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Hackernoon logoGlobal Trading on the Blockchain - Opportunity or A Pipedream? by@golubev

Global Trading on the Blockchain - Opportunity or A Pipedream?

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@golubevGolubev_Od_UA (project manager), (expert), ICO/STO/IEO, venture & marketing projects

Industries and governments are continuously seeking ways to optimize the movement of goods, data, and currencies across global supply chains. Global growth needs a jumpstart.

In 2019, the world’s GDP rose by roughly 2.2 percent. And in 2020, we are seeing the impact of unprecedented global events tied to the COVID-19 pandemic and resulting economic storms.

To ease economic barriers in trade, we need to improve visible frictions such as tariffs and quotas, with most outcomes focused on reducing cost. The World Trade Organization (WTO) expects that new technology will help to further reduce trade costs.

And as a result of those falling trade costs, global trade could grow by 31 to 34 percent over 15 years. The 2017 Trade Facilitation Agreement (TFA), signed by over 160 World Trade Organization (WTO) member countries, projects the achievement of significant cost reductions by improving nonvisible frictions in trade such as paperwork, procedures, and administrative formalities.

Entering blockchain technology has the potential to diminish these nonvisible frictions in global business, reduce cost, and save time while also mitigating risk and creating new business models. Early adopter organizations have been working with partners—and even competitors—to improve existing, shared processes. As they continue to collaborate in nontraditional ways, they recognize that blockchain brings a level of trust both among participants and in data shared.

This could include dealing with customs paperwork, cross-border payments, or contracts for service. But for global trade to see the full range of benefits from blockchain, trusted data needs to be shared and value exchanged both on blockchain and non-blockchain networks—not just among participants in a single network, but across interconnected networks in digital marketplaces.

As a neutral agent for trust, a “network of networks” economy could help companies build greater flexibility and resilience into operational and supply chain management—both essential attributes in times of crisis.

A blockchain-enabled marketplace highlights the importance of transparency and insights within the global economy. The movement of data across these digital marketplaces presents new challenges. Interconnected networks require validation of the data being exchanged—think of digital contracts and signatures that need legal validation, and border and custom processes.

To achieve data sovereignty, organizations must also navigate a regulatory environment related to digital trade, with factors such as the EU’s General Data Protection Regulation (GDPR) to consider. With network validation and enhanced data security, blockchain can help maintain data source integrity while protecting data privacy.

When it comes to unlocking the global value of digitized trade, governments, regulators, and even trade associations are assuming more active roles. For example, the ICC Digital Trade Standards Initiative (DSI) builds on previous initiatives through the development of open trade standards.

DSI will continue to drive technical interoperability among blockchain-based networks and technology platforms that have entered the trade space over the past two years. Even in the age of COVID-19, organizations invested or interested in global trade will still seek to optimize digital transformation efforts.

They’ll evaluate shifting priorities and market conditions and correct their initiatives accordingly.

Organizations are interested in blockchain for more than outright profitability. Blockchain adoption has steadily increased, with 41 percent of organizations reporting a positive return on investment (ROI). For example, customer satisfaction ranks first among surveyed organizations as a measure of operational success across blockchain networks. To succeed in the global marketplace enabled by blockchain, organizations need to understand when to share data—and when not to.

Eight in ten organizations surveyed by experts say trusted data is important to their organization. Yet only five in ten of those organizations are willing to share data or offer value in exchange for data. This can inhibit their global competitiveness.

For global marketplaces to gain widespread participation, they’ll need trusted, neutral governance. Doing business globally requires trust, an abundance of it. The good news: blockchain actually becomes that custodian of trust, no intermediaries required.

This neutral entity can help drive fair, open governance, and standards—a critical foundation to unleashing the value from blockchain-driven marketplaces in global trade.

Experts identified three distinct types of organizations based on the primary roles each plays within a blockchain network, as well as their governance priorities.

Each type—Network Joiners, Network Builders, and Network Expanders—has different expectations of blockchain’s value, and is driven by distinct motivations and challenges.

On a practical note, as blockchain matures and organizations better understand the potential of blockchain, these roles could evolve from one type to another. Organizations could also decide to play different roles on different networks:

1. Joiners, almost a third of respondents, are likely to join existing or new blockchain networks. They primarily seek efficiency, compared to other organizations that prioritize revenue growth and cost reduction from the blockchain. The appeal of efficiency also means that joining more than one network—with multiple protocols and a lack of uniform governance standards—challenges them.

