Table of Contents
CHAPTER 1: INTRODUCTION
1.3 RESEARCH RATIONALE
1.4 RESEARCH AIM
1.5 RESEARCH OBJECTIVES
1.6 RESEARCH QUESTIONS
1.7 RESEARCH METHODOLOGY
1.8 LIMITING AND DELIMITING FACTORS
1.9 PROPOSED SIGNIFICANCE OF THE RESEARCH
1.10 DISSERTATION STRUCTURE
CHAPTER 2: LITERATURE REVIEW
2.2 FUNDAMENTALS OF BLOCKCHAIN TECHNOLOGY
2.3 KEY CHARACTERISTICS OF BLOCKCHAIN TECHNOLOGY
2.4 BLOCKCHAIN USE CASES RELATED TO INTERNATIONAL TRADE
2.5 IMPACT OF BLOCKCHAIN TECHNOLOGY ON INTERNATIONAL TRADE
2.6 BLOCKCHAIN'S ROLE IN FACILITATING SUPPLY CHAIN & TRADE FINANCE
2.7 INCREASE IN BLOCKCHAIN ADOPTION IN INTERNATIONAL TRADE
2.8 KEY CHALLENGES FOR BLOCKCHAIN IMPLEMENTATION
2.9 RESEARCH GAP
2.10 CONCEPTUAL FRAMEWORK
CHAPTER 3: METHODOLOGY
3.2 RESEARCH PHILOSOPHY
3.3 RESEARCH DESIGN
3.3.1 Literature Search
3.3.2 Research Approach
3.4 DATA COLLECTION
3.4.1 Data Collection Method
3.4.2 Research Sample
3.4.3 Data Gathering Process
3.4.4 Participants in the Research
3.5 DATA ANALYSIS
3.6 RESEARCH ETHICS
3.7 RELIABILITY AND VALIDITY
CHAPTER 4: FINDINGS
4.2 PARTICIPANTS' BACKGROUND AND COMPANY DESCRIPTION
4.2.1 Companies Offering Blockchain Solutions 42
4.2.2 Companies Using Blockchain Solutions 43
4.2.3 Companies Interested in Using Blockchain Solutions 44
4.2.4 Companies from Developing Countries 45
4.2.5 Blockchain Specialists 45
4.2.6 Additional Empirical Data 46
4.3 KEY FINDINGS
4.3.1 Role of Blockchain Facilitating Supply chain & Trade Finance
4.3.2 Industries that are Adopting Blockchain Technologies
4.3.3 Factors that Influenced the Adoption
4.3.4 Impact of Blockchain Implementation
4.3.5 Critical Challenges for Blockchain Implementation
4.3.6 Possible Future of Blockchain Technology in International Trade
CHAPTER 5: DISCUSSION
5.2 ROLE OF BLOCKCHAIN FACILITATING SUPPLY CHAIN &TRADE FINANCE
5.3 BLOCKCHAIN ADOPTION IN INTERNATIONAL TRADE
5.3.1 Industries Adopting Blockchain Technology
5.3.2 Factors that Influence the Adoption
5.4 IMPACTS OF BLOCKCHAIN TECHNOLOGY ON INTERNATIONAL TRADE
5.5 IMPLEMENTATION OF BLOCKCHAIN SOLUTION IN COMPANIES
5.5.1 Challenges Associated with Blockchain Implementation
5.5.2 Requirements for Successful Blockchain Implementation
5.6 CONNECTION WITH THE CONCEPTUAL FRAMEWORK
CHAPTER 6: CONCLUSION
6.2 SUMMARY OF THE STUDY
6.4 THEORETICAL AND PRACTICAL CONTRIBUTIONS
6.4.1 Theoretical Contributions
6.4.2 Practical Contributions
6.5 ADDRESSING RESEARCH GAP
6.6 LIMITATIONS AND FURTHER RESEARCH
APPENDIX RESEARCH INTERVIEW QUESTIONS
The research aimed to analyse the impact of blockchain technology on international trade and find out how blockchain technology can improve the various fields of international trade. The research also intended to find the challenges regarding the implementation of blockchain technology in international trade to help companies achieve successful collaboration and understand what requirements need to be met in advance.
