Why Blockchain and Supply Chains Work Together — If These Issues Are Solved…

Since blockchain took its first tentative steps into the world, its uses within global trade and supply chains become more evident as the years roll on.

But there is still plenty of work to do if traditional supply chains and trade processes are to embrace the immutability, transparency, traceability, and global nature of blockchain.

Key Takeaways

  • From the Philippines’ early adoption to discussions at the World Trade Organization, blockchain’s decentralized nature offers solutions to longstanding trade challenges.
  • Its benefits include enhanced transparency, streamlined processes, fraud prevention, and facilitating cross-border transactions — immutable and instant record-keeping being one key strength.
  • However, achieving widespread adoption requires addressing interoperability issues and educating stakeholders, with lots of solutions on the table and hurdles in communicating the technical benefits.
  • Collaboration among businesses, governments, and international bodies is crucial for realizing blockchain’s full potential within international trade.

There are several champions within government and industries, including Ed Brzytwa, Vice President of International Trade at the Consumer Technology Association, speaking about how blockchain is a catalyst for strengthening relationships across economies and promoting peace and innovation.

Or the Philippines being an early adopter of blockchain strategies that emphasize innovation and investments.

Along with digitalized record-keeping, transparency, and security, industries are now opening up to the advantages of decentralization rather than records and systems being centralized and permissioned.

Emmanuelle Ganne, Senior Analyst in the Economic Research Department at the World Trade Organization (WTO), speaking at a recent Decentral House blockchain and Web3 initiative in Geneva, said:

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Decentralization can really open new opportunities when it comes to international trade because you have many different actors being involved.

“So if you build a system that is decentralized, it can really allow these actors to interact on a day-to-day basis, have the information in real-time, and remove a lot of frictions.

“The potential of blockchain for international trade can be huge.”

Moving supply chain records from paper to digitized forms — and not just digitalized but immutable and traceable — can be just one benefit.

Ganne added:

“It can be huge to remove paper from international trade. It’s very paper labor intensive — if you ship a container from Mombasa to Rotterdam, you end up with a pile of paper that is 25cm high.

“Dozens of documents have to be filled — hundreds of copies — so it can be a game-changer to remove paper to facilitate trade processes, to reduce trade costs, facilitate access to finance, and for the traceability of supply chains.

“In the early days of blockchain, we saw mainly permissioned platforms being developed in the area of international trade. Some big names have failed, and what we currently see is a move towards more permissionless projects and more decentralization than there was before, so that’s very interesting to watch; it brings considerable benefits.

“We’ll have to see how things go, but I do think that we are moving towards that.”

6 Ways Blockchain Can Improve Supply Chain and Trade Processes

6. Enhancing Transparency and Traceability

The transparent nature of blockchain networks can help to address the challenge of traceability in global supply chains. Each transaction — from manufacturing to delivery — is recorded on an immutable ledger accessible to all authorized parties.

This makes it possible to determine the origin of a document and can also reduce the risk of counterfeit goods entering the chain, ensuring product quality.

5. Improving Access to Trade Finance

Small businesses with limited resources and access to information often face challenges in securing trade finance.

Blockchain networks can store information securely that financial institutions can use to assess lending risks. This makes it easier for small businesses to receive trade loans, fostering economic growth and inclusivity.

4. Reducing Paperwork and Streamlining Processes

One of the most significant advantages blockchain brings to global trade is digitalization and the reduction of physical paperwork.

The extensive paper trail traditionally associated with trade across borders can lead to delays, errors, and increased costs.

Tamper-resistant decentralized ledgers eliminate the need for numerous documents, providing a single, transparent, and immutable source of truth, which is key to solving any issues or disputes that may arise.

3. Mitigating Fraud and Ensuring Trust

As decentralized blockchain networks are more resistant to hacking than traditional computer networks, they can help to limit fraud. Smart contracts can automate and enforce trade agreements, ensuring that terms — such as payment or delivery of goods — are met before transactions proceed. This can create a higher level of trust than traditional trade arrangements.

2. Facilitating Cross-Border Transactions

Blockchains enable seamless cross-border transactions by providing a single, standardized source of information. This can significantly reduce the complexities associated with different regulatory frameworks and ensure compliance with international trade laws.

