One can’t ignore the importance of global trade in business. It enables states to create and export goods for which they are more effective while importing things for which they are less effective. So nations and organizations across the globe as a result lower their manufacturing costs, lessen the cost of commodities, and increase their market share.
Although international trade is a challenging process but has been made easier by a variety of monetary, socio-political, and technological elements. Now when it comes to technology, there is no match for blockchain technology. Blockchain-based trade finance has given new hope to carry out trade more securely, and effectively while reducing the cost.
Well, it will not be wrong to say that blockchain will revolutionize international trade in the future. So if you are planning to introduce blockchain in your trading business this blog is for you. It will take you on a journey where you will get to know the unlimited potential this advanced technology has to offer. On top of that, you will also know how it can help you maximize your ROI while keeping the security intact.
If we go with the recent stats, governments, and organizations from around the world have spent more than 11.65 billion USD on blockchain solutions in the year 2022. The major share in the same was from the US with a whopping contribution of 4.2 billion USD followed by Western Europe with 2.9 billion USD, and so on.
On the other hand, if we go with experts, this market is further expected to grow at a compound annual growth rate (CAGR) of 55.0% and can reach 99.37 billion USD by 2027.
Even if we go with the World Economic Forum, the benefits of blockchain in trade can be huge. It is not limited to shipping alone but using blockchain to improve border management and communications can increase global trade by $1 trillion.
In addition to this, a report from the World Trade Organization (WTO) claims that the incorporation of blockchain technology might increase the economic value of global commerce by $3 trillion by 2030. Then why not go for it?
A blockchain is a decentralized, unchangeable database that makes it easier to store and track data in a communal setting. In other words, blockchain is just a technology that creates a trustworthy service in an untrustworthy setting. It is a type of distributed ledger technology (DLT) that enables the safe, open, and unchangeable archiving of data on a network of interconnected computers known as nodes
The term “blockchain” refers to a technology that permits the development of a digital record of transactions or other forms of data that are stored in blocks and chained together in chronological order. Each block in a blockchain holds a collection of data, including records of transactions or other kinds of information.
The information in one block is referred to by the information in the following block, and so on, producing a continuous and sequential chain of blocks. These blocks share a link with each other through cryptography.
With the introduction of blockchain technology, the field of digital innovation has undergone a paradigm change that has made it possible to create decentralized, secure, and transparent platforms. Peer-to-peer transactions, supply chain management, digital identity verification, and other areas have all been made possible; thanks to its ground-breaking architecture.
The potential for blockchain development is essentially endless as technology develops, providing a broad environment for innovation and disruption across numerous industries. The unbreakable chain of data it carries is extremely impossible to hack or alter because each block in the chain has a distinct cryptographic hash connecting it to the preceding block.
The decentralized aspect of blockchain, which is based on a network of nodes that cooperate to maintain the accuracy and integrity of the ledger, is what gives it its power. The distributed ledger system is a really disruptive force in the digital era because it provides unheard-before levels of security, transparency, and immutability.
There are several stories that assert blockchain may completely transform numerous facets of global trade, including trade finance, customs processes, and intellectual property. Private sectors, as well as governments, are interested in exploring how blockchain technology could improve the effectiveness of trade processes due to its transparency, decentralization, and immutability.
As a result, a wide range of proof-of-concept and pilot projects using blockchain have been developed in almost all facets of global trade. Let’s dive deeper to see what blockchain has to offer international trade.
Global supply chains and operational procedures can be digitized, secured, streamlined, and ultimately accelerated via blockchain. International commerce transactions might take up to 120 days to conclude. Moving away from paper-based procedures and toward digitally verifiable, legally binding paperwork allows businesses to operate more quickly and reduces fraud.
Blockchain in businesses will enable information alignment, quicker imbalance resolution and settlement processes, as well as more effective delivery practices, for the gas and power industries, where issues with trustworthy data sharing are prevalent.
Blockchain increases trust in the renewable energy sector by providing network transparency and governance systems that link all parties, which solves issues with accurate reporting of industrial carbon emissions or energy produced through renewable assets.
Massive amounts of the fundamental materials required to feed and fuel the globe must be moved in a sophisticated manner. As a result of the fact that many producers are located in remote areas and developing economies, it necessitates several counterparties with ineffective coordination. Commodity trading is changing from a high-margin service industry to a low-margin one as markets become more efficient.
More and more traders are making a living by connecting producers and consumers through a robust, dependable logistics service. These characteristics inevitably increase transaction risk, which limits access for start-up or expanding businesses. But here margin will rise, thanks to blockchain’s cost-cutting capabilities. Moreover, market accessibility will be boosted by its deterministic trust architecture.
