What trade-oriented blockchains can enable

by Dana Critchlow via StockSnap
by Dana Critchlow via StockSnap

More thoughts on blockchain and trade:

Continuing from yesterday’s post, one aspect I find particularly intriguing about the potential role of the blockchain in international trade is the possibility of linking up the different parts, and what that implies for the future of commerce.

In the shipping trial mentioned yesterday, goods from Schneider Electric were transported on a Maersk Line container vessel from the Port of Rotterdam to the Port of Newark. The Customs Administration of the Netherlands, the US Department of Homeland Security and the US Customs and Border Protection also participated.

And that’s just scratching the surface. Maersk discovered in 2014 that a simple shipment of refrigerated goods from East Africa to Europe can go through 30 different stages, involving more than 200 separate interactions and ‘messages’.

Even if not all of the 30 participants are distinct entities (maybe some work for the same organization but in different departments), that’s a lot of different systems interacting. Setting up a database for all to share is possible on a programming level, but virtually impossible on a governance level. Who decides the format and function? Who controls it? Do all the participants trust that entity?

With a blockchain-based platform, the trust issue becomes less relevant, as all participants will be able to see the information they need and verify that it has not been altered. While the system will need to trust that the data entered is correct (for instance, that the amount in the container coincides with what’s in the document), checks at each stage will pick up errors or attempts at fraud.

Beyond the trust issue, a system that allows verified sharing of information can significantly reduce redundancies. The shipment process consists largely of a sequence of documents, each relying on part of what was in the previous one, and adding new information. This implies a lot of duplicated data. Convert that data into bits and parse it into a shareable format, and duplication – if necessary – is no longer a time-consuming burden.

However, it’s not the added efficiency that most intrigues me.

This is about more than streamlining. It is the beginning of a rethinking of business structures.

We are accustomed to a vertical business world. Enterprises have vertical structures, with parent company at the top and subsidiaries underneath. And each are governed by a combination of rules from the parent domicile and the local jurisdiction.

A blockchain-based system for commerce, on the other hand, is horizontal. It unites not only different participants in different geographical locations, but also in different sectors. There needs to be someone deciding who gets to participate (after all, we are talking about ‘permissioned’ blockchains), but beyond that, it creates a new ‘entity’ with its own set of rules.

This ‘entity’ has a new type of boundary – not corporate, not sectorial, not geographical, and as such, difficult to regulate.

What we are witnessing could be the beginning of a new type of commercial structure, accompanied by a rethinking of legislation.

The result could be a reinforcement of the underlying principles of global commerce: the fair exchange of goods for mutual benefit. With horizontal structures and a changing attitude towards cooperation, emphasis could start to shift from “exchange” to “fair”.

Leave a Reply

Your email address will not be published. Required fields are marked *