Motivations? To cite several: accessing new markets, perhaps globally; complying with regulatory and government directives; and at times, joining their partners or customers already on the blockchain network.

2. Builders form the smallest group, with just 18 percent of respondents. They create blockchain networks within their industries that provide new services and new value. As well, they require communication standards for the open movement of data among networks—standards that are critical to promoting broad participation.

In keeping with their standing as market leaders (defined as achieving higher revenue growth and profitability in their industries), Builders are furthest along in adopting blockchain. In fact, when compared to Joiners and Expanders, Builders report twice as often that they already have a roadmap to optimize shared processes across ecosystems.

3. Expanders form the largest group of organizations with 51 percent of respondents. They stand ready to build industry or cross-industry networks or even to join other blockchain networks, all in order to grow not just market share, but the overall market size. Their main objective: to drive innovation by co-creating services and apps that augment or expand the value of the network, and put consumers in control of their data.

For example, a cross-industry network could offer services such as payment systems or customs processing that would benefit diverse organizations. Like Builders, Expanders require communication standards for the open movement of data among networks.

Blockchain value is driven by purpose. While all three groups of organizations prioritize blockchain for billing and settlement and payments, they seek out blockchain for different purposes, depending on their role.

Because Joiners expect to consume services on multiple blockchain networks, they also prioritize data sharing and consumer insights. Builders struggle with scaling the platforms they create, and so additionally focus their blockchain efforts on global fraud and compliance issues, such as GDPR.

Meanwhile, Expanders also create innovative blockchain applications to share, reconcile, and manage data spanning cross-industry ecosystems—and ultimately grow market size. Across the board, organizations acknowledge that network roles heavily influence the distribution of revenues generated on blockchain platforms, with Builders expecting to earn a lion’s share for their setup work and costs incurred.

That’s because today, networks are primarily monetized based on the value and volume of the transactions generated on these networks. For example, a network might charge 0.1 percent of a transaction on a global payment platform.

At the same time, Builders and Expanders anticipate providing blockchain services via apps much more than Joiners. These apps or services could include processes and procedures involved in global trade—for instance, monetizing a track and trace service by charging a monthly subscription fee. Another monetization model could involve charging based on the degree of insights provided, with insights increasing in value along with their complexity.

One of the showcase scenario: TradeLens, a blockchain industry platform that helps participants to digitally connect, share information, and collaborate across the shipping supply chain.

Insights provided on this platform vary in their depth. For example, data on a container’s movement door to door is more complex than its port-to-port status—and the charge for that data would increase. But over time, network value can dramatically redistribute.

This is because, as blockchain networks mature, their cutting edge services become mainstream. The Joiner, as the consumer of services, now has the power to choose from competing networks. In short, if Builders want to drive market size, not just market share, they need to provide more value through more services.

Organizations should prepare to participate in multiple ways. The nature of blockchain is fluid—you often begin again, even as you’ve simultaneously joined and established multiple networks. Here are three paths:

1. Connect expeditiously. Score initial success by joining an existing network. Joiner organizations expect at least 18 percent ROI on their blockchain investments in four to five years. Examine your business processes to determine the greatest potential efficiencies and what blockchain services could address them. When competing networks offer similar services, analyze how candidate blockchain is governed and monetized—and how your data will be managed.

2. Build ambitiously. Can your organization alleviate an unmet need in your industry? Consider building. But aim for scalability, because building a static network won’t provide long-term value. You may plan to offer cutting-edge services, but they—or something similar—could eventually be adopted and added across other networks, becoming business as usual. You’ll need to continually innovate, developing services that appeal to multiple blockchain networks and industries.

3. Expand collaboratively. You’re looking at expanding not just market share, but the market size. Don’t expect the blockchain network that you build or join to exist as a standalone. In the next three years, 85 percent of organizations anticipate working with more than one blockchain technology. Actively seek and plan for governance and standards for interconnectivity and interoperability. Another option: if you are looking to innovate, consider co-creating on an existing network.

Consider the intense volume of data collected, analyzed, and made actionable across organizations today through IoT, analytics, and AI. As blockchain networks organize, a shared, trusted pool of data and resulting insights become their most valued assets.

Blockchain can help validate the identity of parties at the right time, facilitating the trusted transfer of data, goods, services, and money. A blockchain-based marketplace extends the concept of a single decentralized, distributed ledger to commercial transactions across multiple networks.