Trade finance follows the same laborious operational procedures as international trade. Most requests for trade financing that SMEs in emerging markets submit to financial institutions are denied as a result of compliance issues, a lack of confidence, and low profitability. By validating documents, expediting administrative procedures, and facilitating communication amongst many stakeholders, blockchain addresses several of these problems.
Additionally, blockchain makes it easier for market participants to connect with alternative investors, expanding the sources of funding for smaller firms.
Current trading processes are frequently seen as inefficient because they include too many intermediaries (security trade brokers, custodians, and payment agents), are vulnerable to settlement risks, and have unpredictable and lengthy settlement cycles.
In addition to ensuring and easing the consolidation of securities registers, blockchain technology has the ability to significantly simplify the chain of post-trade processes while also enabling real-time settlement at T+0, faster execution, and lower transaction costs.
There is a sizable long-term potential to develop trade and finance-focused marketplaces across the three categories (supply chain management, commodities logistics, and post-trade settlement) in order to simplify access for both supply and demand parties, increase liquidity, foster competition, and boost efficiency.
For players using supply chain networks, blockchain technology enables increased transparency and a single source of truth. Blockchain-based intelligent order, goods, and delay tracking could hasten the delivery and receipt of goods.
The advantages of using blockchain here are as follows
The majority of non-integrated supply chains still rely on slow, insecure physical procedures. Stakeholders can address these problems and boost efficiency by digitizing physical processes using smart contracts and blockchain technology.
It is challenging for producers, manufacturers, merchants, and customers to confirm the authenticity of a product. This increases forgery. Products can be connected with non-fungible tokens at the time of creation using blockchain technology. Then, these tokens could be utilized as electronic certificates.
The majority of brands and merchants are unable to regulate distribution outside of their own channels. But with blockchain, they can create precise rules to control distribution across a number of channels.
Because they lack knowledge of a product’s history, many retailers are unable to offer comprehensive after-sales services, such as recalls, warranties, and maintenance. With blockchain, they may create new after-sales services using data on the product life cycle that is protected by smart contracts.
Customers need open communication regarding the components and procedures used in the production of products. With blockchain, each supply chain participant can offer verified information.
Customers find it challenging to demonstrate product ownership. This increases fraud and theft. Customers can gather and manage non-fungible tokens linked to actual goods using blockchain, and they can use these tokens to demonstrate the ownership and authenticity of the objects, enabling secure secondary markets.
One of the major challenges of implementing blockchain is that it frequently results in high transaction fees. Blockchain technology has a reputation for being highly expensive, for instance when it comes to cross-border payments.
This is due to the fact that blockchain transactions sometimes include many middlemen, which can increase prices. Additionally, the length of time required to settle a blockchain transaction can significantly raise the overall cost.
The inability of blockchain to scale is one of the other challenges it is facing over the years. As every block in a blockchain must be confirmed by every node on the network, the system frequently stutters especially when processing high numbers of transactions. So delays in the processing of transactions are a significant problem in the realm of international trade.
Last but not least, as blockchain technology is still in its infancy, there are several risks and uncertainties associated with it. For instance, there is always a chance that a serious vulnerability in the framework for scalability and privacy will be found, which could have an impact on the operation’s financial side.
In addition to this, the possibility is high that dishonest people could perpetrate fraud or theft by taking advantage of system flaws. Those who want to employ blockchain technology in the area of international trade need to carefully assess these concerns.
But despite these shortcomings, it’s vital to remember that blockchain technology is still in its infancy. Many of these problems will probably be addressed when technology further develops and solved.
The overall cost of using the system is probably going to go down as more and more businesses start implementing blockchain technology. As a result, firms trying to streamline their global trading processes may find blockchain to be a more appealing alternative.
Finally, blockchain technology has the ability to completely change how things are traded globally. Blockchain has the potential to increase the efficiency and transparency of international trade by streamlining procedures and lowering costs.
When it comes to implementing blockchain technology into trade financing, you are required to hire a dedicated blockchain development company that can not only help you successfully implement blockchain but also provides you with a competitive edge.
Blocktunix is a seasoned blockchain development agency that has successfully delivered blockchain-based projects across the globe. Our power lies within our battle-tested development process and the quality of blockchain experts we have with us. Then why not grab the opportunity to become a part of the global blockchain market by joining hands with Blocktunix?
#2011, Floor 20, Burjuman Business Tower, Dubai.
Primary. Suite #304. 11200 Manchaca. Austin, Texas 78748, US.