Blockchain is rising as the new innovative method to connecting a global economy. The technology has impacted a variety of sectors, including healthcare, accounting, social media, real estate and even Hollywood! Trade is no different; already, trade and finance giants such as Maersk and Barclays as well as SMEs are implementing blockchain tools to speed up their trade transactions and enforce compliance measures. We thought we would share some of the basics of this digital ledger and how it can, and is, facilitating trade.
What in the world is blockchain?
In its essence, blockchain is a digital ledger for anything of value. Blockgeeks, a good resource on the topic, compares blockchain to a spreadsheet across a network of computers that is regularly updated between all parties. Blockchains contain strings of code that maintain this ledger that is less likely to be corrupted due to its decentralized nature across the network.
Due to the fact that no party “owns” the blockchain in the network, blockchains have segments of code operate “Smart Contracts.” A smart contract is an independent agent within the chain that can execute specific actions, such as a transaction, when certain events occur (such as port arrival, reception of a document, etc). This creates a carefully tracked record of actions from the beginning to the end of the blockchain that cannot be altered. Smart contracts are frequently agreed to by all involved parties before the code is executed.
Blockchain technology is unique in that it operates like a chain of custody for a particular item or series of transactions. Once an event or transaction (a “block”) gets added to the chain, it cannot be erased or edited without adding another “block” documenting the change. As a result, all parties in the chain can see and verify the validity of transactions in a neutral space, removing the need for a third-party arbiter such as a bank.
How does it work?
Once a blockchain for a transaction is created, it can be shared to its recipients’ computers, which become “nodes” connected to the blockchain network. After it is shared, the blockchain functions in real-time which means: a) several parties can be working within a blockchain at the same time; and b) a single version of the most up-to-date chain is visible to all parties.
Blockchain technology is also flexible enough that users can choose to only share portions of the chain across the network, which assists in maintaining privacy. Blockchain can do this in two different forms: cryptocurrency and business transactions. In cryptocurrency transactions, the details of a transaction are transparent while the executor of the action remains anonymous. In business transactions, the details of the transaction are anonymous while the executors of the action are transparent.
How is it being applied to cross-border trade?
Blockchains can be attached to anything of value, including goods and services in international trade and are used in tracking transactions over time to save time and costs, reduce risk, and increase trust. As a result, more companies are looking at this technology as a cross-border trade tool, particularly as a way to increase visibility into cross-border trade flows, enable paperless documentation requirements, help facilitate compliance, and to enhance trace-back capabilities back to the source. Panelists at a Washington International Trade Association blockchain panel in January 2017 anticipated that businesses and governments would start implementing blockchain systems in 2019, with proof of concepts and trials continuing through 2018.
In fact, food companies and agencies are already anticipating that blockchain can assist in their efforts to meet health requirements in the Food Safety Modernization Act and are taking steps to invest in the technology. Walmart already uses it to track mangos and pigs through the supply chain in a matter of seconds instead of weeks. Steps are being taken in non-US markets as well: organizations in Taiwan are utilizing blockchain to track the health status of milk imports, and the Chinese company Alibaba is utilizing blockchain to boost transparency in its philanthropy efforts.
Further, blockchain can serve as a force for economic development in emerging markets through increased trade facilitation and accountability. As document digitization has become more popular through single window and other trade facilitation tools, blockchain is seen as a way to share one version of the same document to multiple parties to track as it evolves. Perhaps more intriguing, the technology introduces a new layer of accountability into trade supply chains through battling corruption and encouraging sustainability. Companies in the diamond industry are already utilizing blockchain to prevent conflict diamonds from entering the supply chain as they are able to track where a diamond is mined and if it was mined sustainably.
Blockchain can be a great trade facilitation tool for both businesses and governments as it increases accountability, trust, and efficiency across the supply chain. The technology has the potential to assist industry in preserving the integrity of products across the supply chain as it tracks product from source to shelf. We look forward to following its development as it is adopted by industry.
Are you already using blockchain in your cross-border trade operations? Have something to add? We would love to hear from you. Send us your thoughts on blockchain on our LinkedIn or Twitter.