Written by Philip Boucher,
Blockchains combine several techniques – including encryption, consensus methods and distributed storage – to record transactions. They are particularly useful in situations where it is necessary to maintain ownership histories and cooperate with other actors. It has been suggested that their use could benefit supply chain management and international trade processes. In this context, STOA launched a study of potential use cases and their impacts.
The full report sets out the key features of blockchain technology and how it could be used to support various aspects of supply chains and international trade, before examining the potential impacts of eight specific use cases. It then sets out some key challenges and 20 policy options organised into six themes. These are also presented in the accompanying STOA Options Brief.
Blockchain technology offers secure, robust, authenticated storage that is resistant to modification. Its most distinctive feature is its decentralised structure. No single actor has full control of the system. Instead, control is distributed by consensus rules that apply across an ecosystem of actors. This allows participants to cooperate while retaining potentially conflicting or competing interests. This feature could be particularly valuable for supply chain management and international trade processes that require cooperation and trust between several actors arranged in complex relationships across differing regulatory frameworks.
The study examined the market readiness and potential impacts of eight promising use cases for blockchain technology in supply chains and international trade: decentralised marketplaces, letters of credit, cross-border payment systems, maritime insurance, supply chain management, e-certificates of origin, proof of authenticity for luxury products and ethical sourcing for the food industry. The potential impacts of the use cases were considered from trade, economic, transparency, security, data protection, social and environmental perspectives. Overall, they are expected to contribute to the facilitation of trade through a combination of digitalisation, information exchange and automation. This could result in cost reductions and increased transparency. Security is considered strong overall, although standards, certification and audit procedures would help to ensure quality and compliance. The use of blockchain technology might also facilitate small and medium-sized enterprises (SMEs) to access trade and trade finance and help consumers to access product information, potentially enabling more ethical and environmentally responsible choices.
Regarding readiness for market, each use case has achieved a minimum level of credibility in the form of a technical proof of concept, a larger pilot study or, in some cases, early commercial solutions. There are no major technical barriers to the use of some types of blockchain solution for some elements of trade.
The level of maturity and impact varies across applications. The figure below presents a graphical representation of the relative impact and market readiness of blockchain applications for each use case.
Qualitative assessment of the potential impact and readiness of blockchain applications for trade in 2020 and 2025
It should be noted that many of the benefits described here derive not from blockchain per se, but from the digitalisation of trade processes that are currently conducted in large part offline. There are several barriers to this digitalisation and blockchain presents only a partial solution to some of them, notably the provision of a secure infrastructure for digital exchanges that embeds trust and collaboration. They do not provide a complete solution for all aspects of trade and its digitalisation. One substantial barrier to digitalisation remains in the willingness of the ensemble of trade actors to change. Blockchain itself also introduces some barriers including data localisation and privacy issues, identification of the applicable law, allocation of liability, legal recognition of blockchain-based information, and interoperability and standardisation across various economic operators and regulatory frameworks.
Despite efforts to digitalise supply chains and trade processes, the transition to electronic document exchange and data processing remains incomplete. Blockchain technology may offer a partial solution to some of the barriers, and several actors at EU and international level as well as the private sector are exploring the opportunities. To take things further, policy-driven action may be needed, including adaptations to the legislative framework.
During the final stage of the study, 20 policy options were developed as potential responses to the challenges identified. These include measures to support customs facilitation, sustainable trade, SME involvement, leadership in standardisation, evidence-based policy and awareness raising.
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