Blockchain is a new(ish) technology with the potential to create a new internet of value and underpin a significant amount of future global commerce and trade. Recent developments that show it’s already starting to happen in certain industries like real estate and finance. Propy is using blockchain to help people purchase property online from any country and ING (along with other banks) are using blockchain technology to improve trade finance.
Blockchain and Bitcoin were unveiled to the world over ten years ago under the alias Satoshi Nakamoto in 2008, who wrote the Bitcoin whitepaper. And now Gartner now forecasts that “the business value-add of blockchain will grow to slightly more than $176 billion by 2025, and then it will exceed $3.1 trillion by 2030”.
What makes blockchain revolutionary in its future role in commerce and trade?
The potential benefits of blockchain in global trade are numerous and could significantly transform international trade. This includes trade finance, transportation and logistics, customs and certification processes, intellectual property (IP), insurance and government procurement. Blockchain technology will help enhance the efficiency of a number of processes and cut costs in those areas. The new technology will also help global trade move closer to a paperless solution that’s more secure.
As blockchain provides a decentralised and distributed digital record of transactions it creates trust because it’s almost impossible to tamper with records created on the blockchain. And its decentralised nature means that it exists in multiple locations at the same time with no one master location, making fraudulent transactions much harder to enact.
There are two different types of blockchain distributions, public and permissioned; public (as the name suggests) is part of an open network where anyone can participate whereas permissioned is limited to authorised parties only.
Blockchain technology underpins cryptocurrency (the most popular use of the technology) but it could revolutionise the world’s economy through smart contracts across different industries.
The Blockchain enables a business to digitize their assets and make them all unique and easily identifiable, by the use of hashing and a unique time-stamp (data representing date and time). This ensures each block (e.g. transaction) follows the chronological sequence of electronic events, and hashing creates a fingerprint unique to the work.
By uniquely identifying digital assets in this way blockchain can benefit the future of trade and commerce. Think of companies who now sell digital products, they are facing considerable risk of having their products copied (indefinitely). You only have to see the effect of Napster (the file-sharing service) on digital copying in the music industry; global music piracy causes $12.5 billion of economic losses every year. Companies will choose the Blockchain to protect their digital assets so when a customer buys a copy, that’s all they are getting, that a digital asset that belongs to them only.
Blockchain in global trade and commerce
Here are industries where Blockchain will help the future of global commerce and trade:
Banking: the banking industry is faced with significant problems today, and blockchain is well poised to solve (or at least alleviate) several of these problems. Banks store and transfer money for their customers, with millions of daily transactions e.g. Visa alone processes 150 million daily transactions. But these transactions can take days or even weeks with errors in handling and reconciliation and come with hefty fees.
Right now, international wire transfers take place using SWIFT (Society for Worldwide Interbank Financial Telecommunication) codes which have transaction fees and delays of days. Banking can benefit from blockchain in numerous ways including instant settlements, increased transparency, and error elimination in handling and reconciliation. The secure blockchain system can provide permanent records of the millions of daily transactions and the distributed ledger system provides security, lowers risk and cost while speeding up money transfers.
Transportation: All major types of trade have one thing in common, transportation. But trade in goods involves multiple players and is mainly paper-intensive. Because there are numerous parties involved, there’s room to streamline the process. And by connecting all players in the supply chain into a single platform, blockchain could be the biggest disruptor, since the invention of the container.
Transportation companies welcome authenticated secure data, like the blockchain, that will improve operations. Danish shipping company Maersk has partnered with IBM to test a blockchain approach to track shipments. When transport is running smoothly it enables global commerce and trade.
Blockchain will increase transparency and significantly reduce trade costs including the verification, networking, processing and coordination. But for Blockchain to work to its full potential all aspects of cross-border trade transactions will need to be digitalised, and this is no simple task.
Estimates in cost reduction for the shipping industry range from 15 to 30% of total costs. According to the World Economic Forum, the removal of barriers by Blockchain technology could result in more than US$ 1 trillion of new trade in the next decade.
Real Estate: Traditionally real estate is an illiquid asset with high buying and selling costs and long transaction times combined with a lot of paperwork for a single transaction. Transacting high-value assets such as real estate through digital channels isn’t the norm, until now.
Propy allows people to buy and sell real estate online, from any country, secured through the blockchain, maximising the pool of buyers locally and globally. Blockchain can also increase liquidity in property markets by the “tokenisation”, a process enabling buyers to trade “units” or fractions of a property to be sold on the blockchain, in near real time and on a global scale.
This could have an impact on markets and pricing impacting property values and increasing global trade. Estatechain is another company acting as a marketplace for the tokenisation of property.
Legal: Even with all the advancement of technology and the introduction of the internet in the last two decades, the legal industry still hasn’t changed much for over 100 years. Blockchain can transform the legal industry and the corporate world as we know it.
Areas where Blockchain can make an impact include Intellectual property(IP), smart contracts, blockchain law and chain of custody. For example, in the world of smart contracts, OpenLaw plans on using Blockchain to reduce “the cost and friction of creating, securing, and generating binding legal agreements.”
Blockchain can digitally manage the lifecycle of a contract, for example, a record (like a will) stored on the blockchain can be securely and quickly verified, with any changes authenticated and stored thus removing any inheritance legal issues.
These examples show the potential of Blockchain and how it can influence the future of trade and commerce. The blockchain has numerous powerful applications and if implemented correctly it could even be hailed as the next generation of the internet!