
Mainly used to keep records of transactions, blockchain technology is a type of distributed ledger technology.
According to Statista, blockchain makes keeping data records easier, more transparent, and even more secure. Largely because of its resistance to change, blockchain offers real-time information about transactions, whether between individuals, companies, supplier networks, or even a global supply chain.
There is also a common perception that blockchain is only a technology for Bitcoin (BTC). However, that assumption could not be more wrong. While the technology emerged alongside Bitcoin in 2008, today, its use cases have evolved far beyond cryptocurrencies. From finance to e-commerce, food security, electoral exercises and supply chain management, its applications cover almost every sector of the global economy, including areas directly or indirectly linked to international trade.
The value chain associated with international trade is particularly complex. While its business involves multiple parties, its other aspects such as trade finance, customs, shipping and logistics all benefit from the adoption of blockchain technology.
According to Statista, cross-border payments and settlements represent the biggest use cases of blockchain technology, especially considering how there have been numerous previous attempts to digitize business transactions.
The potential of blockchain to increase the efficiency of business processes is already being explored. For example, the blockchain project Open Food Chain is working to improve food safety through the Komodo Smart Chain.
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Kadan Stadelmann, Director of Technology Komodo – a technology provider and open source workshop – said Cointelegraph:
“Blockchain’s biggest advantage is immutability, which means that data cannot be deleted or changed once it is in the ledger. For international trade, this provides an opportunity for greater transparency in several key industries.
Stadelmann explained that the technology ensures that food can be traced from its origin (ie a farm in another country) to the consumer’s local supermarket. He says this can help improve food security around the world by tackling problems such as outbreaks of food contamination where 600 million – nearly 1 in 10 people in the world – fall ill after eating contaminated food and 420,000 die every year, according to the WHO.
Blockchain can streamline the complex documentation processes prevalent in international trade. Zen Young, CEO of non-custodial web authentication infrastructure Web3Auth, told Cointelegraph:
“Digital documentation for traditional clearance processes and transactions in international trade can take up to 120 days to complete, but with blockchain-traceable bills of lading, the need for such processes and the potential for double spending are eliminated.”
“Transfer payments and transactions are also faster and cheaper than currently possible through the SWIFT network, blockchain fees are lower and without a maximum limit, which is especially beneficial for the export of goods,” he said.
Further, Zen added that these features will help reduce fraud with digitally verifiable and legally enforceable non-paper documents.
In another use case, IBM and Maersk are working on a blockchain-based solution to streamline the global shipping industry. The project, 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 and reduce costs. To date, the project has been successful in over 150 organizations, including major port companies, shipping companies and logistics companies.
According to IBM, TradeLens has processed over 150 million shipping events and has saved users about 20% in document costs. In addition, the platform has reduced the time it takes to ship products 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 business. 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 promises, however, there are some weak points in the use of blockchain technology in international trade.
Cons 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 has been 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 add to the overall cost.
Another disadvantage of blockchain is the lack of scalability. Due to the fact that each block in the blockchain must be verified by all the nodes in the network, the system can often get stuck when handling a large volume of transactions.
This can lead to transaction processing delays which can be a big issue in the world of international trade.
Finally, according to Deloitte, blockchain technology is still in the early stages of development, which means it is subject to various risks and uncertainties. For example, there could always be a risk that a critical flaw could be discovered in the flexibility and privacy framework that could cause the financial end of the business.
In addition, there is also the risk that bad actors can exploit weaknesses in the system to commit fraud or theft. These risks need to be carefully considered by those looking to use blockchain technology in the world of international business.
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Despite these disadvantages, it is important to note that blockchain technology is still in the early stages of development. As the technology matures, 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 business.
Ultimately, blockchain technology has the potential to revolutionize the way commodities 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.
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