Digital ledger technology, commonly known as the blockchain, seems to offer various options of bringing the trade industry into the digital era. In that context, Trade Finance Global in conjunction with the World Trade Organization produced a 56-page report earlier this month. This report is titled “Blockchain & DLT in Trade: A Reality Check,” fully endorsed by the International Chamber of Commerce.
According to the deputy director at the ICC’s finance for development hub, David Bischof, this report is an essential tool for the whole trade ecosystem. Also, it illustrates that standardisation in trade and finance is a major issue to guarantee that the many blockchain-based platforms are of use for businesses that trade.
ICC is currently working on a digital trade standards initiative to fill the gap. It is implementing mechanisms that provide better access to innovation for everybody. The report also introduces a periodic table of DLT Projects which represent visible similarities and unique differences. Just like in the scientific periodic table, the trade finance cable also has comparisons and differences between the projects.
The results of the quantitative survey outlined in the report feature more than 200 participants. These participants from the fintech, banking, corporate, and industrial sectors were sampled to offer perceptions of the sector’s outlook, opportunities, challenges, and state of development.
According to the report, 44% of the users or developers of DLT listed enhanced efficiency and speed among the top-three benefits from using the technology in the trade finance industry. On the other hand, 35% of the users indicated cost reductions as a major benefit.
Transparency took the day with 55% listing it as a top benefit. The results reveal many opportunities for this new technology. It saves costs through efficiency and transparency.
These opportunities point to a positive forward-looking perception of the industry. The report shows that the 5-, 10-, 30- and 50-year outlooks of the industry have collectively positive perceptions. The most positive sentiment is located in the 10-year industry outlook. However, the 30- and 50-year views show a modest decline.
Thus, it appears like the state of blockchain and general adoption will grow considerably in the next ten years before peaking and slowly trailing off. Although the sentiment of this projection remains constant between firms using and developing DLT and the ones that are not, the size of this sentiment differs considerably.
A senior analyst in the WTO’s economic research and statistics division, Emmanuelle Ganne, said exclusively that Blockchain can transform international trade only as a tool. Governments will have a critical role to play by putting in place the right policy environment.
The Extent of Challenges
The firms that use or develop DLT consider compliance, regulatory, legal and technological issues as having a considerably smaller magnitude. In the same context, there is a small correlation between the current development state for a company and its perception of both technological and regulatory challenges among the firms that use or develop DLT.
The more any firm dives into blockchain implementation, the less prominent it sees the hiccups of the industry. The reason behind it all could be that the companies actively involved in the blockchain space are consistently aware of when an advancement has been implemented to eliminate past challenges. Therefore, they are better attuned to the current state and potential of the industry.
Nevertheless, this data just shows a gauge of perception. Hence, it may also mean that the companies developing or using DLT hold a major bias that makes them view all challenges as easy-to-solve.
Challenges in the nascent blockchain sector are not to be underrated. A staggering 91% of the respondents sad that DLT facing interoperability issues was about 91%. About 50% of the respondents said that the technology poses a major challenge. Additionally, 65% of the respondents that use DLT confirmed that selecting between a plethora of DLTs is an issue that their firms have been facing.
86% of the respondents that use DLT said that integration into the back office systems is a major challenge. While these hiccups are real, they are just opportunities in disguise. In this context, they are offing a chance for businesses to break down the digitization barriers and propel the industry into the future.