How Blockchain Could Shape International Trade
Financing the Supply Chain
The specters of protectionism, geopolitical competition, and weakening international integration have recently made the underpinnings of global commerce seem insecure. Small wonder, then, that new ways of plugging into the international economy are flourishing.
Among these innovations is blockchain, a so-called distributed-ledger technology that allows transactions to be validated without the use of a centralized database. Blockchain has drawn the most attention for its role as a platform for cryptocurrencies: since its debut in 2008, it has helped spawn more than 800 of them, including Bitcoin. But cryptocurrencies serve mostly as fodder for speculative investments, toys for technologists, and instruments for money laundering. Blockchain’s deeper impact on global commerce will come from its use by businesses and financial institutions. Some are already employing it to digitize contracts, eliminate intermediaries in financial transactions, and make ledgers easier to audit. Because blockchain provides a distributed digital record that does not require trust or coordination between firms, it allows for secure, standardized transactions to occur almost instantaneously, even across borders.
Regulators should welcome these developments. The widespread adoption of blockchain would reduce friction in the global economy—and it would especially benefit importers and exporters, granting them access to the financial backing that many now lack.LIAO_BlockchainInternationalTrade_Containers_rts7wg2.jpg Edgar Su / REUTERS A container terminal in Singapore, July 2015. A container terminal in Singapore, July 2015. A container terminal in Singapore, July 2015.
Some observers have compared blockchain’s potential to that of the Internet: a transformative invention that could set off rapid change thanks to the breadth of its possible applications. The truth, however, is that many of blockchain’s applications will bring about only incremental improvements. The technology, for example, could eventually help big banks eliminate paper contracts, do away with clearinghouses, secure digital systems from cyberattacks, and quickly settle transactions—changes that could save such institutions hundreds of millions of dollars each year. But getting there will take time, because the existing financial infrastructure has been in place for decades and because it is hard to get competing institutions to cooperate.
For businesses to share blockchain’s benefits in the near term, they need to have aRead the full article on ForeignAffairs.com