The literature review of this research covered the fundamentals of blockchain technology, blockchain's role in facilitating supply chain and trade finance, the impact and adoption of blockchain technology, and blockchain implementation's key challenges. A qualitative approach was used based on 12 semi-structured in-depth interviews with ten companies operating in different business fields and two blockchain specialists to obtain empirical data. In addition to that, a whitepaper provided by a logistics company was used to incorporate with the interviews.
This research found that blockchain technology has significantly impacted international trade by improving supply chain efficiency, reducing the complexity of the paper-based trade process, and enabling faster cross-border payments. The empirical findings presented that blockchain can facilitate the supply chain by providing a high level of transparency and better product traceability. Furthermore, the findings showed that smart contracts could facilitate trade finance by providing automatic payments and eliminating intermediaries and blockchain-based ICOs could be a great fundraising option for innovative projects. However, this research also found that the large-scale implementation of blockchain in trade finance is still not possible due to government regulations.
Blockchain technology ensures to transform the supply chain and trade finance and reduce the complexity of the current international trade process. However, some critical challenges are associated with blockchain implementation, and some essential requirements need to be met in advance for successful implementation, which was discussed in this research. Furthermore, several suggestions regarding the large-scale implementation of blockchain in trade finance were presented.
The findings of this research have enhanced the current level of research on the link between blockchain technology and international trade, and the analysis of various application areas allows researchers to conduct an in-depth analysis of blockchain applicability in multiple business environments. The empirical findings will help companies develop their adoption strategies and prepare to implement the technology in the trade process. Furthermore, the findings of this research can bring new insight into the policymaking process regarding the implementation of blockchain in trade finance.
Keywords: Blockchain technology, international trade, supply chain, trade finance, blockchain supply chain, blockchain implementation, blockchain challenges
First of all, I would like to thank my supervisor Dr Vesna Sedoglavich for her well- structured and engaged feedback in guiding me through the writing process. I would also like to express my gratitude to all participants who gave me their time and trust and provided me with information about their organisations and their exciting work with blockchain technology, without which this dissertation would not have been completed.
List of Figures
Figure 1: A simplified example of how blocks are linked to form a blockchain
Figure 2: How a blockchain works
Figure 3: An overview of the blockchain
Figure 4: comparisons between different types of blockchains
Figure 5: Smart contract example in the SCM context
Figure 6: The international trade supply chain
Figure 7: Traditional model vs Blockchain model of trade fi nance
Figure 8: Key challenges that OriginTrail protocol addresses
Figure 9: Conceptual Fram ework
Figure 10: The research ‘onion'
List of Tables
Table 1: Information about conducted interviews
List of Abbreviations
AI: Artificial Intelligence
CEO: Chief Executive Officer
CTO: Chief Technology Officer
DeFi: Decentralized Finance
DLT: Distributed Ledger Technology
ICO: Initial Coin Offering
ICT: Information and Communication Technology
IoT: Internet of Things
IT: Information Technology
LC: Letter of Credit
LTE: Long Term Evolution
LPWAN: Low Power Wide Area Network
PoS: Proof of Stake
PoW: Proof of Work
QR: Quick Response
RFID: Radio-frequency Identification
UK: United Kingdom
WTO: The World Trade Organization
Chapter 1: Introduction
This chapter of the research presents the background information regarding the applicability of blockchain in international trade and presents the rationality of the investigation for justifying the choice of the research topic. The subsequent sections of the chapter detail the aims and objectives of the research along with the limiting factors and research methodology. Finally, the overall structure of the research is presented.
Blockchain technology is a decentralised database-powered with the concept of distributed ledger that keeps records of the province of digital assets (Ganne, 2018). The technology has massive importance due to its characteristics of making the digital assets unalterable and keeping them transparent with cryptographic hashing technology and decentralised mechanism (Zheng et al., 2017). Blockchain is considered a revolutionary technology, which reduces risk and minimises fraud by increasing transparency and scalability of transactions (Holotiuk & Moormann, 2017). Furthermore, blockchain is highly popular among users for being secure because of its digital signature feature and a decentralised system that is not controlled by the regulatory authority like central banks or governments, thus making the transactions smoother and safer (Zyskind & Nathan, 2015). The working mechanism of the technology includes cryptographic keys and a peer-to-peer network with the shared ledger; in other words, transactions are verified and stored using distributed consensus mechanism (Chen, 2018).
