International Trade: Changing 300 years of legal precedence
Target Market 101 | What is International Trade and how is Perlin innovating in this space?
What is International Trade and how is Perlin innovating in this space?
Perlin’s core commercial focus is bringing Wavelet to the international trade and commerce arena. More specifically, we will be driving the adoption of Wavelet through established partnerships with the International Chambers of Commerce (ICC) and other partners, which can be found below.
Wavelet is Perlin’s directed acyclic graph (DAG) based protocol and is specifically designed for increased efficiency and transparency for complex processes (that have many inputs and outputs) like supply chains and international commerce. For more information on its capabilities see here.
Read on, to learn more about:
- What is International Trade?
- What’s the issue with International Trade?
- Why Distributed Ledger Technology (DLT) and Wavelet?
- Who are we working with?
- Our Vision
- Next Steps
What is International Trade?
At its most basic, international trade is the process by which countries exchange goods and services between the two countries. To most, the act of buying goods in another country and having them delivered to your door seems like a normal day to day interaction. We don’t think much of the complex processes, back-office work, technology and other business operations that allow for these transactions to occur. If you think about it, how does a company in Country A, trust a trading partner in Country B if they have never interacted with each other in the past. If I give them money, how do I trust that they will send me the products? If you think about eBay, they give us some protection as buyers and sellers on the platform, how does this occur for companies, exporters etc.
This is where international trade terms, regulations, organisations come in to help out. In particular, most of the trust at this stage is facilitated by banks using financial tools to ensure funds are released upon the reception of goods. There are dozens of documents, tools and organisations that help facilitate the transfer of these goods; the most prominent of which include:
- Bill of Ladings: A document issued by a carrier to acknowledge receipt of cargo for shipment. (These can differ for different transportation means)
- Certificates of Origin: A document that helps attest the origin of goods.
- Letter of Credit: A letter from a bank guaranteeing that a buyer’s payment to a seller will be received on time and for the correct amount.
Here is an example of a simple trade flow between 2 companies in different countries:
In the example above, we have a trade that utilises a letter of credit as a financial instrument to facilitate trust between trading parties. The documents are utilised to act as proof of transfers and to release the goods from the seller to the buyer.
Note that the trade is broken down into 3 trade flows:
- Documentary — the bilateral flow of documents utilised for compliance purposes
- Financial — the unilateral flow of money for trade (buyer to the seller)
- Goods — the unilateral flow of products or services for trade (seller to the buyer)
All of which have different systems, operations and technology in place to facilitate their processes.
What’s the Issue?
Right now, most of the trade occurs using physical documentation which flows just as slowly as the goods that are being shipped. They hold an incredible amount of power and also lead to:
- Human Errors — right now many documents are manually checked to see if they match and ensure data flows correctly. However, it is extremely common for there to be large amounts of contract, agreement and document errors.
- Speed Inefficiencies & Delays— due to the documents being physical items that need to passed between various stakeholders in the value chain, there are large delays in the goods layer of the trade. Goods are locked in the port till the documents are cleared and payment is often held much longer than it needs to be.
- Excess Labour — due to the cumbersome processes involved with the trade, some of our trade/government partners estimate there is significant excess labour required in the banking sector, shipping yards and trade operations. This is purely due to the manufactured inefficiencies and the lack of digitalisation
We are also undertaking academic studies alongside other strong stakeholders in trade to analyse the financial losses due to the inefficiencies, delays and excess labour costs.
Why Distributed Ledger Technology (DLT) and Wavelet?
Generally, any solution that aims to use a DLT or blockchain should have one of the following requirements to be a ‘good’ and practical solution:
- Security — DLTs provide extremely high security guarantees compared to traditional databases. This is because there are thousands if not millions of nodes that are hosting and validating all the transactions which ensures there is no single point of failure.
- Transparency — Ensuring the public can view your content and have the assurances that you have not tampered with the data or updated it without explicitly providing concrete reasons. This helps immensely with applications such as traceability, provenance, anti-counterfeiting and other applications.
- Immutability — Allowing users to have the guarantee that any data changes are recorded and keeping records appending only allows for greater reliability for certain applications. In this sense, it reduces fraud and other issues that plague many aspects of the value chain such as fraudulent origins for reduced tariffs etc.