It’s a peer-to-peer environment that can both reduce reliance on intermediaries and connect consumers and producers. In fact, a blockchain marketplace has much in common with other online platforms. Producers provide product or service information, including certificates of origin, verified service level agreement details, and shipping details, such as bills of lading.

Consumers and retailers shop for merchandise and services and make purchases. It’s a sandbox in which all parties interact by rules they’ve established together in the form of data governance, with no third-party oversight or regulation required.

The blockchain marketplace evokes a range of reactions, depending on the role an organization plays. Today, Builders conduct about 14 percent of their business on blockchain, double that of the Joiners.

This makes sense, given that Builders are further along in their relationship with blockchain and are also focused on an industry they know well—their own. As networks mature over the next three years, Joiners expect their business on blockchain to increase by 60 percent.

Organizations across all roles recount using blockchain to exchange data as an asset more than to exchange physical or financial assets or services. Still, the willingness to share data in exchange for value varies, even as more than 75 percent of organizations say having trusted data is important to their organization.

This lack of trust in sharing could stem from concerns over both security and privacy, as well as the asymmetry in monetizing data in an equitable manner. Joiners may need to fully grasp the negative competitive impact caused by keeping too tight a grip on their data. This, in turn, could prompt a more nuanced approach.

A blockchain marketplace’s emphasis on transparency, data integrity, and network validation—as well as not requiring personal information—could hold increasing appeal for roles that value data privacy, whether Joiners, Builders, or Expanders.

By the very nature of blockchain networks, members are already part of designing and creating the marketplace and have a stake in its success. There is a collective optimism, rather than just the Builders’ belief that their new product, service, network, or marketplace will succeed. And as many networks interconnect across marketplaces, organizations are evaluating metrics portfolios that extend beyond their own profitability.

One example of technology’s influence - The US Department of Homeland Security cited blockchain managers in agricultural and food distribution as “critical infrastructure workers” during the COVID-19 crisis.

Organizations across all groups report that a majority of their business operations are within their own country. For large and small companies alike, taking their goods and services across borders could seem daunting, given the nonvisible frictions that persist such as paperwork, procedures, administrative formalities, and more. But as blockchain adoption grows, that wariness may ease.

Data is gold, but that doesn’t mean you hoard it. Reap the benefits of sharing data when appropriate, but also hold back when warranted. Here are concrete steps to creating a robust blockchain data strategy:

1. Consider what portfolio assets can be digitized and traded in a trusted environment. Sharing data on a blockchain marketplace can create a competitive advantage—as long as proprietary information remains strictly off-limits. Assets that are otherwise difficult to trade lend themselves well to being tokenized and offered on a blockchain marketplace.

Design a nuanced approach that protects data when needed and gleans value from data when warranted.

2. Evaluate which markets you could access through participation and data sharing in a global blockchain network. Whether offering new services, digitizing assets, or influencing consumer behavior, determine the best path to value from a trusted marketplace.

Model alternate revenue streams based on increased market reach and transaction volumes. Identify new ways to collaborate and explore accelerating blockchain solutions with emerging technologies like AI and IoT.

3. Transcend profitability metrics. Investigate how information exchanged on a blockchain marketplace can drive greater customer satisfaction and more. For example, customers can have confidence in their food source and the authenticity of consumer goods.

Additionally, investigate how blockchain can help you drive partner profitability, shareholder value, and community engagement—all priorities for Builders, Expanders, and Joiners respectively.

Doing business globally requires trust—an abundance of it. Here’s the good news: blockchain actually becomes that custodian of trust—no intermediaries required. In our pursuit of trade digitization, we never imagined that the inability to connect ‘digital islands’ would be a concern for the millions of people who need to process the billions of physical pieces of paper in trade.

While we have seen digital ‘hacks’ to get us through, this comes with increased risk. Post-crisis, it is going to be critical for governments, companies, and industry actors to enable the system to be natively digital. Blockchain is going to play a hugely important role in making this a reality. Consider this: launching an online business once involved planning the technical aspects of website hosting and data transfers.

These are now standardized globally through domain name registries, freeing companies to focus on demographics and other marketing strategies. A similar parallel is happening with blockchain. While less than half of all surveyed organizations (46 percent) are working with multiple blockchain technologies today, the vast majority (85 percent) plan to do so over the next three years.

Organizations are gearing up to conduct more business across a marketplace of blockchain networks that, ideally, will have the appropriate technical infrastructure to span multiple ecosystems.

