Blockchain & DLT for trade finance

Last updated on 22 Aug 2024

29 Jun 2018 . 1 min read

Carter Hoffman

Carter Hoffman is a Research Associate at Trade Finance Global focusing on the impact of macroeconomic trends and emerging technologies on international trade.

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Blockchain and DLT in trade: Where do we stand?

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Download our 2019 Guide

Blockchain and DLT in trade: A reality check

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Blockchain for Trade Finance

Welcome to our blockchain hub, a comprehensive guide by Trade Finance Global on the use of distributed ledger technologies (DLT) and blockchain within international trade, trade finance, and shipping.

Consortia, networks, and technologies have emerged in attempts to digitise trade, yet to date, their applications have been relatively unsuccessful and disjointed.

We investigate some of the key opportunities and challenges the in the current ecosystem, and take an in-depth look at what needs to happen for the industry to evolve.

Just as TCP/IP, HTML, and HTTP provide shared and open standards and protocols that enabled the internet to become what it is today, so too can blockchain and related technologies create a flatter, smarter, more connected, and overall better world for global trade and commerce.

Video – WTO and TFG Launch ‘Blockchain & DLT for Trade: Where do we stand?’

FAQ

What is blockchain?

A blockchain is a decentralised, distributed ledger that permanently records transactions.

Decentralised means that no single individual or group has excess control over the exchanges.
Distributed means that the ledger is sent out to many computers.

In other words, it’s made public and thus is completely transparent – everyone can view the blockchain but nobody can amend it.

The term ‘blockchain’ is derived from the way the technology works. Each ‘block’ contains encoded data of groups of valid transactions that are cryptographically linked to previous blocks to form a ‘chain’, hence we get the name ‘blockchain’.

It’s not necessary to understand the complexities of how the technology works to understand its practical applications for international trade and trade finance.

Blockchain technology provides a way to transact directly via a peer-to-peer network securely meaning that counterparties can use the blockchain to transact without any middlemen.

How does blockchain work?

Transactions are recorded to a blockchain through 5 important steps:

Step 1: Two parties initiate a transaction by agreeing to exchange something of value. In most cases, this will be a cryptocurrency token or other asset.

Step 2: This pending transaction joins others and creates a ‘block’ that is verified by the nodes on the network. The exact method used for this verification (i.e. proof-of-work or proof-of-stake) will differ based on the specific consensus mechanism the network use.

Step 3: If the nodes reach consensus to validate the transaction, it’s verified and added to the blockchain.

Step 4: A timestamp is added to this transaction block using a cryptographic receipt. As each block has a reference to the hash of the previous block, there is an unalterable chain of records.

Step 5: The transaction is complete and the unit of value is transferred to the receiving party.

What is blockchain used for?

Blockchain technology has several possible use cases for a variety of different industries, including:

Cybersecurity
Travel
Banking
Trade finance
Cloud storage
Legal
Insurance
Healthcare

The reason that blockchain has so many use cases is that it provides a reliable, secure, and transparent network.

This makes it useful for any business that could benefit from a way to transfer data securely, quickly and transparently.

Are cryptocurrencies and blockchain the same thing?

Blockchain is NOT the same as cryptocurrencies.

Blockchain is a infrastructure technology, on which developers can build other applications.

Many people think that blockchain and cryptocurrencies are the same since the two terms come up in the same sentence quite often as cryptocurrencies are the most widely known application that is built using blockchain technology.

This is similar to how popular websites – like Facebook or Trade Finance Global – are built on a collection of internet infrastructure technologies like HTTP, TCP/IP, and HTML.