Generally, an application that could benefit from any of those three elements is a perfect candidate for this. Supply chain & trade is known to be one of the best areas to innovate using DLTs due to the following reasons:
- For international trade to work, there needs to be trust, which is currently facilitated by banks, chambers of commerce and other parties. With a DLT, we now can create a system that is trustless to significantly reduce the workload and improve the efficiencies of stakeholders mentioned above.
- There is no mainstream digital solution that is currently facilitating international trade. Whilst there are many forward-thinking companies and initiatives (many that we are collaborating with) that are innovating in this space, we still have a long way to go for mainstream adoption. Infrastructure change is coming anyway, so this is the perfect time for DLTs to swoop in
- Finally, if we consider the act of transferring trade documents and data between several countries — it becomes important to look at the location of the data. Using a DLT, the data is stored in a decentralized manner which helps companies and countries have a more equitable platform for trading.
So, why Wavelet when there are so many other chains out there?
For international trade, there are billions of transactions going through annually and our goal is to improve the speed of the transactions. This means our throughput and our time to finality becomes very important when considering which DLT to use. We also wanted this platform to be fair and equitable such that even people with low spec hardware, in remote areas, could run nodes and participate.
Wavelet addresses all of this from a technical perspective in the following manner:
- It has a transaction throughput of over 31,000 transactions per second (TPS) which can easily handle the throughput of daily trade with much leftover bandwidth for other applications
- A time to transaction finality of 0–4 seconds; which ensures no delays with transfers and holds up the utmost efficiency we can achieve for a digital trade system
- Finally, our system can scale to millions of nodes and has very minimal hardware requirements (2 CPUs, 512MB RAM and <10GB in disk space). This means all participants can join fairly and easily all across the world which is extremely beneficial because international trade is conducted even in the most remote regions of the globe.
Who are we working with?
As well as the advancements we have made on the technology front, we have made large strides in our business division as well. Our core partner for all trade activities is the International Chamber of Commerce (ICC).
International Chamber of Commerce is the voice of world business championing the global economy as a force for economic growth, job creation and prosperity. Together with the ICC and some of the other partners such as Telkom Indonesia, Enterprise Singapore, NITI Aayog and many others, we aim to transform the trade space for the global economy. We want to do this in the most accessible, equitable and fair way possible — which is why we are pioneering this with our DLT.
As the world’s largest business organization representing 45 million companies and more than 1.2 billion employees globally, the International Chamber of Commerce (ICC) is uniquely positioned to effectively encourage the uptake of blockchain-based technologies at scale. Through our collaboration with Perlin, we aim to create opportunities for our members to tap into blockchain’s tremendous potential in areas such as supply chain traceability, trade finance and anti-counterfeiting. Enhancing these efforts is part of how we enable the global business community to do its part in achieving more inclusive and sustainable growth.
— John W.H. Denton AO, ICC Secretary General
Imagine a world where self-driving cars, vessels and planes run the supply chains and these systems are controlled and governed by decentralised artificial intelligence systems. A Rio Tinto shipment picked up from the mine by an autonomous truck where every ore batch is tracked and traced to the source. The truck drops off a batch at the port where robots load it on to a self-driving vessel and the digital INCO term is updated on a smart contract where liabilities and insurance providers swap over from seller to buyer.
Trade is drastically going to change in the next 10 years and as a result, we need to improve our operational systems to account for these technological advancements as our processes are only as fast as our slowest pathway. Right now, trade processes are slow, inefficient and require too much trust.
At Perlin, our sights are set on the future of trade and what that looks like in 2020, 2030 and beyond. Technology is ramping up extremely quickly and together with the ICC we want to be the Perlineers (pioneers) of this new trade world.
Our next 6 months will be developing Wavelet so we can start moving some of our trade applications to mainnet. We have several trade initiatives that we’re currently building but most of them will be announced over the next few months. To stay in the loop, join our community channels and follow our socials. We look forward to sharing more details whilst we move our applications to the production phase and introduce new tools to help better the trade ecosystem.
Catch you all later!