Blockchain Technology: A Game Changer for Global Trade
Over the last century, global cross-border trade has grown exponentially as the world has become more connected and global supply chains have been optimized. According to UNCTAD’s Global Trade Update, international trade reached a level of $28.5 trillion in 2021. However, massive inefficiencies drive up prices, slow down transactions, and raise the risk of errors, especially when the pandemic continues to rage worldwide. As a result, digitalization is becoming more critical as novel technologies are required to be adopted to make operations in global trade faster, more efficient, and secure.
Using blockchain technology is a critical part of the digitalization of international trade. It uses encrypted distributed ledgers to provide trusted real-time transaction verification without the use of intermediaries that significantly increases the efficiency of transactions in global trade in a secure way. At the same time, it enables anyone to use it to integrate their product to their advantage. For example, some Chinese, Japanese, and Korean banks have already begun to use blockchain technology for payment transactions. According to Juniper Research, using blockchain technology, banks will save $10 billion (£7.35 billion) on cross-border payments by 2030.
This article will outline how blockchain technology would revolutionize cross-border trade. At the same time, use blockchain-based Transnational Trade Network (BTTN) built by Red Date Technology to illustrate how global firms and countries can share data without compromising security and privacy elements.
Visible, bilateral, and immutable transfers
Traditionally, the message’s originator in cross-border payments is populated with the internal account number to manipulate the message, which raises security and privacy concerns in the receiving bank. However, as blockchain requires nodes to approve the transactions, direct transfers can occur instantly without the involvement of correspondent banks or any other third parties. Thus, banks can process transfers that are visible, bilateral, and immutable in nature.
Multilateral transfers in compliance with local regulations
China’s Data Security Law, which took effect in September 2021, has impeded Chinese enterprises’ capacity to share data with international partners and customers. It’s risky, time-consuming, and expensive to stay legally compliant with the new regulations in each jurisdiction when trading globally. Additionally, developing every area of regulatory enforcement from the ground up will take months of trial and error, new internal management standards, and the assumption that a single mistake will result in massive fines or the permanent closure of a company. Furthermore, if the existing IT systems lack the capability and technical complexity to process billions of transactions under the new legislation, it will impact the business resilience.
The Blockchain-based Service Network (BSN) is the first global infrastructure for managing the legal and technical hazards of international trade. The BTTN (by Red Date Technology) intends to address this issue by connecting trade partners on a private network of “data highways” (called business chains, including both permissioned and permissionless chains), requiring them to connect only to the network. Firms can share data between jurisdictions (i.e., multilateral transfer of value) by plugging it into the BTTN data center. Furthermore, BTTN’s built-in cross-chain capabilities allow individual businesses to transact with others globally in compliance with local regulations.
Instant transfer of value
Traditional payment mechanisms for cross-border payments are complicated, expensive, and slow. For example, the average transaction cost for remittances is estimated to be roughly 6.5% by the World Bank, and even payment innovators like TransferWise, Remitly, and PayPal take days to process cross-border payments. Blockchain technology permits the instant transfer of value amidst the bilateral agreement, ensuring trust among the parties involved. Aside from enabling faster and cheaper payments, smart contracts can be utilized for dispute settlement, consumption-based payment, and chargeback facilitation.
Efficiency during crisis
The recent global epidemic has prompted anxieties that have resulted in tighter border controls and, as a result, higher trade costs, highlighting the supply chain’s and international trade’s weaknesses. Also, the increasing scale and susceptibility of such networks will overwhelm paper-based systems. Currently, blockchain is the only solution to efficiently and safely carry out all required technical operations and improve the green footprint.
Many inefficiencies in present systems can be addressed with blockchain. For example, while delivering documentation to move goods out of a port can take days, an electronic bill of lading can be prepared by the supplier (to the financier) in seconds, safeguarded by cutting-edge encryption, and at a fraction of the cost.
Preserving privacy among different blockchain networks
By using a private permissioned blockchain network, the concerns around privacy can be addressed. For example, private keys will be required to access the network, and only parties that have entered into the bilateral trade agreement can become a node. But what happens if the other party uses a different blockchain network?
Applications built on different blockchain frameworks can be integrated by BSN. For example, when a Chinese institution shares data with Singapore, the BSN network assures that only the two parties involved may see it. This means that hackers, governments, or even the BSN are prohibited from accessing the information.
The network also enables zero-knowledge proof, which protects anonymity while transferring value over the network. Institutions may ensure that even they don’t see the specifics of the data exchange with a few clicks while still ensuring that the data is authentic and actionable.
In the import-export sector, time equals money, which means companies lose money when shipments are delayed owing to missing, late, or non-compliant documentation. To address these issues, decentralized finance solutions like blockchain technology have revolutionized the payments landscape, opening up possibilities for multinationals and businesses looking to launch new worldwide projects.
Blockchain can be utilized in a variety of ways by cross-border businesses. To adapt to diverse regional requirements, the BSN supports all forms of blockchain technology (permissioned, permissionless, and open-permissioned). According to Yifan He (CEO of Red Date technology), technology should lead to regulation rather than the other way around.