Case study on applications of Blockchain technologies in International Trade .... This article uses a qualitative method to provide an overview of blockchain technology and its applicati
THEORETICAL BACKGROUND OF BLOCKCHAIN
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International trade offers numerous advantages that enhance economies, businesses, and consumers By introducing foreign competition, it fosters a competitive environment for domestic businesses, resulting in lower prices, higher quality goods and services, and increased innovation as companies work to maintain their competitive edge.
International trade enables businesses to tap into new markets, significantly broadening their customer base and enhancing revenue opportunities By venturing into these markets, companies can diversify their operations, mitigating risks associated with economic or political instability in their home countries Additionally, businesses can take advantage of lower production costs abroad, such as cheaper raw materials or labor, which can lead to reduced overall production expenses and improved profit margins.
International trade plays a vital role in attracting foreign investment, which is essential for economic growth and job creation, especially in developing countries These nations often face challenges in securing the necessary funding and expertise to enhance their economies By embracing international trade and foreign investment, they can access global resources and knowledge, paving the way for a more prosperous future for their citizens.
International trade enables countries to specialize in the production of goods and services where they have a comparative advantage, leading to more efficient resource allocation and increased productivity This specialization helps lower costs and boost output Additionally, by participating in international trade, countries can lessen their dependence on domestic markets, which may experience demand and supply fluctuations Diversifying exports and broadening customer bases contribute to a more stable and sustainable economic environment.
Blockchain technology, as outlined in Nakamoto's 2008 Bitcoin whitepaper, is a distributed ledger system that facilitates secure and transparent transactions between parties without intermediaries This technology relies on a distributed database, creating a tamper-proof and immutable record of transactions accessible to authorized users.
A blockchain is fundamentally a series of interconnected blocks that store information, including transaction data, timestamps, and cryptographic hashes, all secured through cryptography Each block includes a hash of the preceding block, forming a secure chain that cannot be modified without compromising the integrity of the entire system.
Blockchain operates as a distributed ledger, maintained by multiple parties who can verify the complete transaction history (McDaniel & Norberg, 2019) Each new transaction introduces additional information to the system, but this information is only incorporated once a majority of nodes agree on the transaction history Upon reaching consensus, the blockchain ledger is simultaneously updated across all nodes, exemplifying a decentralized method of achieving agreement.
The traditional centralized system depends on a third party to authenticate transactions, granting the controlling entity the ability to manipulate or alter the information within the centralized ledger In contrast, decentralized systems eliminate this reliance, enhancing security and transparency in transaction verification.
There are several key characteristics that distinguish blockchain technologies from traditional databases:
Blockchain technology operates on a decentralized model, eliminating the need for a central authority to oversee the system Instead, a network of nodes collaborates to validate transactions, ensuring the integrity and security of the network.
Transparency: All transactions on the blockchain are visible to all participants on the network, and cannot be altered or deleted once they are recorded
Blockchain technology ensures immutability, meaning that once a transaction is recorded, it cannot be altered or deleted, which enhances its security and reliability as a database Additionally, it employs advanced cryptographic algorithms to safeguard transactions and prevent unauthorized access to the network.
Consensus mechanism: Blockchain technology uses a consensus mechanism to validate transactions and ensure that all nodes on the network agree on the state of the blockchain
Smart contracts are automated programs that operate on the blockchain, facilitating complex transactions and workflows Additionally, blockchain technology enables the creation of digital tokens that symbolize various assets, including cryptocurrencies and tangible items like real estate and art Notable examples of this innovation are Bitcoin and Ethereum, which have transformed the financial landscape.
Interoperability: Blockchain technology can be designed to be interoperable, meaning that it can work with other blockchain networks and traditional systems to enable seamless transactions and data exchange.
There are several ways to categorize types of blockchain technologies In this research, we divide blockchain technologies into 3 types, depending on how the platform is managed (Buterin, 2015):
Public blockchains are accessible to all participants, with Bitcoin being a prominent example used for digital currency transactions Another notable public blockchain is Ethereum, which facilitates the development of decentralized applications (DApps) and smart contracts.
Private blockchains are tailored for specific organizations or groups, restricting access to authorized members only For instance, a consortium of banks might utilize a private blockchain to securely share financial data and conduct transactions among themselves, ensuring that this information remains confidential and is not accessible to the public.
Consortium blockchains are a hybrid of public and private blockchains, tailored for organizations with shared interests For instance, companies within a supply chain can utilize a consortium blockchain to monitor the movement of goods and exchange data regarding their manufacturing processes and quality control.
