New World Economic Forum Report Shows Blockchain Can Transform Global Trade Industry
First, it was information sharing – the internet solved that. Then came transparency and security of data; here, the internet had no answers, and in came blockchain. Hailed as the next best thing after the internet, blockchain, in theory, can solve most problems that come with being connected. “In theory” because while there have been many use cases of blockchain around the world, its uses and applications are still not yet been truly understood.
Decentralised applications on public blockchains can solve a myriad of local problems such as eliminating middlemen, providing data security, formalizing the economy, reducing corruption and tampering of financial ledgers, and improving the speed of service delivery by governments and corporations.
It is no wonder that WEF released an optimistic outlook for the global economy, which would be driven by the impact and adoption of blockchain technology in the next 10 years. According to the organization, blockchain could bolster global trade to the tune of $1 trillion by 2028. The report, “Trade Tech – A New Age for Trade and Supply Chain Finance,” looked at the effect distributed ledger technology (DLT) could have on global trade finance.
Currently, most of the trade finance industry relies on systems that are outdated — and it is being suggested that this sector could be overhauled by the implementation and use of blockchain systems.
As the WEF report states, a move to a digital processing system will put an end to processes that have been around for decades:
“Paper-based, manual processes, some created centuries ago, lead to complexity and delays, introduce errors and risks, and stand in the way of reliable, real-time information gathering and tracking required for credible financing decisions.”
Bains and Company, which produced the report with the WEF, suggested that this trade finance gap could swell to $2.4 trillion by 2025 if the industry does not adapt. In the same breath, the consultancy says blockchain technology could be the answer to this problem:
It is not difficult to see how blockchain technology could streamline these processes for all the parties involved. With so many moving parts in global trade, it can be quite difficult to track and verify information, especially when information is being passed around on hard-copy waybills.
Progress Has Already Been Made
It is not that the adoption of blockchain is a distant utopian future. It’s already happening.
In May 2018, HSBC alleged to have executed the first trade finance deal using blockchain technology. This included securing a letter of credit for the trade, which involved a shipment of soya beans from Argentina to Malaysia. In August, IBM, with shipping and logistics conglomerate Maersk, launched their global blockchain-enabled shipping solution.
Walmart also joined hands with IBM, stating in June their plans to issue a blockchain-powered system for tracking food globally through its supply chain. The driving force behind this platform is to allow the company to address food recall issues — which could help identify outbreaks to reduce the risk of consumers being harmed.
Future Looks Bright
If the WEF report is indeed correct, the global trade finance industry could well be repaired by the use of blockchain-based platforms.
Michele Orzan, digital leader (Europe) of the WEF, said:
“Cryptos are today to the blockchain what email was to the internet in the ‘90s. The turmoil of speculative new entrants in the world of crypto last year contributed to this mess. Governments are made up of officials who often represent the average population, with all its fears, whims, ideas and beliefs. That's why we see a confusing disarray of regulations regarding the industry and especially cryptocurrencies. There's clearly something wrong if some countries welcome and even launch cryptocurrencies while others prohibit them.”
Orzan says the technology could have a profound effect on multiple spheres of the global economy. He also believes government services could benefit the most from blockchain technology, followed by public and civic leadership that could provide solutions to major issues around the world.