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1 1 (June 25, 2019)

handle is hein.crs/govbadn0001 and id is 1 raw text is: Blockchain and International Trade Updated June 25, 2019 Innovations in technology have the potential to enable and disrupt international commerce (e.g., online shopping and drone delivery services). Along with emerging technologies such as artificial intelligence and the Internet of Things, 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. hat Is Blockchain? Blockchain is a distributed record-keeping system (each user can keep a copy of the records) that uses encryption to provide for auditable transactions. 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 user's knowledge. These blockchain features allow 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 similarly seeking to use blockchain. 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. While cryptocurrencies potentially could create a more efficient payment system, they involve risks (there have been instances of compromised exchanges) and security concerns. Certain federal agencies have claimed regulatory authority over aspects of the cryptocurrency industry, but the patchwork regulatory regime involving multiple agencies at times creates regulatory ambiguity. Traditional financial services firms are also experimenting with blockchain technology. For example, Fidelity's new digital assets division will provide custodial services for cryptocurrency trading. By using blockchain technology, banks could settle cross-border transactions in seconds, rather than days, with fewer steps and less complexity. Multiple banks have developed trade finance pilots using blockchain platforms. For example, 14 European banks built a trade finance platform to offer services to enable international trade by small and medium enterprises (SMEs). These blockchain-based platforms may include smart contracts that automatically execute according to a set of business rules. 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. These platforms may also open up new markets, including in developing countries where trade finance is not as readily available. 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 blockchain to manage outside vendors and suppliers with permissions set according to a user's role. Permissionless blockchains, in contrast, are open to any user. By improving workflow efficiency and visibility, blockchain enables companies to better track goods, including inputs, intermediate goods, and finished products. A blockchain platform can also include associated documentation, like certifications, provenance, and payment information as products move through a complex global supply chain, with greater fidelity than with current technologies. With blockchain, participants in the supply chain, from the smallest vendor to the end consumer, can track and verify specific goods. 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. 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 was potentially tampered with or where adulteration occurred, but would not preempt the malicious action. For example, the Walmart Food Traceability Initiative, launched in September 2018, tracks the firm's supply of fresh leafy greens. Walmart aims to increase consumer trust and food safety for a product that has been the subject of multiple U.S. foodborne illness outbreaks. The company plans to expand its blockchain efforts to other food products sourced both domestically and internationally. Walmart is part of an industry consortium seeking to align the blockchain infrastructure (e.g., establishing common data elements), to create scalability for suppliers such as small farmers distributing products to multiple companies. ittps://crsreports.congress

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