1. Digital IDs to Facilitate Blockchain Use in Trade

The balance between identifying counterparties and maintaining their privacy is key, Ganne said, “even though in the case of international trade, we’re not talking so much about personal data most of the time, except for certain types of goods where you need to know the name of the other person that’s trading.

“The question of identity is critical because in international trade, you need to trust your suppliers, for example, or your trading partners, and being able to know that they meet certain requirements is critical.

The concept of self-sovereign identity (SSI) opens new opportunities that are very interesting… what we’re probably going to see in the coming years is a combination of both approaches — the traditional either centralized or federated approaches to digital identity and then the more decentralized one that will work in tandem,” Ganne said.

“But where we do have an issue is in terms of interoperability — how do we ensure that the different solutions being developed — be that in terms of decentralization or permissioned versus permissionless — and in terms of identity — are compatible?

“This is a huge issue when it comes to international trade because of its global, cross-border nature.”

Standardization Needed to Support Interoperability

The task of ensuring interoperability of blockchain-based trade platforms across borders falls to the WTO, which aims to ensure that the right regulatory environment is in place to enable the effective use of a technology like blockchain in international trade, according to Ganne.

“What we hear all the time from small businesses — but also big corporations — is that they are really nervous.

“There are too many approaches out there, too many projects, and they can’t meet all these different requirements of the different platforms.”

The increasing pressure for businesses to implement traceability in their supply chains makes documentation processes more complex. At the European Union level, the Digital Product Passport project aims to standardize the information businesses will need to collect and share to support sustainability and the development of a circular economy.

There will ultimately be more than one platform, which will require dialogue between stakeholders to try to address problems constructively and some interoperability and alignment between different standards.

Ganne is working with the ICC Digital Standards Initiative, which aims to establish a globally harmonized digital trade environment “to map the different standards that exist, try to identify the gaps, and also try to bring some alignment and harmonization to the standards that are being used so that we can enter better interoperability between the different projects that are being developed.

“There’s still a lot of work to be done in that space, but there is an important, transformative impact.”

Blockchain’s Communication Problem

Educating trade officials as well as participants is essential to support blockchain’s implementation in global trade flows. Emphasizing that volatile cryptocurrencies are just one application of the technology — which can also support and enhance international trade processes — is key.

“It’s all about education,” Ganne said. “We have a problem with communication in the blockchain community, and for trade officials, it’s very intimidating to hear about hashing and these kinds of concepts.

“We just need to bring it back to the basics about the potential. We don’t need to enter into all the technicalities, but we need to be able to communicate to others who are not in the tech field in a way they understand.

“It’s about showing them the opportunities — how it can truly make a difference — and how they can contribute positively to making it possible to use the potential of blockchain to facilitate trade processes.”

Technology experts and trade officials need to work together to ensure that the right standards are put in place.

Ganne added:

“People involved in that space on the tech side need to reach out to policymakers, trade officials, those who develop the rules, and let them know your needs — because there’s a big gap between those two communities.

“Many of the trade officials who develop the rules are not necessarily following developments in the blockchain space very closely and don’t understand the needs, so it’s very important to be active — to let them know what you need in terms of the regulatory environment so that action can be taken on our side.”

The Bottom Line

Blockchain technology has the potential to reshape international trade processes. As the world becomes more digitized and interconnected, blockchain has a role to play in increasing transparency and efficiency by reducing paperwork, improving access to trade finance, and enhancing traceability.

Blockchain can serve as a catalyst for positive change in the way nations conduct business. But first, businesses, governments, and international organizations will need to work together to ensure interoperability and standardization of distributed ledger technology to optimize the benefits for global supply chains.

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Nicole Willing

Nicole Willing has two decades of experience in writing and editing content on technology and finance. She has developed expertise in covering commodity, equity, and cryptocurrency markets, as well as the latest trends across the technology sector, from semiconductors to electric vehicles. Her background in reporting on developments in telecom networking equipment and services and industrial metals production gives her a unique perspective on the convergence of Internet-of-Things technologies and manufacturing.