Globalisation and cross-border trade is one of the greatest achievements of mankind. We can now expect a product to be delivered to our doorstep from anywhere in the world in fifteen days. However international trade has a lot of barriers which slows down the process and increases unnecessary cost. One major issue is the handling of documents which is subject to fraud, human error, and delay which leads to mishandling shipping and unnecessary costs inherited. Documentation is numerous and plenty in an international business transaction.
Technology has transformed almost every industry, better and efficient technology can save time and money for every business. With the advent of blockchain technology, its time to revisit the process of cross-border trade. Before explaining how blockchain can optimise cross border trade, here is a quick summary on how blockchain works.
How Blockchain Works?
Technically speaking a blockchain is nothing more than a glorified linked list. In case you are not familiar with a linked list, just understand that blockchain is actually a subset of a database that has a few additional properties. Now these few properties are that the data is unique (consistent), it cannot be altered (immutable), it does not have a single point of storage or failure (decentralised) and that everyone agrees on the state of the database at any given point of time(canonical).
The central theme of blockchain is that it is really good at creating an immutable and decentralised database. This obviously means that the software or database must not change things around often. You can learn more about the scope of blockchain here.
Blockchain in Cross Border Trade
Cross border trade is notoriously slow and filled with considerable paperwork. At the core of all the procedures and paperwork is to weed out illegitimate goods from entering a country. If we can infuse trust and traceability into the trade and transport ecosystem, the process of verifying and tracking goods can be done with ease and with greater efficiency.
Once all the cargo and transaction details are stored on a blockchain, efficiency can be increased by a huge margin. Shipping vessels save processing time as all the records are digital and integrity is secure.
Blockchain helps quickly and securely process transactions, it is also much more easier to identify and trace a illegitimate trade. Since data in the blockchain is immutable, an illegitimate transaction can be traced back to the source. The digital storage of information of goods will help the authorities to quickly categorise and correctly handle them, not to mention the removal of a large amount of paperwork.
Blockchain by design introduces trust into the system, since all data is digitally stored on the blockchain network the traders can verify origin, financing and other factors of any trade. Traders can also easily and securely process simultaneous transfer of payment in exchange for ownership. Adding automated data endpoints (IoT), customs officials can track the entire supply chain journey to monitor appropriate and safe handling.
Although online shopping sites have risen in popularity, a large number of customers still unknowingly end up dealing with fraudulent traders. Blockchain lets any user trace a trade to its point of origin, the customers can easily order goods safe in the knowledge that only a legitimate product will pass customs and their payment will be handled securely.
UN recently demonstrated the power of blockchain by using blockchain powered tech to run a refugee camp. This is a great relief for people fleeing from war torn countries or oppressive regimes. They usually do not have any identification document. Blockchain provides a fast and secure way to uniquely identify each person.
I wrote in my previous post that Blockchain only has a few limited use cases. Trade finance and supply chain are two of the most important areas that blockchain can transform. A lot of startups are working on Blockchain and IoT technology that can make cross border trade smooth and secure.