Introduction to blockchain’s role in enhancing digital trade

Blockchain technology delivers significant benefits to digital trade, offering increased security, transparency, and efficiency for cross-border transactions that are notoriously slow, complex, and open to vulnerabilities. 

In this blog, we explain how blockchain has already had a significant impact on digital trade, its main advantages and benefits, and how that impact has developed in recent years. Additionally, we will explore the considerations that the industry must take into account to ensure that blockchain continues to positively impact digital trade.

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What is meant by ‘digital trade’?

The definition by the European Commission of digital trade is ‘commerce enabled by electronic means…and covers trade in both goods and services’. Digital trade encompasses not only the purchase and delivery of physical paper books from an online marketplace to your door but also includes the purchase and delivery of e-books. 

Whether you are buying or selling goods and services online, or transferring data and information across borders, it is important to understand the role blockchain has played in the development of digital trade in the modern age. 

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What are the key advantages of using blockchain in digital trade?

Security 

Blockchain offers enhanced security for digital trade. Its immutable ledger system ensures that transactions are recorded on the ledger and cannot be edited or deleted.  This reduces the risk of fraud or error and increases transparency. Real-time tracking of traded goods, as well as their documentation, also enhances transparency. This means that digital products and services can be verified and authenticated, minimizing the possibility of fraud. The decentralized nature of blockchain means that there is no single entity in charge of data, which lowers the risk of a single failure bringing the entire system down.
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Speed 

Blockchain expedites several of the most time-consuming processes in digital trade, such as the tracking of goods, document validation, identity verification, and complex multi-party involvement. It can help eliminate unnecessary intermediaries included in the process. Smart contracts significantly accelerate transactions, automatically executing when the predefined conditions written into the contract are met. Above, we mentioned the aspect of documentation that can be handled safely with blockchain. Blockchain also processes and handles these complicated documentative processes quickly.
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Cost

All of the above reasons listed - elimination of intermediaries, streamlined and quicker processes, lack of manual oversight, and increased efficiency - drastically reduce the cost of digital trade if blockchain is used. With a more efficient, secure framework for digital trade, the very expensive problem of error and fraud is also reduced. These issues can cause significant financial loss, and disputes can quickly become costly and detrimental. 
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Global reach 

Blockchain reaches all corners of the globe, lowering any location barriers to entry. With complex documentation processes taken care of, and safety a stronger guarantee, there is an easier proposition for regions to engage in global trade. But there are no global standards for blockchain, in the same way as there are for the global movement of any kind of trade. The impact of blockchain on democratizing access to digital trade cannot be understated, but as we discuss in more detail below, it could be the difficulty of globalizing rules and regulations that inhibit blockchain's adoption in digital trade.  

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COVID-19 

The COVID-19 pandemic only accelerated the use of blockchain across all industries, and the adoption of digital trade was boosted during a global pandemic in which people were unable to leave their homes. Digital technologies that offered fast, safe trade of all kinds, locally or across borders, experienced exponential growth as the entire world looked to overcome the physical and logistical limitations that lockdowns created. In 2019, ‘digitally deliverable services’ was 52% of all services exports worldwide. In 2020, that rose to 64%, a sharp acceleration compared to any rise in previous years. 
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Regulation

The biggest challenge - or opportunity, depending on how the issue is tackled - for the future of blockchain in digital trade will be regulation. The blockchain industry is becoming increasingly regulated as regions around the world look to grapple with the risks and changes of blockchain. This raises challenges with international trade, as every country or region creates a different set of regulations according to local needs. Some may even be in opposition to one another, further complicating digital trade across borders. Standardization will be key, and crucial for ensuring that everyone involved in the process works together with compatible tools and protocols. 

Regulation also encompasses trust, which is crucial for digital trade but extends beyond laws and protocols. Trust is a huge barrier to full blockchain adoption in all aspects of digital trade. Digital trade is still dependent on many physical, ‘real-world’ interactions and parties, so there will be a period of adjustment as the industry learns to manage with the technology and what it replaces or changes. 

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