Blockchain technology has received plenty of attention since the first blockchain application called Bitcoin was created. The utilisation of cryptocurrency, such as Bitcoin in the financial sector, is just a small application based on blockchain technology. Blockchain technology has many other use cases. Blockchain technology has an enormous potential to transform the way of how international companies conduct their business. In recent years, the demand for transparency and traceability in the supply chain has increased; the combination of blockchain and IoT technology in the future can bring significant efficiency to the global supply chain, ensuring virtual security and transparency in every step (Deloitte, 2017). Blockchain technology is slowly being integrated into international trade and global supply chains due to the concept of trust preserved by the technology in international transactions (Wright & De Filippi, 2015). Blockchain innovation can impact and disrupt business models by authenticating traded goods via disintermediation and lowering transaction costs (Nowinski & Kozma, 2017).
The advantages of blockchain technology include immutability, swiftness, and privacy of the transactions and ensuring transparency and security (Zhu & Zhou, 2016). However, it has many disadvantages too. Firstly, there is no central authority to keep checks and balances on the transactions done through cryptocurrency. Furthermore, there is still a trust deficit among countries declaring it as a part of the national currency (Volt Technology, 2019). Finally, the development and implementation of blockchain technology for international trade are still at the planning and initiation phase and require research for full support and integration (Swan, 2015). Nevertheless, despite the drawbacks, blockchain technology has a bright future in international trade because the technology can help disrupt bureaucracy, radically reduce the complications of tracking shipments by replacing lengthy paper trails and minimise the losses due to delays in payments (Morabito, 2017).
1.3 Research Rationale
This research has evaluated the areas of application and use of blockchain technology in international trade. The research topic is justified as there is an existing gap in knowledge regarding how blockchain technology is applicable in international trade and how it can benefit transactions, tracking and security. Furthermore, there is also a gap in knowledge regarding its significance in assisting trade finance. Therefore, the choice of the research topic is rational as it can provide a precise analysis of the importance of technology in international trade and its potential use in trade finance and the supply chain.
1.4 Research Aim
Blockchain technology has the scope of establishing the future in facilitating trade finance and simplifying the global supply chains. Thus, this research aimed to conduct a holistic analysis of the relation between blockchain technology and international trade by evaluating all the aspects.
1.5 Research Objectives
The research objectives are as follows:
- To search the literature to arrive at the research outcome and identify research gaps to increase the overall effectiveness of the research.
- To analyse the working mechanism of blockchain technology.
- To analyse the key features of blockchain technology and the potential use cases in international trade.
- To analyse the impacts of blockchain technology on international trade.
- To analyse the role of blockchain technology in facilitating the entire global supply chain process and trade finance.
- To analyse the growth of blockchain adoption in international trade.
- To analyse the key challenges for blockchain implementation in international trade.
1.6 Research Questions
The research questions are as follows:
- What is the role of blockchain facilitating supply chain and trade finance?
- Which industries are adopting blockchain technologies?
- What are the factors that influence the adoption of blockchain technology in international trade?
- What is the impact of blockchain technology on international trade so far?
- What are the challenges associated with blockchain implementation in international trade?
- What is the possible future of blockchain technology in international trade?
1.7 Research Methodology
This research has used both primary and secondary methods of data collection. Both primary and secondary data are collected to analyse the multiple disciplines regarding blockchain technology and its applicability in international trade. The secondary data collection involved procuring information from academic books, journal articles, reports, and online company publications. The primary data collection involved conducting interviews to understand how businesses adapt to the emerging technology of blockchain and determine its implications on international trade. The research has chosen to conduct with the qualitative strategy reflected in the choice of conducting interviews with companies offering blockchain solutions, companies across multiple industries using blockchain technology and the ones that are hopeful of using the technology. Furthermore, this research also conducted interviews with the businesses of developing countries like Bangladesh where cryptocurrency is not legal yet, to know the perspective of blockchain technology and what governments should do to imply blockchain technology legally. Finally, in this research, the author examined Blockchain specialists' perspectives to determine whether the business could benefit from adopting blockchain and identifying the information required for a practical decision.
1.8 Limiting and Delimiting Factors
The limiting factors of this research include the lack of previous studies and research regarding the areas of application of blockchain technology and its possible benefits and drawbacks. The lack of prior evidence regarding the application of blockchain technology in international trade restricts the industry's assertions regarding its future benefits and implications. The application areas of blockchain technology are only found in detail regarding smart contracts and supply chains and limited sources of applications developed by financial institutions.