CHAPTER IL APPLICATION OF BLOCKCHAIN TECHNOLOGY IN
1 Application of Blockchain in the transactional mechanism
Foreign trade transactions, particularly in Business-to-Business (B2B) sectors like manufacturing and trading, are often costly and complex These transactions involve various parties, including contracting entities, product suppliers, and payment facilitators, as well as transport carriers, insurers, and banks Additionally, public authorities such as customs and trade ministries play a crucial role in facilitating these operations The integration of blockchain technology promises to streamline export transactions by replacing cumbersome paperwork with smart digital contracts, while still ensuring the legal reliability of traditional contracts.
For entities involved in export-import operations, blockchain technology will offer a number of advantages, such as:
- Real-time document verification: The blockchain enables the verification and acceptance of financial documents, which cuts down on the time needed to prepare a delivery of goods
- Disintermediation: This removes the need for a third party to assume risk and the correspondent relationships that had been established between the participating banks in the payment mechanism
Characteristics of Blockchain Technologles .- : c c2 21c nhe 8
There are several key characteristics that distinguish blockchain technologies from traditional databases:
Blockchain technology operates on a decentralized model, eliminating the need for a central authority to oversee the system Instead, a network of nodes collaborates to validate transactions, ensuring the integrity and security of the network.
Transparency: All transactions on the blockchain are visible to all participants on the network, and cannot be altered or deleted once they are recorded
Blockchain technology ensures immutability, meaning that once a transaction is recorded, it cannot be altered or deleted, which enhances its security and reliability as a database Additionally, it employs advanced cryptographic algorithms to safeguard transactions and prevent unauthorized access to the network.
Consensus mechanism: Blockchain technology uses a consensus mechanism to validate transactions and ensure that all nodes on the network agree on the state of the blockchain
Smart contracts are automated programs that operate on the blockchain, facilitating complex transactions and workflows Additionally, blockchain technology enables the tokenization of assets, creating digital tokens that can represent cryptocurrencies or tangible items like real estate and art Notable examples of this innovation include Bitcoin and Ethereum, which have transformed the financial landscape.
Interoperability: Blockchain technology can be designed to be interoperable, meaning that it can work with other blockchain networks and traditional systems to enable seamless transactions and data exchange.
Types of Blockchain Technologles - c2 01221121 2n HH Hay 9
There are several ways to categorize types of blockchain technologies In this research, we divide blockchain technologies into 3 types, depending on how the platform is managed (Buterin, 2015):
Public blockchains are accessible to all participants, with Bitcoin being a prominent example used for digital currency transactions Another notable public blockchain is Ethereum, which facilitates the development of decentralized applications (DApps) and smart contracts.
Private blockchains are tailored for specific organizations or groups, restricting access to authorized members only For instance, a consortium of banks might utilize a private blockchain to securely share financial data and conduct transactions among themselves, ensuring that this information remains confidential and is not accessible to the public.
Consortium blockchains represent a blend of public and private blockchain technologies, tailored for a collective of organizations with shared interests For instance, companies within a supply chain can utilize a consortium blockchain to monitor the flow of goods and collaboratively exchange data regarding their manufacturing processes and quality control measures.
CHAPTER IL APPLICATION OF BLOCKCHAIN TECHNOLOGY IN
1 Application of Blockchain in the transactional mechanism
Foreign trade transactions, often costly and involving Business-to-Business (B2B) enterprises in manufacturing, trading, and services, encompass various characteristics related to legal systems and participants Key elements include the contracting parties, the product, and the payment, alongside other entities such as carriers, insurers, and banks Public authorities in partner nations, including customs and trade ministries, play a crucial role in executing these transactions The integration of blockchain technology promises to simplify the complex export transaction process by replacing cumbersome paperwork with smart digital contracts, while maintaining the legal reliability of traditional contracts.
For entities involved in export-import operations, blockchain technology will offer a number of advantages, such as:
- Real-time document verification: The blockchain enables the verification and acceptance of financial documents, which cuts down on the time needed to prepare a delivery of goods
- Disintermediation: This removes the need for a third party to assume risk and the correspondent relationships that had been established between the participating banks in the payment mechanism
Decentralizing contract execution streamlines the monitoring of delivery processes by recording contract terms on the blockchain, ensuring real-time status updates and secure documentation of contract clauses.