While 63 percent of Joiners, Builders, and Expanders alike are on single public or private blockchain networks today, they plan to increasingly work on multiple interconnected blockchain networks in the next three years. As organizations navigate this complex framework, they expect some synergy in the form of common services.

For example, organizations report that basic services such as inventory management, asset management, and supplier certification are important criteria for joining a blockchain network because they contribute to operational and cost efficiencies.

Other services like Know Your Customer (KYC) and digital identity are typically seen as part of the onboarding package and need to be accounted for as well. For instance, blockchain-enabled marketplaces could help bridge some of the USD 1.5 trillion trade finance gap resulting from KYC issues by providing detailed transaction histories to help assess risk.

What’s more, as cloud adoption continues to rise, over the next three years organizations anticipate their blockchain environment will comprise a hybrid mix of cloud services—and will do so at more than 3.5 times their rate today.

These are all developments that bode well for adapting and scaling to global marketplaces and their complexities. Overall, blockchain networks are better positioned for success in global trade if they can accommodate future interconnectedness and interoperability.

Overall, market leaders, regulators, and industry bodies such as trade groups are expected to play an important role in establishing trusted blockchain-enabled marketplaces. Joiners, Builders, and Expanders alike agree that to thrive and facilitate creative exchange, these marketplaces need open governance and standards in addition to common services.

So it’s no surprise that they’re all looking to regulators and governments, as well as standards bodies, for this purpose. To nurture a growing marketplace, it’s critical to drive interoperability across the various systems that allow transactions to flow, whether on or off the blockchain.

By its very nature, blockchain promotes decentralization. However, organizations still expect some oversight to help promote equitability and build trust.

Especially as marketplaces expand to new geographies and industries, blockchain networks need to accommodate many more regulatory and cross-border challenges.

A neutral entity can help drive fair, open governance and, in the absence of “absolute” standards, begin the journey to standardization—a critical foundation to unleashing the value from blockchain-driven marketplaces in global trade.

You may begin by joining one blockchain, but that’s not the way of the future. Eventually, you’ll want to plug and play across multiple networks, and you’ll need astute governance and standards to do so. Here is some advice to take you forward:

1. Remember the “three I’s”: integrate, interconnect, interoperate. Think broadly and develop strategies that can eventually scale to a wider set of blockchain technologies. Without governance and standards, you risk multiple blockchain networks that duplicate one another, fail to span industry and global boundaries, and are limited to a single technology.

2. Envision networks and value chains that are matrixed, not linear. Designing for the “three I’s” means that no matter what your network role, you can connect to a neutral “network of networks”–or help build it. Determine realms of expertise that you can benefit from, contribute to, or create. Be alert to common services that you can develop or transactions that you can track. Investigate what insights you can deliver—and monetize.

3. To achieve the greatest impact on global trade, aggregate activities at a cross-industry level. Yes, industry-specific activities have their benefits. But as you connect across multiple blockchains, determine what synergies matter most. Incorporate them into your network as common, easily adaptable services. Engage with regulators, government bodies, industry working groups, and trade organizations to drive interoperability across networks and facilitate cross-industry adoption, thus increasing chances of marketplace success.

An effective way to define a neutral entity is by illustrating potential services that it could offer:

– A global trade directory service could be the trusted authority for buyers or sellers—or importers or exporters—seeking trade counterparties that are onboarded and receive a verified digital identity.

– A global trade services platform could provide common trade services that cost-effectively enable the exchange and provenance verification of goods and services, which are tracked while being transported among parties.

A marketplace offering global trade intelligent insights could provide trusted “smart services” that yield insights into global trade patterns, perhaps as a pure “search and discover” platform through a Trusted Data Repository Service.

Far from exhaustive, these examples show how a trusted neutral entity levels the playing field.

The very processes that created nonvisible frictions now become common services required by blockchain stakeholders. Think asset management, claims and customs processing, supplier certification, inventory management, and digitization and automation of trade finance processes. Invisible trade busting frictions are no longer an option.

And, as trade processes are digitized, organizations also see their assets being digitized, tokenized, and traded with equal fervor as their original goods. Blockchain-enabled marketplaces empower.

An organization no longer needs to be a multinational conglomerate with a sophisticated infrastructure of international contacts and services to compete in the global market. As Emmanuelle Ganne of the WTO observes,

“Blockchain could well become the future of trade infrastructure and the biggest disruptor to the shipping industry and international trade since the invention of the container’’.

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Sergey Golubev (Сергей Голубев)


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