trade and blockchain technology Archives

Redefining Trust in Global Trade

Trust forms the backbone of all international trade agreements. In the current system, this trust is often built on extensive documentation and intermediaries, which can lead to inefficiencies and increased costs. Blockchain introduces a shift towards a more transparent trade process. By allowing multiple parties to access a single, immutable ledger, blockchain creates a system where trust is built into the technology itself. This setup not only reduces the potential for disputes but also significantly streamlines compliance processes, making it easier for businesses to operate across borders.

Streamlining Transactions with Smart Contracts

One of the most innovative aspects of blockchain is the use of smart contracts. These digital contracts automatically execute transactions when predetermined conditions are met, without the need for intermediary oversight. For international trade, this means agreements can be executed faster and with fewer errors. Smart contracts could dramatically reduce the time and cost associated with trade by automating complex processes like customs clearances and payment settlements, which are often prone to delays and discrepancies.

Enhancing Efficiency and Reducing Costs

Blockchain technology could drastically reduce the administrative burden associated with trade finance. Traditional methods often involve a labyrinth of paperwork and a complex chain of approvals. With blockchain, all parties have real-time access to the transaction data, which is securely encrypted on the ledger. This not only speeds up the verification processes but also cuts operational costs by reducing the need for manual intervention and audits. Moreover, the inherent security features of blockchain help in mitigating the risks of fraud and tampering, further ensuring that trade transactions are not only faster but also safer.

Integrating Digital Currencies into Trade Finance

The rise of digital currencies, has introduced a new dimension to global trade finance. While discussing Bitcoin’s influence, it’s pertinent to consider how its underlying technology—blockchain—is reshaping financial interactions. For example, the bitcoin price often reflects broader market sentiments and can influence financial strategies. Incorporating Bitcoin and other digital currencies into blockchain platforms can simplify payments across borders, reducing currency conversion fees and settlement times. This integration not only enhances operational efficiencies but also introduces a level of financial flexibility previously unattainable in traditional banking frameworks.

Improving Transparency and Compliance

Blockchain technology enhances the transparency of trade processes by providing an unalterable record of all transactions. This level of transparency is crucial in international trade, where multiple stakeholders, including regulatory bodies, are involved. With blockchain, every phase of a transaction, from initiation to completion, is recorded and visible to all authorized parties. This not only facilitates easier compliance with international trade regulations but also enables faster resolution of disputes and audits. Enhanced transparency helps reduce corruption and fraud, reinforcing the integrity of trade networks and building stronger relationships between trading countries.

Current Initiatives in Blockchain Trade Platforms

Barclays has explored the potential of blockchain through its collaboration on the Wave platform, which aims to streamline the cumbersome paperwork associated with trade finance. Similarly, HSBC has implemented a digital letter of credit service using blockchain, showcasing how these digital transactions can reduce the time and complexity of standard trade processes. Another notable collaboration involves Standard Chartered and DBS Bank, which have jointly developed a blockchain project to enhance the efficiency and transparency of trade finance operations. These efforts underscore a significant shift towards adopting blockchain technologies to handle trade transactions more effectively, highlighting the industry’s commitment to innovation and improved operational efficiency.

Similarly, the we.trade platform, a collaboration among some of Europe’s largest banks, leverages blockchain for trade finance. It focuses on simplifying trade finance processes for small and medium-sized enterprises (SMEs) by offering a secure platform to execute and manage trade agreements. These initiatives not only validate the robustness of blockchain technology in enhancing trade efficiency but also signal its growing adoption among traditional financial institutions.

Overcoming Challenges for Wider Adoption

Despite its potential, the adoption of blockchain in international trade is not without challenges. Key among these is the need for a global standard and governance framework to ensure seamless interoperability between different blockchain systems. Moreover, there are technological barriers, such as the scalability of blockchain networks, which need to be addressed to handle the vast volumes of transactions typical in global trade. Additionally, regulatory and legal frameworks are yet to catch up with the new possibilities opened up by blockchain technology. These frameworks need to clearly define the legality of blockchain-based contracts and the handling of cross-border transactions to foster broader adoption.

Conclusion: The Road Ahead for Blockchain in International Trade

As blockchain technology continues to mature, its potential to transform international trade becomes increasingly evident. By offering unparalleled transparency, efficiency, and security, blockchain can address many of the traditional challenges faced in global trade. However, for blockchain to fully realize its potential, ongoing collaboration among tech developers, trade experts, and regulatory bodies is crucial. Together, they must forge the path toward standardized, global adoption that respects the nuances of international law and trade practices. With sustained effort and cooperation, blockchain could become the backbone of a new, more dynamic global trade architecture.

When one thinks of blockchain, one thinks of cryptocurrency, but even though much of this article is dedicated to the use of cryptocurrency, the truth is that more can be done with blockchain technology. This is because blockchain technology allows people from all over the world to create a transaction on a computer system. This transaction is secure (cannot be tampered with), it is dated, and it can be signed in many secure ways.

