Blockchain Technology: Its Implications for International Trade
Editor’s Note: The below article is the first in a three-part series about blockchain and its implications on international trade.
By Sammy Naji
International trade is undergoing a tremendous transformation thanks to the emergence of a groundbreaking technology called blockchain. Blockchain is essentially a ledger that is distributed on a network of independent computers, which allows for unalterable records of asset ownership. The ledger’s immutability comes from the fact that any attempt to alter a ledger stored on one computer in the network would be exposed by the ledgers stored on the rest of the computers in the network. Thus, blockchain technology provides international trade a more a reliable alternative to the current paper based systems of trade while simultaneously reducing the fraud, shipment time, and costs.
Blockchain gained its prominence as the technological infrastructure for virtual currencies such as bitcoin.[1] Since blockchain can keep accurate records of asset ownership and ensure that asset transfers stem from their legitimate owners, blockchain technology has solved the problem that previously plagued past attempts to establish reliable virtual currencies: the potential for fraud.[2]
Blockchain technology’s solution to this problem is through a process called mining, in which the owners of the independent computers that host the ledgers are given a monetary incentive to dedicate their computer’s processing power to verify that each transfer stems from its actual owner.[3] Each transfer is time-stamped and each transferee is subsequently added to the distributed ledger.[4] The transferee obtains an encrypted private key to the asset, while the transferor loses his/her private key.[5] A private key gives the owner of an asset the exclusive ability to transfer the asset.[6] A transaction only clears when the majority of the network’s computers verify that a transfer stems from its legitimate transferor.[7]
While the early utilization of blockchain technology was limited to virtual currencies, blockchain can also be implemented in any field that can benefit from transparency, including deed registries and stock instruments. Moreover, international trade is particularly ripe for blockchain implementation because it currently relies on an outdated paper-based system that is slow, inefficient, and costs the industry billions of dollars a year.[8] In the next two installments on blockchain technology, I will discuss how blockchain and smart contracts (a blockchain application) are transforming international trade by eliminating these paper based systems and introducing much needed efficiency.
Sammy Naji is a third-year law student at Campbell University School of Law interested in practicing corporate and international trade law. Sammy can be reached via email at [email protected]. You can also find him on LinkedIn here: www.linkedin.com/in/sammy-naji.
[1] Johannes T. Lorenz, Blockchain in Insurance – Opportunity or Threat, McKinsey & Company 2 (2016).
[2] See Carla L. Reyes, Moving Beyond Bitcoin to an Endogenous Theory of Decentralized Ledger Technology Regulation: An Initial Proposal, 61 Vill. L. Rev. 191, 197 (2016).
[3] See id.
[4] See id.
[5] See id.
[6] See id.
[7] See id.
[8] See Maersk and IBM Unveil First Industry-Wide Cross-Border Supply Chain Solution on Blockchain, IBM News Room (March 5, 2017), https://www-03.ibm.com/press/us/en/pressrelease/51712.wss.