The World Economic Forum (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.
If recent reports come to fruition, blockchain technology has the potential to have a massive financial impact on the global trade industry.
Much of the trade finance industry still relies on systems that are outdated — and it is being suggested that this sector could be overhauled by the implementation and use of blockchain systems.
A major stumbling block in this system is the trade finance gap, as the sector is quite literally hampered by the lack of financial means to facilitate trade around the world.
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:
“A major impediment stands in the way of expanding trade and making it more efficient and safe: namely, paper-intensive, manual processes.”
Using a pen to paper quite literally hampers the global trade industry, and a shift away from this slow and costly system is expected to save an enormous amount of time and money.
Conventional trade requires a massive amount of paper, which is used to facilitate communication between customs brokers, freight forwarders, logistics providers and governmental agencies.
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.”
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.
This is where the benefits of distributed ledger technology comes to the fore. By allowing information to be securely shared to all participants of a network, all parties involved in a certain trade have access to real-time information of the process.
Whether it’s at the preliminary stage of waiting for confirmation of finance or tracking the physical position of goods that are being traded, blockchain technology gives everyone with the necessary permission access to this data.
Certified parties have the authority to initiate transactions through ‘smart contracts’ like those pioneered by the Ethereum protocol. In doing so, this rules out the need of a third party to verify that contractual conditions have been met.
Furthermore, having one shared database for all users reduces the costs and time it takes to upkeep manual systems.
It’s already happening
It is encouraging to see that some companies have already made strides in using blockchain technology to streamline their processes.
In May 2018, HSBC claimed to have completed the first trade finance deal using blockchain technology. This involved 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.
Called TradeLens, the platform tracks real-time data from any given shipment in a supply chain, providing information to the shared ledger. The project is said to be able to reduce the transit time of a shipment of materials to a production line by 40 percent in the United States.
Walmart also partnered up with IBM, announcing in June their plans to release 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.
As recently as September, a new trade and finance blockchain platform, backed by the People's Bank of China, launched pilot operations for a blockchain-powered ecosystem for cross-border trading.
If the WEF report is indeed correct, the global trade finance industry could well be overhauled by the use of blockchain-based platforms.
Spiros Margaris, a venture capitalist, told Cointelegraph that the predictions made in the report are not overly ambitious.
In fact, Margaris suggests that the impact could be much more substantial if blockchain technology continues to be developed:
“I think that blockchain’s impact will be bigger than what the WEF estimated if we solve some of the current blockchain technical issues, which eventually I am certain we will. I like to refer to the quote by Bill Gates: ‘We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10. Don't let yourself be lulled into inaction.’”
At the end of the day, it is inevitable that global trade systems will move away from archaic processes. Moving away from paper-based documentation is a major move in the right direction.
Once that is done, leveraging blockchain technology to process and share data with relevant parties could well bring about the economic benefits laid out in this highly informative report.
As Margaris explains, trustless systems have the power to cut out the middleman — or any central authority — and this could have potential benefits for the global trade and investment sectors and beyond:
“I believe that blockchain’s greatest impact and influence in the future will be on the issue of ‘trust.’ It is the most important element of any deal or transaction. So blockchain’s greatest achievement will be that it will be easier for us to trust our counterparty or to be sure that the news are real or the election is not manipulated, just to mention a few cases.”
The WEF weighs in
Michele Orzan, digital leader (Europe) of the WEF, spoke to Cointelegraph about the ramifications this report could have in the years to come and the stance her organization is taking toward cryptocurrencies and blockchain technology.
It is vastly encouraging to know that the WEF is trying to discourage ‘oppressive’ regulations toward crypto and blockchain. It’s been close to 10 years since Bitcoin was created and there is still confusion between blockchain and cryptocurrencies — according to Orzan:
“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 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.”
As Orzan suggests, both blockchain and cryptocurrency development will benefit from more measured legislation. He points to the Organization for Economic Co-operation and Development(OECD) as a roleplayer that could drive this sort of guidance.
While other organizations and governments could play an active role in driving adoption of these relatively new phenomena, it’s interesting to see what stance the WEF is taking toward driving investment in crypto and blockchain.
The organization is taking a multistakeholder approach toward its activities and policy suggestions, and blockchain provides a chance to improve governance across a wide spectrum of private and governmental functions.
Orzan says the technology could have a profound effect on multiple spheres of the global economy:
“Having deeply analyzed both today's blockchain industry and possible developing scenarios, the WEF is clearly considering this technology a possible revolution in a series of industries and social institutions.”
Orzan also believes government services could benefit the most from blockchain technology, followed by public and civic initiatives that could provide solutions to major issues around the world.
Environmental issues are a particular concern, and Orzan envisions blockchain solutions having a major impact in this sphere:
“The WEF just published the report ‘Building Block(chain)s for a Better Planet’, describing several contexts where it's possible to harness this technology to address environmental challenges. Being myself strongly involved in both policy and environmental matters, I definitely support looking deeply into every opportunity to start — quickly and proactively — exploring blockchain uses which can help improve the conditions of our planet and use of its resources.”
What remains to be seen is which part of the world will truly drive a blockchain revolution in the coming years. With a growing interest around the globe, it is hard to predict, but Orzan suggests that this could happen in both America and Europe:
“I personally expect North European countries [to take] the lead in the adoption of decentralized applications, being already at the top of most world rankings regarding transparency and integrity. Meanwhile, in the report ‘Best European Countries for Business 2018’ of the European Chamber, the same countries at the top of the ranking are those where there is a high interest in the benefits given by blockchain applications on governance transparency.”
It is certainly encouraging to see an organization like the WEF driving a positive narrative concerning adoption and development of blockchain technology.
The yearly World Economic Forum meeting in Davos, Switzerland is a highly anticipated event for the global business and financial community. This year’s event saw widespread calls for cryptocurrency regulation, with mainstream financial institutions wanting more clarity before they made clear-cut plans to enter the crypto markets.
Nine months down the line, this fresh rhetoric coming from WEF bodes well and we could potentially see far more positive sentiments toward the space in the years to come.