The fulfillment of blockchain’s potential will require social and political change, as well as for companies to relinquish their current manual processes and governments to relinquish some of their control over those processes.
It’s no secret that the process of global trade is overly manual and could be made more efficient if both the corporations that import and export and the governments that regulate trade were to implement better platforms and processes.
The open-source, distributed ledgers known as blockchains are now mature enough to be considered as a viable part of the technology stack for global trade. While implementing it now would be like going to the supermarket via a space shuttle, blockchains are an increasingly relevant part of conversations that surround trade technology, and trade practitioners should take note.
Blockchain was originally designed to support the development of Bitcoin by an individual or group using the pseudonym Satoshi Nakamoto. Blockchain maintains permanent, tamper-proof lists of records, bundles them into blocks, and chains them together where they are distributed through a peer-to-peer network. When changes are made to the information, or ledger, those changes are recorded across the blockchain.
Blockchain provides a high level of security through the use of cryptography. Each block is assigned a timestamp and linked to the prior block, so all transactions are recorded chronologically, forming an incontrovertible chain. This means that the blockchain information is not only shared, but also continually reconciled as changes to the data occur.
Since blockchains are publicly available and run on computers distributed throughout the world, there isn’t a single, central database. This reduces the risk of data hacking, as it is extremely difficult to remove, duplicate, modify, or tamper with records within a blockchain.
Awareness of this technology picked up steam in 2013, when Bitcoin, the digital currency that relies on a blockchain, suddenly went from an obscure, high-tech interest to a valuable commodity worth real money.
There are two primary factors that make blockchains a worthwhile subject for trade practitioners to pay attention to now.
Blockchain is encroaching onto incumbent technologies in many industries, including banking, high finance, insurance, retail, transportation, and government. The research firm Venture Scanner is tracking nearly 900 blockchain technology companies across 12 categories in 73 countries, with a total of $1.9 billion in funding.
The technology is no longer niche, and it’s not limited to technology startups. Computer Business Review recently recognized the top ten blockchain players, a list that includes familiar multinationals such as IBM, Microsoft, Accenture, JP Morgan, and Thomson Reuters.
The International Monetary Fund (IMF) released a discussion note on blockchain earlier this year, which trumpets the technology’s potential to facilitate payments across borders in a way that guards against money laundering and tax evasion. Central banks in Russia, India, and Singapore are considering the issuance of Bitcoin-like digital currency, according to Coindesk, an outlet for blockchain-oriented news.
This is important to note because a blockchain is, in essence, a decentralized platform, and successful use cases in one industry are likely to drive experimentation in new ones. Moreover, blockchains could, down the road, potentially solve real problems for trade teams.
Our 2016 survey of trade practitioners, which was conducted with KPMG, found that a lack of automation continues to be the top challenge for trade practitioners. Our findings show that trade teams largely see the value in automation and would be keen to adopt technology that reduces risk, makes their jobs more dynamic, and enables them to focus on strategic decisions that add more value to their respective companies.
Using blockchain technology for global trade could result in what can only be described as radical process automation. Just as Bitcoin and other digital currencies seek to reduce friction by getting rid of the centralized processor needed to execute a monetary transaction—e.g. a traditional bank—a trade technology stack that leverages blockchain could conceivably eliminate the need for many of the manual processes currently required to move materials and goods from one place to another securely, quickly and in compliance with various trade and transportation regulations.
A recent whitepaper from “enterprise grade” blockchain management solutions provider Bloq presented a compelling argument for blockchain use as a means of reducing counterparty risk.
“A blockchain solution [for trade] would ensure the immutability of the shipment contents, origin, quality, and provide time-stamping of transactions by shipping participants,” the company said.
This suggests that blockchain can provide greater transparency throughout the supply chain, benefiting users by providing greater assurance about the parties involved in the transaction, streamlining trade finance, and digitizing documentation such as letters of credit and bills of lading, to name just a few examples.
In short, blockchain technology has strong potential to radically change processes in many fields, including international trade. However, given its current complexity, implementing it for trade compliance would require significant changes to the status quo. Large companies are nevertheless experimenting with the technology, and trade teams can use an understanding of the basics to enter into those conversations.
The fulfillment of blockchain’s potential at large will require social and political change, and the fulfillment of its potential for global trade will require companies to relinquish their current manual processes and governments to relinquish some of their control over those processes.
There’s still a long way to go towards real adoption for trade, but there is promise.
Keith Haurie is vice president of business development for ONESOURCE Global Trade at Thomson Reuters. He can be contacted at firstname.lastname@example.org.