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How Bitcoin Resets the Global Trade Paradigm

Global trade in the age of Bitcoin is an attractive place for an investor. In this article, it is important to keep in mind that global trade refers to the trade finance and the global supply chain industries. Both are antiquated and vulnerable to disruption in the wake of Bitcoin and ongoing innovations in distributed ledger and blockchain technology.

The world is changing at a rapid pace while trade practices have changed little.

Bitcoin could have a massive impact on the global trade market.

The benefits promised by innovations in distributed ledger and blockchain technology are also subject to misuse. This comes down to the practical tradeoffs between private and public blockchains – centralization vs decentralization, respectively.

Referencing Bitcoin’s success, this article highlights the author’s opinion that public blockchains (cryptocurrencies) foster an economic environment that can cultivate honest and transparent financial incentives in global trade.

Current Trade Practices

According to Don Tapscott’s book, “Supply Chain Revolution” it is still common for the global flow of assets to be coordinated via phone, email, and even fax. It is obvious that increased digitization can benefit trade.

For example, settling trade transactions across borders often involves complicated communication among banks and respective parties. These practices can take days or weeks to settle but, thankfully, digitization is already accelerating these processes. Introduce blockchain technology, and the process accelerates further. The possibility then exists to bypass the bureaucracy of banks, organize trade deals, and make payments almost instantaneously. The XinFin organization, fueled by its native XDC token, offers a hybrid public and private blockchain network that is taking a step in this direction.

Another project of note is known as the VeChain Thor Blockchain. VeChain is a public blockchain providing logistics solutions. This project utilizes Internet of Things (IoT) technology in combination with its native cryptocurrency, VET. VeChain bolsters an impressive list of partnerships and is one of the few cryptocurrency projects with active operations.

The limitations of the current global trade network were represented to a severe extent by the onset of the COVID-19 pandemic. From toilet paper to shipping containers, the global supply chain had to adapt to shortages and surpluses worldwide and did so poorly. Supply chains still have not stabilized since the pandemic.

Distributed Ledgers and Cryptocurrencies

As you might know, Bitcoin and other cryptocurrencies are built using blockchain technology, which are a form of distributed ledger.

What you may not know is that there are distributed ledgers that are not cryptocurrencies. This distinction is important, because both have applications in global trade. An interesting difference between the two is that, with cryptocurrencies, crypto assets provide a convenient means to raise funds. So why would an organization opt to adopt a non-cryptocurrency distributed ledger system?

Centralized vs Decentralized Trade

A key reason is that cryptocurrencies are a public blockchain network, which can limit the potential for centralized control. There is a tradeoff here. A non-cryptocurrency distributed ledger also keeps company records private. A company may not, for good reason, want competitors to be able to peer into their operations.

Also, a private network is more basic to implement and can reasonably address a company’s needs. The downside of this tradeoff boils down to the limitations of any centralized system. A single entity gatekeeps access to a network and exerts absolute control over its function. A failure in judgement of the central entity is more likely to lead to a failure of the entire network.

The benefits provided by a decentralized network, a cryptocurrency, can have a much wider reach. Processes aren’t limited to the goals of a single organization, are more resilient to collapse, and break down barriers to trade. In general, these characteristics align more closely with the concept of a free market.

As we advance toward a decentralized network, it certainly is useful for legacy trade services to utilize more centralized blockchain technologies for their existing systems. However, if we’re after a truly efficient global trade network, we’re going to need a more significant shift from common best practices.

Bitcoin Sets the Stage

Take Bitcoin, for example. It’s accessible to all, isn’t directed by a central entity, and is introducing almost half of the global population to the global economy. Bitcoin’s decentralization has made it resilient to multiple economic downturns and its accessibility is opening emerging markets that are notoriously risky. Any investor’s senses perk at the combination of early access to an immature market in combination with investment security.

One can view the contemporary global trade system as an emerging market. It is difficult to access and fraught with risk. A decentralized global trade network can increase access to global trade and decrease the risk of doing so. The impact of Bitcoin compounds here. Bitcoin is opening access for almost half the global population to the global economy, which, in combination with increased access to a trade network(s) could translate into intense pressure for the global trade network to adapt.

The Path to Smooth Global Trade

Global trade has been growing at an exponential pace and the global trade network is already struggling to adapt. The world is only changing more quickly and Bitcoin is adding a compounding element to that equation. Thankfully, the innovations that lead to the rise of Bitcoin yield the potential to transform the global trade network as well.

There are two paths that can be taken to implement blockchain innovations. One path is to optimize the existing centralized system and the other is to start building toward decentralization.

Do we want to perpetuate a rigid system of monopolistic corporate dominance or do we want to welcome markets worldwide and strive for honest and transparent financial incentives? If global trade is to adapt to the age of bitcoin, then decentralization is the trend.

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Gerrit van Sittert

About the Author

Gerrit van Sittert

Gerrit van Sittert is a cryptocurrency investor keenly interested in the ramifications of blockchain technology. Since graduating from a commerce and entrepreneurship degree, he has specialized his knowledge of how cryptocurrencies are set to impact the global supply chain and emerging markets. He started his crypto journey in 2017 while hosting an entrepreneurial focussed meetup group in Victoria, BC.

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