1.9 Proposed Significance of the Research
This research has analysed the impact of blockchain technology on international trade and found out how blockchain technology can improve the various fields of international trade, such as supply chain and trade finance. Thus, the author believes the empirical findings will help companies increase trust, transparency and achieve international trade efficiency by implementing blockchain technology. Also, the author intended to find the limitations and solutions regarding the implementation of blockchain technology in international trade to help companies achieve successful collaboration and understand what requirements need to be met in advance. The findings have improved the current level of research concerning the connection between blockchain technology and international trade. Furthermore, the analysis of various application fields makes it possible for researchers to conduct an in-depth analysis of the use of blockchain in multiple business environments.
1.10 Dissertation Structure
The study outline includes the introduction chapter serving as the section detail in the research aims and objectives and setting the background of the research. This is followed by the literature review section that presents details about the past investigations regarding the research area, followed by the methodology section that describes the considerations undertaken for data collection and evaluation. The fourth chapter of the research is the findings representing the results of the investigation, followed by the discussion chapter, which is based on the findings from chapter four and the literature review. Finally, the last chapter of the study is the conclusions and recommendations portions representing the learnings from the entire study, limitations of the study, and recommendations for further research opportunities.
The first section of this chapter presented background information to understand the topic and its importance. Besides, the proposed significance of this research and the research methodology were also briefly discussed. Furthermore, the aim and objectives of this research were presented to explain what the research is intended to achieve.
Chapter 2: Literature Review
The blockchain is a type of database system that records information through a special fault-tolerant mechanism called a consensus mechanism that increases the difficulty of being changed or hacked (Belle, 2017). The blockchain predominantly utilises digital ledger technology to supervise the transactions, and the details of these transactions are duplicated and distributed across a more extensive network of computer systems connected to the blockchain (Holotiuk et al., 2017). Blockchain is considered a tool to shape technological innovation in international trade and is widely regarded as a significant change in the domain (Ganne, 2018). This literature review presents an analysis of the previous studies and past research on blockchain technology and an evaluation of its impact on international trade.
The literature search strategy for this investigation involved the use of keywords, such as blockchain technology, blockchain working mechanism, international trade, blockchain international trade, supply chain, blockchain supply chain, blockchain trade finance etc. These keywords were inserted in online databases like Google Search, Google Scholar, ResearchGate and Science Direct for locating the peer- reviewed and open-source articles and academic publications to be used in this investigation. The literature review has evaluated the concept of blockchain to analyse its working mechanism, key characteristics and use cases in international trade. Furthermore, the impact of blockchain technology on international trade has been analysed and determined its role in facilitating the trade process considering trade finance and the overall global supply chain. Then this dissertation discussed its increasing adoption in international trade. Finally, key challenges for the implementation of blockchain have been presented.
2.2 Fundamentals of Blockchain Technology
There have been two ways to hold money: owning physical items (cash, gold pieces, etc.) or middleman-mediated forms of money or payments (bank accounts, credit cards, checks, etc.). However, both methods have their problems; for example, tangible money is insecure, inconvenient and cannot be used for digital payments; on the other hand, middleman-mediated money solves these problems but introduces problems of fees, lack of accessibility, and a different form of insecurity (Mehta et al., 2019). Furthermore, middleman mediated forms of money or payments introduce intangibility, but one needs to trust financial institutions to manage or move their money, which often costs high transaction fees (Mehta et al., 2019). Technical inefficiency is one reason for the centralization of most databases; in these databases, third-party errors have the effect of slowing down or corrupting the data (Pilkington, 2016). Blockchain first appeared in 2008 within the framework of the Bitcoin project with the purpose of transferring online payments from one party to another without relying on intermediaries (Gatteschi et al., 2018). A blockchain is a distributed ledger, comparable to a database that aggregates and updates data in real-time through a consensus algorithm, but instead of being controlled by a central authority, the ledger is dispersed across numerous computers which can be located all over the world, and once data is added to the ledger, it cannot be removed or altered (Ledger SAS, 2019). According to Pilkington (2016), blockchain is also known as distributed ledger technology that creates the historical details of digital assets and makes them transparent and immutable with the process of cryptographic hashing and decentralization mechanism.
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Figure 1: A simplified example of how blocks are linked to form a blockchain (Agbo et al., 2019).