- Proof of ownership: The blockchain has access to the property title (bill of lading), ensuring transparency regarding the whereabouts and ownership of the goods
- Reduction of transaction costs: Smart contracts that are used to execute contract terms do not require the involvement of correspondent banks
2 Applications of Blockchain technologies in International logistics
Logistics plays a crucial role in managing a company's physical flows through activities like demand forecasting, sales planning, supply requirements, inventory management, and product distribution The rise of technology and the fourth industrial revolution has introduced challenges that accelerate the integration of logistics processes, leading to the emergence of "smart logistics" or "logistics 4.0." According to McFarlane, smart logistics focuses on effective planning and management techniques, with intelligence levels determined by the applications used, ranging from product traceability to automatic execution Uckelmann emphasizes the importance of smart products and services, utilizing technology to gather information on material flow for monitoring and control purposes As a result, tracking tools and equipment are enhancing supply chain efficiency, leading to significant end-to-end visibility, improved product routing, better inventory control, and detailed management of marketing experiences.
To achieve significant improvements in business operations, asset tracking tools equipped with sensors that deliver near real-time information are essential These tools enable companies to gain clear visibility into product data throughout the processes of acquisition, inventory management, production, and shipping.
Information flows are crucial in logistics and supply chain management for effective internal and external communication, data-driven decision-making, and accurate forecasting To enhance security and reliability, businesses are increasingly adopting management strategies that leverage blockchain technology This technology allows for the secure tracking of information flows, including digital assets such as warranties and certifications, alongside physical assets like orders and invoices Notable projects, such as the collaboration between Microsoft and Mojix, aim to reduce misinformation and discrepancies in demand data, thereby protecting the integrity of the supply chain Additionally, increased transparency among the numerous stakeholders involved offers end users and customers improved management options.
The first Blockchain technology was introduced in finance as the backbone of Bitcoin, utilizing peer-to-peer (P2P) technology to operate independently of centralized services like banks and notaries Cryptocurrencies aim to finalize payments without intermediaries, reducing transaction costs through direct transfers Blockchain can enhance various financial services, including online payments and remittances, while positively impacting product management and supply chain operations By eliminating currency restrictions and minimizing the influence of macroeconomic factors on exchange rates, Blockchain technology can streamline business operations and attract more customers.
12 increase their demand for goods and services An unity of payment currency therefore, will enhance the international logistics process
Blockchain technology is revolutionizing the transportation industry by enhancing mutual trust among partners and reducing extensive paperwork Walmart's recent patent for connecting delivery drones to the Blockchain exemplifies this innovation, which can be applied across all agents and activities in the supply chain The integration of Blockchain in shipping and sea transport offers numerous benefits, including increased sustainability, reduced fraud, minimized paperwork delays, decreased waste, and faster problem resolution This advancement could potentially boost global trade by 15% and increase global GDP by nearly 5% Furthermore, with up to 10% of bills of lading containing inaccuracies that may lead to legal issues, Blockchain technology is essential for addressing these challenges and streamlining logistics processes.
Integrating blockchain technology into smart logistics enhances process efficiency and agility in supply chain management This technology provides managers with near real-time visibility into operations through effective data collection and transmission, allowing for timely decision-making based on accurate information Kshetri's multiple case study approach explores the impact of blockchain on various supply chain management objectives.
Saberi explores the key obstacles in utilizing blockchains, especially smart contracts, to achieve sustainable supply chain management objectives One notable application of blockchain technology is its role in facilitating message distribution within IoT systems.
Smart contracts, stored on blockchain, function like transaction rules, facilitating financial agreements and ensuring timely payments for projects They enhance continuous process improvement and promote data sharing among supply chain participants Consequently, smart contracts enable secure and efficient transactions across various currencies and sources within the global supply chain.
3 Applications of Blockchain technologies in International finance
Blockchain technology is poised to revolutionize the international finance sector by offering secure, transparent, and efficient solutions for various applications, including cross-border payments, trade finance, digital identity verification, smart contracts, and regulatory compliance.
In 2018, various applications emerged that significantly enhance financial transactions by reducing costs and increasing speed and transparency These innovations eliminate the need for intermediaries, lower the risk of fraud, and improve overall efficiency Additionally, they bolster security and ensure better regulatory compliance, as highlighted by multiple studies (Swan & Lau, 2015; Zheng et al., 2018; Haffar et al., 2019; DuPont et al., 2018; Sorge & Tonetti, 2018).