International Trade Revolution with Smart Contracts

Abstract

Smart contracts are challenging the traditional business structure by offering a trustworthy decentralized platform where business transactions can be conducted with accountability, transparency, and traceability guarantees. Smart contracts, enabled by the distributed ledger technology, can be employed in many business sectors to reduce transaction time and cost and improve identity verification and proof of ownership, just to mention a few. International trade is one of these sectors with an urgent need for improvement: a market of trillions of dollars still based on traditional paper-based transactions. The shipping industry carries 90% of the goods of the global trade market, whose costs for processing trade documents and information have nowadays doubled those for the transport itself. The need for a digital transformation is urgent for the development of and access to new markets. Insurance, letter of credit, bill of lading, factoring, etc. could obtain substantial benefit from the use of smart contracts. The possibility to transparently track and seamlessly validate the integrity of trading activities via an immutable ledger will permit reducing intermediation risks, automating contract settlement, and dispute resolution. These efficiencies will have (i) micro effect in the transferred efficiencies to consumers and small business parties and (ii) macro effect in the trade benefits for countries and industries. This chapter will explore and explain the distinguishing features of smart contracts, the functionalities that will enable trade finance, and the benefits that their application will bring to the parties of the process.