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1 1 (May 14, 2018)

handle is hein.crs/govzfc0001 and id is 1 raw text is: Blockchain and International Trade Updated May 14, 2018 Innovations in technology have the potential to enable and disrupt international commerce (e.g., online shopping and drone delivery services). One such technology, called blockchain, may change the conduct of international trade, including how it is financed, how companies manage supply chains, and how border officials vet imports. Congress may face questions about the potential benefits and risks of this new technology and whether, or how, blockchain should be regulated. What Is Blockchain? Blockchain is a distributed record-keeping system (each user can keep a copy of the records) that provides for auditable transactions and secures those transactions with encryption. Using blockchain, each transaction is traceable to a user, each set of transactions is verifiable, and the data in the blockchain cannot be edited without each user's knowledge. Compared to traditional technologies, blockchain allows two or more parties without a trusted relationship to engage in reliable transactions without relying on intermediaries or central authority (e.g., a bank or government). Blockchain technology could potentially yield time and cost savings in tracking business transactions. It has the potential to simplify business processes, reduce transaction costs, and allow companies to compete more efficiently. Some governments are seeking to use blockchain in similar ways. International Trade Uses Finance Blockchain has many potential financial applications. For example, blockchain is the technology underlying Bitcoin and other cryptocurrencies that can be used to make payments without banks or other third-party intermediaries. However, cryptocurrencies are not completely safe, as their exchanges have been compromised. Security concerns and other issues have led to regulatory actions. In June 2017, the Securities and Exchange Commission ruled that Initial Coin Offerings (ICOs) with cryptocurrencies are considered securities and thus subject to applicable law and regulation. In contrast to the U.S. regulatory approach, China's ban on ICOs led to the closure of some cryptocurrency exchanges. Traditional financial services firms are experimenting with blockchain technology on a broad scale. Some observers estimate that 80% of banks expect to launch blockchain pilots by the end of 2018. For example, by using blockchain technology, banks could settle cross-border transactions in seconds, rather than days, with fewer steps and decreased complexity. Multiple banks have developed trade finance pilots using blockchain platforms. For example, HSBC processed a letter of credit with ING Bank for an international soybean shipment for Cargill using a platform that allows for repeated transactions between the parties. Such blockchain-based trade finance platforms may include smart contracts that automatically execute according to a set of business rules. For example, seven European banks aim to create a cross-border finance platform to enable international trade by small and medium enterprises (SMEs). The SMEs, shippers, and other firms in the blockchain would be able to track individual orders and use smart contracts to trigger payments automatically when specific conditions are met, such as receipt of a delivery, without requiring manual intervention. Logistics and Supply Chain Management A company may use a closed blockchain to manage supply chains within a company. The company may use a separate, open blockchain to manage outside vendors and suppliers with permissions set according to a user's role. By improving workflow efficiency and visibility, companies likely can better track goods, including inputs, intermediate goods, and finished products. The blockchain may include associated documentation, provenance, and payment information as products move through a complex global supply chain, decreasing the need for paperwork. Tracking Conflict Diamonds To reduce theft and counterfeiting, Everledger built a blockchain platform to track and trace individual diamonds as they move along the supply chain according to the Kimberley Process Certification Scheme for conflict-free diamonds. Blockchain partners include insurers, financial institutions, and diamond certification houses that are each able to track a diamond over its lifetime. The blockchain (shared ledger) operates according to rules set by smart contracts, and regulators gain visibility into and provide oversight of the entire supply chain. With blockchain, participants in the supply chain, from the smallest vendor to the end consumer, can track and verify specific goods. For example, IBM is working with Walmart to track importation of pork from China into the United States using blockchain, and with Maersk to manage and track shipping containers and their cargo globally. To monitor the quality of the goods, such as perishable agricultural shipments, a blockchain could include data gathered by devices such as an embedded sensor in a shipping container to track location, and another sensor to ensure that a good is not tampered with or to monitor a shipment's temperature. Being able to track individual shipments could facilitate a recall, if needed, or could help authorities identify where along a supply chain a product https:/crsreports.congress go

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