By Keith Haurie, Vice President of Business Development for ONESOURCE Global Trade at Thomson Reuters
The distributed ledger technology known as the blockchain has achieved substantial adoption in the finance industry and is seeing rapid adoption in others, such as healthcare, insurance, and legal. Soon, it will begin to dynamically change how large corporations operate, and it is already mature enough to be looked at as a viable part of the technology stack for global trade.
Awareness of blockchain technology, however, is low when accounting for the operational improvements it can offer. Trade teams should get up to speed now with blockchain, particularly when it comes to the technology’s potential to support, and eventually radically automate, trade operations.
Blockchain Technology: The Basics
Blockchain technology was originally designed by an individual or group using the pseudonym Satoshi Nakamoto to support the development of Bitcoin, the first digital currency. It maintains permanent, tamper-proof lists of records, bundles them into blocks, and chains them together where they are distributed through a peer-to-peer network. When changes are made to the information, or ledger, those changes are recorded across the blockchain. It’s impervious to fraud and inherently transparent.
Blockchain provides a high level of security through the use of cryptography. Each block is assigned a timestamp and link to the prior block so all transactions are recorded chronologically, forming an incontrovertible chain. This means that the blockchain information is not only shared but also continually reconciled as changes to the data occur.
Since blockchains are publicly available and run on computers distributed throughout the world, there isn’t a single, central database. This reduces the risk of data hacking as it is extremely difficult to remove, duplicate, modify, or tamper with records within a blockchain.
Awareness of this technology picked up steam in 2013, when Bitcoin, the digital currency that relies on a blockchain, went from an obscure, high-tech interest to a valuable commodity worth real money.
Blockchain’s Implication for Trade Teams
A blockchain’s tokenization and data management capabilities, and its inherently transparency, are attractive to trade teams and stakeholders trade teams work with, such as regulators and customs agents. Global trade teams now need to maintain a mutually trusting relationship with suppliers and regulators. But since the blockchain’s records are irrefutable and unchangeable, blockchain as a platform does not require trust or coordination between stakeholders or counterparties.
It can also validate transactions practically instantaneously and share structured data automatically.
The outcome of using blockchain technology for trade could be extreme process automation. Similar to how Bitcoin and other digital currencies seek to reduce friction by getting rid of the centralized processor needed to execute a monetary transaction, blockchain-driven trade could conceivably eliminate the need for many manual processes currently required to move materials and goods from one place to another securely, quickly, and compliantly.
However, given the technical complexity of the platform and the general complexity of its use cases, which are significant departures from current practices, implementing it for trade compliance would require significant changes to the status quo. Nevertheless, governments are beginning to come around and large companies are experimenting with the technology. Trade teams can use an understanding of the basics of it to enter into those conversations.
The fulfillment of the blockchain’s potential at large will require social and political change, and the fulfillment of its potential for global trade will require companies to relinquish their current processes and governments to relinquish some of their power.
There’s still a long way to go towards real adoption for trade, but there is promise.
This article is a version of one originally published in American Shipper.