In short, if you wished, you could conduct a large digital Mexican wave around the world, and not only would the entire process be secure and efficient, it would also be traceable and wouldn’t rely on a central authority or third party to action.

The Omise Story

Omise is a company the operates a payment gateway for Thailand, Japan and Singapore. Rather than moving money from one country to another, convert it and so forth, they created their own coin OMISEGO, which they can quickly transfer anywhere. It can be deposited with an Omise office in another country. To help keep the price of their coin from fluctuating too much, they only conduct inter-office transfers as a way of getting money from one country to another. This is far faster and cheaper than using an Automated Clearing House, and far cheaper than using wire transfers.

But, what about the problem that each transaction creates a little more OMISGO coin? The answer for them was simple. They released the coin onto the general market, which gave it a market price, which therefore solved the “bit-extra” problem and introduced the problem that transactions now had to happen quickly for fear of sharp rises and falls in the coin’s price, which pushed up the potential transaction fee. However, the increase was marginal, and it was still cheaper than wire transfer and is still almost as fast.

Can the Omise Story Transfer Over?

Well, it certainly transfers to other payment gateways, and even modern US banks have stated their intentions to create their own cryptocurrency so they may move money within their own branches more easily. They would maintain full control of the currency, including its mining, which means that theft is more difficult and price fluctuations are not a problem.

Still, if it is to be applied to business operations, it needs to somehow improve efficiency, otherwise it is just another path to the same objective. If your business has an international element, then there is a chance that blockchain technology, specifically cryptocurrency, will help you. Otherwise, cryptocurrency needs to evolve and be retooled before it can do things like pay separate departments on demand more efficiently than the methods you are using right now.

What About Automated Clearing Houses?

ACH is hardly in its death throes since despite online transfers being as common as salt in the ocean, companies are still wrapping themselves in the warm blanket that is ACH, so what are their arguments against blockchain?

Argument – Costs pretty-much the same for each transaction.

Counter – Yes, on a per-transaction basis, but you receive your money up to 24 hours quicker with cryptocurrency.

Argument – We conduct thousands of transactions per day that only a clearing house could handle.

Counter – Dealing with fiat money yes, but transacting thousands of blockchain transactions per day can be done in house with almost no security risks.

The truth is that there are many ways that blockchain technology can replace Automated Clearing Houses, especially in terms of speed, security and traceability. But, ACH is trusted, tried and proven, whereas blockchain is still too new for most companies to trust.

The Demand for More Transparency

Let’s say there is a new law where every company had to track every supplier from its source. Every screw and every wire from every phone ever made, and so forth. A similar thing already happens with products labeled “Organic” in stores. Such a law would cost most primary and secondary industries a fortune, but the costs could be reduced in such an event with blockchain.

They could use blockchain to track transactions from start to finish. That way, every product being sold could have its own history that is stored in digital form. If required, an authority figure could back track every single element within a product, from where the coffee beans were bought to where the glue was manufactured for the label. Plus, the system could be set up so that each supplier need not consult a central authority to execute transactions, and each transaction would be protected with encrypted data. It would be difficult for a single entity to disrupt the history of transactions, which on its own will make the transactions a lot more secure.

Supply Chain Tracking

Using the same method as above, a company could track its supply chain, which is more important in the food industry than anywhere else. Walmart is unable to trust the record-keeping of companies in China, so it is using blockchain to track the supply of pork. Record-keeping transactions are marked at intervals so that Wal-Mart can see if a piece of pork sat in a warehouse for six months before being processed. The record-keeping process happens with regards to where the meat comes from, is slaughtered, processed, and stored, and this information is then used by the company in the US to create its sell-by-date.

Conclusion – A Tool is Only as Good as Its Use

A paintbrush in the hands of a novice is no more useful than a shotgun in the hands of a kangaroo. The intrinsic benefit of blockchain, as described in the introduction, is very powerful, but businesses are having a hard time integrating it into their companies. There are plenty who claim they have tried, such as Tyson, Nestle, Unilever and Dole, but they are more like nervous children dipping their toes in the shallow end of the pool.

Blockchain will benefit those who wish to transact payments domestically and overseas, and those who wish to track a process, a supply chain, and/or who just wish to be more transparent about their business operations. However, it is only the really competitive industries like the financial and food industries that are worth the added benefits of blockchain for the slight edge that blockchain technology gives them over their competitors.

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Ava Williams is a Resumeble editor and a career expert from Vancouver. She finds her inspiration in blogging and career courses. Meet her on Twitter and LinkedIn

Blockchain-Based Trade Agreements: How Distributed Ledgers Can Simplify International Partnerships

Redefining Trust in Global Trade

Streamlining Transactions with Smart Contracts

Enhancing Efficiency and Reducing Costs

Integrating Digital Currencies into Trade Finance

Improving Transparency and Compliance

Current Initiatives in Blockchain Trade Platforms

Overcoming Challenges for Wider Adoption

Conclusion: The Road Ahead for Blockchain in International Trade