Since ancient times, technological innovations have shaped the structure of business and commerce. The availability 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. Because of this, blockchain technology is considered by many to be the next big thing, given the use cases that cross multiple industry tiers.
Primarily used to maintain records of transactions, blockchain technology is a form of distributed ledger technology.
Blockchain will make a difference
According to Statista, blockchain makes data records simpler, more transparent and more secure. Largely resistant to change, blockchain provides time-based information on transactions between individuals, corporate entities, supplier networks, or even global supply chains.
It is also a common thought 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 beyond cryptocurrencies. From finance to e-commerce, food safety, voting practices and supply chain management, its applications are cut across all sectors of the global economy, including areas directly or indirectly linked to international trade.
The value chain associated with international trade is very complex. While the transactions involve many actors, other aspects such as trade finance, customs administration, transport and logistics will benefit from the use of blockchain technology.
According to Statista, cross-border payments and settlements are the biggest uses of blockchain technology, especially considering that there have been many efforts to digitize past transactions.
As of today, 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 security through the Comodo Smart Chain.
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Kadan Stadelman, Chief Technology Officer Comodo – technology provider and open source workshop – told Cointelegraph:
“Blockchain’s biggest advantage is immutability, meaning that data cannot be deleted or modified once it’s on the ledger. For international business, this offers the opportunity for greater transparency across a number of major industries.”
Stadelman explained that the technology ensures that foods can be tracked from their origin (ie, from a farm in another country) to the consumer’s local supermarket. This, he said, would help improve food security around the world by combating issues such as food contamination.
Blockchain can streamline the complex documentation processes prevalent in international business. Zen Yang, CEO of non-custodial web authentication infrastructure Web3Auth, told Cointelegraph:
“Digitalization of documents for traditional clearing procedures and transactions in international trade can take up to 120 days to complete, but when bills of lading are tracked by blockchain, the need for such procedures and duplicate costs are eliminated.”
“Payments and money transfers through the SWIFT network are faster and cheaper than what is currently possible, blockchain commissions are low and have no upper limit, which is especially useful for exporting goods,” he said.
Zen also added that these factors prevent fraud by using 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, reducing costs and speeding up delivery times. To date, the project has successfully onboarded 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 approximately 20% in document costs. In addition, the platform has reduced the time it takes to ship goods by 40%.
As blockchain is increasingly used in various industries, it is only a matter of time before its potential in the global business world is fully realized. With its ability to streamline processes and reduce costs, blockchain has the potential to change the way goods are sold around the world.
Despite the promises, there are some weak points in the application of blockchain technology for international trade.
Weaknesses of blockchain
The main disadvantage of using blockchain is that it is often associated with high transaction costs. For example, blockchain technology is known to be very expensive when it comes to cross-border payments.
This is because blockchain transactions involve multiple intermediaries, which can increase costs. Additionally, the time it takes to settle a blockchain transaction can be very long, which also increases the overall cost.
Another disadvantage of blockchain is its lack of scalability. Since each block in a blockchain must be verified by all nodes on the network, the system can become bogus when handling large amounts of transactions.
This can cause delays in the processing of transactions, which can be a big issue in the world of international business.
Finally, according to Deloitte, blockchain technology is still in its early stages of development, which means it faces a number of risks and uncertainties. For example, there is always the risk that a critical flaw in the measurement and privacy framework will be discovered that could cause problems on the financial end of the operation.
In addition, there is a risk that bad actors can exploit vulnerabilities in the system to commit fraud or theft. Those who want to use blockchain technology in international trade should carefully consider these risks.
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Despite these disadvantages, it should be noted 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 and more organizations begin to adopt blockchain technology, the cost of using the entire system may decrease. This could be more viable for those looking to use blockchain to streamline their global business operations.
Ultimately, blockchain technology has the potential to revolutionize commodity trading around the world. Its ability to streamline processes and reduce costs has the potential to make international trade more efficient and transparent.