The blockchain operates on the basis of the internet protocol and mainly carries out financial activities among related parties; however, the blockchain can also be used as a registry and inventory system to log, trace, monitor and trade all assets, regardless of whether they are financial, legal, physical objects or electronic assets (Government Office for Science, 2016). A simplified way to understand the blockchain is to imagine a giant Google spreadsheet shared with the whole world, and each user's computer stores a copy of the spreadsheet; each time someone makes a new transaction, the transaction is broadcast to everyone, and everyone's computers download a new version of the spreadsheet (Mehta et al., 2019).
Abbildung in dieser Leseprobe nicht enthalten
Figure 2: How a blockchain works (Stafford et al., 2015).
According to Swan (2015), blockchain technology comprises components of blocks, nodes, and miners. The user must also have a digital wallet (similar to a bank account) to broadcast any transaction, protected by the user's private key, and can be accessed through an appropriate signature generated by that private key (Puthal et al., 2018). Miners solve complex mathematical problems by using specialized software to create new blocks through mining, and successful mining results in financial reward for the miner (Andoni et al., 2019). The network validates new transactions and does not invalidate previous transactions to make sure only legitimate transactions are recorded, and only after the computers on the network reach a consensus on the transaction's validity through different voting mechanisms, a new block of data will be added (Wright & Flippi, 2015). A user can try to doublespend their cryptocurrency, as it is a digital token; therefore, the nodes must reach a consensus on which transaction should be kept on the blockchain to ensure there will be no corrupt branches or disputes (Casino et al., 2019). Since no trusted third party is involved in the blockchain transaction validation process, nodes (electronic and computing devices) follow a consensus to confirm or discard transactions and blocks (Puthal et al., 2018). There are different approaches to reach a consensus in the blockchain. This dissertation discussed below the two standard methods.
Proof of Work (PoW): The core idea of the PoW consensus algorithm is to distribute accounting rights and rewards through the hash power competition between nodes; different nodes calculate a specific solution to a complex mathematical problem, and the one that solves the puzzle first creates the next block also receives a reward for that block (Mingxiao et al., 2017). To alter data of a previous block is almost impossible because an attacker must redo the proof-of-work of that block and all subsequent blocks (Nakamoto, 2008).
Proof of Stake (PoS): is an alternative to Proof of Work (POW), which requires less energy and less risky against potential miners attack, was created with a concept that a user can mine or verify transactions based on the number of tokens they own (Frankenfield, 2021).
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Figure 3: An overview of the blockchain (Puthal et al.,2018).
Depending on the access permission, there are usually two types of blockchain applications:
Public blockchain/Permissionless blockchain: A public blockchain is generally considered to be a "fully decentralized" blockchain where anyone in the world can read, broadcast transactions, and participate in the consensus process (the process of deciding which blocks to add to the chain (Ethereum Foundation, 2015). In this type of blockchain, every activity is public and open to all the users without any restrictions, enabling them to access and verify transactions while remaining anonymous (Ganne, 2018).
Private blockchain/Permissioned blockchain: Private blockchains can be categorized in two ways- consortium blockchain, where access tends to be controlled by a consortium of members and completely private blockchain, where an organization controls access (Wang et al., 2019). In an entirely private blockchain, read permissions can be public or arbitrarily restricted, but write licenses are kept centralized in the organization (Ethereum Foundation, 2015). Established companies, especially those in the financial industry, gradually adopt private blockchains for internal use and conduct transactions with trusted partners to try this emerging technology while maintaining data confidentiality (International Finance Corporation, 2019).
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Figure 4: Comparisons between different types of blockchains (Zheng et al., 2017).
2.3 Key Characteristics of Blockchain Technology
Blockchain technology has several key characteristics. This dissertation discussed below some of the more popular characteristics: decentralisation, immutability, security, and transparency.
Decentralisation: Decentralisation is one of the key characteristics of blockchain technology. Unlike traditional centralised transaction systems, blockchain uses a consensus algorithm to secure data consistency; hence no longer requires a trusted third party (Zheng et al., 2017). This nature of the system makes it a unique system suitable for all types of users, and it will be difficult for hackers to crack it (Iredale, 2020).
Immutability: The data stored on the blockchain is permanent, meaning once entered into the ledger, it cannot be changed because the data is replicated across all nodes on the network (Hughes et al., 2019). This blockchain characteristic comes from the append-only concept; that is, records can only be added but almost impossible to modify or deleted; however, in public or permissionless blockchains, if most miners decide to alter or delete transactions, collusion can occur (Kouhizadeh & Sarkis, 2018).
