Covid-19: The catalyst to the evolution and extinction of archaic business practices
If anyone was asked in 2019 about the economic outlook for the year ahead, there is a negligible chance that they would be able to predict the radical market conditions that businesses are currently facing. The Covid-19 virus, in just a span of 6 months, has taken its toll on humanity by impacting livelihoods across the world and by crippling global supply chains. With trade and business activity being minimized due to lockdown policies, the real economic implications of the pandemic are only beginning to take shape. Businesses reliant on steady cash flow for survival now find themselves on the cusp of drastic actions like pay-cuts and layoffs to stay afloat.
The commodity trade industry is arguably one of the most adversely affected industries at this point in time due to its dependence on global logistics networks as well as general aggregate consumption. The contraction in global demand has severely impacted cross border businesses with most major economies closing borders to cope with the spread of the virus. Meanwhile the scientific community has indicated that finding a permanent cure to the virus could take long and that as a result individuals all over the world may have to go on with their daily lives while expecting that the implications of the virus will become a part of their daily routine. Apart from drastically reduced consumption, small and struggling businesses are fighting for survival due to growing occurrences of payment-defaults, fraud, business malpractices, and forgery. In such an environment, traders, importers, and exporters are faced with additional challenges in building trust and establishing credibility. The increased exposure to business risk must be dealt with risk mitigation strategies and solutions, which are generally accompanied by an increase in expenditure towards these solutions. The additional expenses resulting from the need to conduct business while strategically avoiding risks will further eat into the margins of cash-strapped businesses. Furthermore, with Social Distancing increasingly becoming the norm and serving as a focal strategy to prevent the spread of the virus, it is clear that the organizations across the globe must learn to minimize in-face interactions for conducting business if they have not adapted to do so already. Impacted business margins coupled with tighter social distancing norms will leave even the most traditional businesses with no choice but to engage in technology-related evolution
Now more than ever, there is a strong requirement for innovation in conventional business practices that completely eradicates the need for physical interactions, the inefficiencies caused by jurisdictional bureaucracy, and the risks of fraud and forgery, without compromising on any of the established security protocols in business. Advancements in enterprise-centric blockchain frameworks could be the paradigm-shifting innovation required to equip 21st-century businesses with the ability to navigate through asymmetric and unconventional risks posed by the nature of the tumultuous period that we are currently living through which may very well continue into the times ahead of us.
Blockchain-based technology has been largely synonymous with the cryptocurrency market and has largely been confined in the last decade to be understood primarily as a technology that facilitates the exchange of decentralized digital assets such as Bitcoin. The growth in the cryptocurrency industry and the corresponding rise in the market capitalization of Bitcoin from $15 billion to $334 billion in 2017 drew a lot of attention and capital towards the technology. While arguably many critics of the cryptocurrency industry note ‘inevitable regulation’ and ‘lack of centralized trust’ as permanent obstacles to its proliferation, the prominence, and importance of blockchain technology in conventional enterprise use-cases has become incontrovertible in recent times. The conception of new Blockchain protocols which allow for the construction of enterprise-related functionalities such as Ethereum, Polkadot, and Cosmos is now allowing for the technology to be implemented in real-world business applications. Enterprise related blockchain technologies now propose to replace the existing IT infrastructures that facilitate the exchange of digital assets, with a framework that offers complete transparency and immutability without compromising on the efficiency of digitization.
In today’s era, contracts, ledgers, and financial transactions are the most important elements involved in global trade and the legal infrastructure surrounds it. These instruments help us define, create, protect, and govern the ownership of assets in the economy. They also allow an establishment to authenticate and validate organizational identities and business-related events. Astonishingly, even in the year 2020 there is a massive dependence on archaic systems related to financial and contractual data exchange which have and will continue to be compromised without the prevalence of unbiased 3rd parties ensuring trust in these processes. Given the long-term adversities and changes brought about by the Covid-19 pandemic, businesses will be forced to adapt to newer technologies that offer the potential to digitize the exchange of real-world assets. As businesses evolve to survive and hopefully thrive in these uncharted waters, so must their methods of risk mitigation.
Contracts, invoices, and other instruments that form the basis of transactions today can be digitized and secured on blockchains, enhancing the verifiability and auditability of digital business assets and data. Blockchain-based technologies provide provable security and privacy through open-sourced protocols and unbiased consensus governance structures, giving users and stakeholders ‘trustless’ transactional ecosystems. With the proven benefits of complete transparency, immutability, and ‘trustlessness’, the cross-border trade settlement and trade finance sectors appear to be two of the relevant and promising sectors to adopt this technology in the year 2020.
Integration of pragmatic blockchain-based deployments promise to rid the industry of some of the hurdles previously faced by organizations in the trade industry by bringing the following key improvements to the sector:
- Blockchain adoption effectively creates a layer of ‘trustlessness’ where the dependency on intermediaries to establish honesty decreases as all key trade documents and information stored with total security on a single platform allowing for an organization to achieve complete disintermediation in trade with complete transparency.
- The digitization of assets and digital representation of funds can help businesses perform transactions from any part of the world with the same efficiency and speed of a domestic transaction while ensuring trust in the solvency and auditability of the medium of exchange by which the transaction occurs on
- The added layer of transparency in exchange of crucial trade documents also helps to significantly reduce the time required for verification and trade settlements, translating to lower transaction costs to the traders and the ability to conduct more trades within a given period of time thus effectively allowing for them to make a positive impact on their potential topline
- Regulators and stakeholders have a single point of access to real-time trade data required by KYC and AML clearances in trade. The ease and access to verified trade data help reduce risk as financiers have more effective visibility to trade activities.
- Crucial documents such as Bills of Lading, letters of credit and Invoices are tracked and maintained through the blockchain, making it impossible to incur double-spending related frauds and losses in trade
The transition of traditional trade processes to robust digitized systems involving the incorporation of immutable blockchain frameworks is extremely evident given the world’s largest commodity trading and production side organizations making massive strides in the active incorporation and deployment of such systems. Whether we take the example of Cargill, Louis Dreyfus and Bungie cooperating to develop and launch a post-trade blockchain-based solution, or the example of leading energy producers such as BP and Shell consolidating their various processes on the blockchain-based VAKT platform, it is extremely clear that successful and enterprising organizations in the commodity trade and supply chain-related industries will be adapting to enforce blockchain-based trust in their daily business processes.
The primary goal of Comdex is to build solutions that have the potential to bolster a revolution in conventional commodity trade settlement and trade finance practices. Our solutions and their underlying technology along with our understanding of the market and its adversities are constantly evolving to bring users exponentially greater efficiency, security and trust. By leveraging the Persistence enterprise blockchain toolkit, Comdex is strongly positioned to offer its users state-of-the-art auditability and security.
All in all, one could speculate if such radical changes to the systematic functioning of the global economy could ever be brought about without the occurrence of a paradigm-shifting shock impact event like the Covid-19 pandemic. It is however fairly certain that traditional businesses would ultimately be faced with a need to evolve for survival through a rise in competition and increased monopolization. With a vision to fully optimize and secure commodity trade and trade finance, Comdex has built the next solution to revolutionize cross-border business.