Security: Every piece of information on the blockchain is encrypted cryptographically, a complex mathematical algorithm that can be used as a firewall for attacks to ensure another layer of security for the system; as the network is decentralised, no one can simply change any characteristics for their benefit (Iredale, 2020).
Transparency: Each node on the network maintains an identical copy of the blockchain, enabling real-time audits and verification of data sets, making network activities and operations highly visible, reducing the need for trust (Abeyratne & Monfared, 2016). The level of transparency blockchain technology offers excludes mediators involved in the processes, increases productivity, and diminishes trade- related risks (Kouhizadeh & Sarkis, 2018).
2.4 Blockchain Use Cases Related to International Trade
IT specialists have immediately recognised blockchain technology's potential and began using it to create digital currencies, self-executing smart contracts, censorship-resistant communications, file-sharing systems, and combining all of these, blockchain technology is playing a role effect ushering in entirely new decentralised organisations (Wright & De Filippi, 2015). Blockchain technology has different use cases. This research presents a brief overview of the domains that relate to international trade.
Global Payments: Cross-border payment has always been one of the earliest and most promising applications of blockchain technology because blockchain and distributed ledger technology (DLT) assure instant clearance and settlement and immutable and transparent records of transactions (Rella, 2019). Since many intermediaries are involved in verifying transactions, international payments become complex and time-consuming, and the whole process can be expensive and prone to error due to the centralisation of the monetary transactions where banks and other financial institutions dictate the processes (Rawat et al., 2019). The World Bank research found that handling fees represented an average of nearly 7% of total remittances (The World Bank, 2019). Blockchain platforms guarantee to diminish those fees and transfer international payments more speedily (Moran, 2019).
Integrity Verification: Oneof the emerging areas related to the blockchain is integrity verification which stores data and transactions associated with the products or services, and some potential applications are provenance and counterfeit, insurance, intellectual property management (Casino et al., 2019).
Insurance Claims & Processing: Insurance claims have been facing several fraudulent claims, and up-to-date policies and data associated with each claim make them extra challenging to handle in traditional approaches (Rawat et al., 2019). The total annual cost of insurance fraud in the United States is more than 40 billion US dollars, and the average family pays 400 to 700 US dollars per year for this (Federal Bureau of Investigation, 2020). Insurance fraud also a severe issue in the UK, though most consumer's claims are legitimate; however, fraud exists which cost policyholders up to £50 each per year and the value of detected and undetected insurance fraud causes more than £2 billion in losses to the UK economy each year (Insurance Fraud Taskforce, 2016). Since multiple miners need to reach a consensus on the validity of each transaction, any claim or fraudulent transaction can be detected and discarded, which ensures that insurance companies can quickly and efficiently resolve due claims through blockchain technology (Rawat et al., 2019).
Food Safety: Food safety is one of the most crucial issues that need to be solved because every year, one in ten people become sick after consuming spoiled food (Galvin, 2017). According to a Michigan State University Food Fraud Initiative report, the food fraud industry causes global consumers to lose between $30-40 billion each year (Michigan State University, 2019). Blockchain technology can help prevent counterfeiting food issues because blockchain technology runs on a network of computers rather than a third party's server, which means it would be simpler to trace at which stage in the supply chain contamination took place (Hodge, 2020).
Commerce and Supply Chain: This field is the one that has received the most attention and investment because it can benefit from the use of blockchain to support the identification of counterfeit items (Gatteschi et al., 2018). Blockchain applications can be utilised in logistics, identifying counterfeit goods, reducing paper load processing, expediting origin tracking (Casino et al., 2019). Supply chain digitisation can bring down current barriers, and along with artificial intelligence (AI), workflow automation, and the Internet of Things (IoT), blockchain is quickly becoming the backbone of supply chain digitisation (Chang et al., 2019). According to Kshetri (2018), supply chain activities are more likely to be transformed by blockchain because the technology enhances the performance of the supply chain process, and consumers can verify the authenticity of their products.
Smart contracts are digital contracts, and the allowed terms depend on a decentralised consensus that is tamper-proof and generally self-enforcing through automatic execution (Cong & He, 2019). Smart contracts, which are encrypted "boxes" containing the value, can only be unlocked when certain conditions are met (Buterin et al., 2014). To simply understand how the functions of smart contracts work, let us assume a simple contract in which a certain amount of cryptocurrency is transferred between two parties. However, in a smart contract, the transfer could be made on certain conditions; for example, 'If the temperature in Devon is below 0 degrees Celsius for at least 20 of the next 30 days, transfer x amount of funds from Alice to Bob' (Peters & Panayi, 2016). Smart contracts represent the execution of the contractual agreements, and the legal terms have been formalised in the source code; therefore, the contracting parties can establish a relationship more effectively in an automated way without the need of signing standard contractual agreements (Wright & De Filippi, 2015).
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Figure 5: Smart contract example in the SCM context (Queiroz et al., 2019).
2.5 Impact of Blockchain Technology on International Trade
Blockchain has a significant impact on global cost and supply. It can reduce trade expenses and increase supply chain transparency and opportunities for SMEs (Dutta et al., 2020). Reliable supply chain information is essential because consumers, producers, and governments need it (Allen et al., 2019). Supply chains are evolving rapidly under the influence of some emerging digital technologies, including advanced robotics, blockchain technology, cloud computing and the Internet of Things, which are affecting global value chains, trade flows, and the prospects for export-led industrialisation (World Bank, 2019). The main impact of blockchainbased solutions on international trade would be to contribute to trade facilitation by providing a trusted and secure infrastructure for documentation exchanges, ensuring relative equality between the stakeholders, and automating some processes, resulting in overall cost reductions (Copigneaux, 2020). Blockchain technology can eliminate trust-related issues from international trade. The technology works in a tamper-proof fashion, meaning any modification must be authorised or agreed upon by both parties; hence companies with limited knowledge of each other can conduct business without worrying about fraud or loss (Derindag et al., 2020).
According to De Caria (2017), the insurance sector is also impacted by blockchain technology because of the automation process using smart contracts. Blockchainbased smart contracts reduce management cost and minimise the complexity of procedures, including claims processing (Tarr, 2018). As a result, insurance costs will be significantly reduced; therefore, the impacts will be perceived in all areas of supply chain management (Queiroz et al., 2019).
Blockchain has considerably impacted the pharmaceutical industry. The common problem faced by the pharmaceutical industry is giving counterfeit drugs, which can have terrible consequences for patients (Agbo et al., 2019). Blockchain technology can address this problem by improving pharmaceutical supply chain management and integrity through blockchain implementation using unique identifiers for each medical device and keeping track of drugs utilising smart contracts (Kamel Boulos et al., 2018). Furthermore, using the blockchain, the doctor can automatically and securely send patient records to insurance companies or relevant parties (Rawat et al., 2019).
Another area that has significantly impacted by blockchain technology is the finance sector. Today, cross-border transactions are time-consuming, lengthy, and expensive (Casey et al., 2018). Blockchain makes these payments faster by providing a robust cross-border common infrastructure and reduces costs by eliminating expensive intermediaries; these improvements will be the most significant impact of blockchain technology and become apparent when considering the high inefficiency of global trade and the current payment infrastructure (Holotiuk et al., 2017). As an alternative to the conventional financing system, the development of a new product category combining cryptocurrencies and distributed ledger technology (DLT) supported fundraising: ICOs have become a significant fundraising choice for businesses and start-ups (Nascimento et al., 2019). Due to the explosive growth of ICO and venture capital, the investment amount in 2017 increased on an unprecedented scale and continued to maintain a high level in 2018, exceeding 7.4 billion euros, and there is fierce competition from the US and China as they now appear to be the leader in blockchain start-ups, with the UK playing a pivotal role in Europe in terms of the number of blockchain start-ups and attracting around 70% of the investments (Nascimento et al., 2019). The World Economic Forum predicts that by 2027, 10% of global GDP will be stored on the blockchain network, and the technology is expected to create new trade worth more than $3 trillion within the year 2030 (Rizzo, 2015; Derindag et al., 2020). These statistics show the enormous impact blockchain technology has on international trade.
The World Trade Organization (WTO) believes that the impact of blockchain on international trade is revolutionary because of blockchain's ability to eliminate various trade barriers (Derindag et al., 2020). Furthermore, once the blockchain is widely adopted internationally and the WTO decides to implement the technology in the capital market, the entire trading industry will experience revolutionary changes, and the impact on the global supply chain will be equally significant (Tripoli & Schmidhuber, 2018).