Big companies like Apple and Nike are in the business of global supply chains, with many of their products produced in China and Vietnam. But between high volatility, remoteness, complexity, documentation costs for overseas suppliers and native-country customs processes that can be expensive and time-consuming (to say nothing of staggering fees), getting one’s hands on a global supply chain is often prohibitively costly. If you’re unfamiliar with Bitcoin, here’s your guide to understanding Bitcoin and beyond.
Blockchain technology is a decentralized database formed by bitcoin transactions that enable the trustless transfer of valuable resources without relying on any central authority or third party to enforce such transfers — it’s an utterly transparent system where no single entity can control funds or act as an intermediary between two parties who want to trade something. Bringing this technology to trading supply chains will likely revolutionize the industry in many ways.
Comparing bitcoin’s technology with traditional financial intermediaries shows that it’s many times more efficient, affordable and secure. Moreover, it can lower trade costs by cutting out intermediaries and increase transparency — thus making it easier for all the parties involved in global supply chain relationships to conduct business.
The analysis brings a lot of interesting conclusions: “Bitcoin can enable firms to cut costs related to trade finance, for example, by eliminating third-party payment solutions. Transaction fees for international payments are often as high as 10 per cent of the transaction amount, whereas Bitcoin transactions are free. Let’s discuss how bitcoin poses an easy way of trading globally.
Reduce Intermediator Costs:
Using the traditional banking system for cross-border transactions incurs costs related to establishing accounts in multiple jurisdictions, complying with local regulations and Know Your Customer (KYC) requirements. In addition, in some cases, intermediaries impose minimum transaction amounts, which prevents small businesses from using their services.
Bitcoin ends all these problems as it can be used by companies globally without borders and any intermediation needed.
Transparency is an essential factor when conducting business in a global environment. Large firms usually have strict policies for suppliers that require due diligence on both parties involved in the trade relationship. Companies can obtain clear and transparent information on any company through the Internet, but not all countries are entirely transparent. Some governments, like China, where Apple has a large share of its production facilities, block websites that host essential information about the country.
This problem is even worse in developing countries because they might lack independent media and legal institutions to provide information about corruption and other government-related issues. The use of bitcoin allows supply chain participants to access reliable and transparent information with the assistance of its underlying blockchain technology.
Bitcoin offers a unique way to transparently track any trade deal, transaction or movement of assets. In addition, the secure nature of blockchain technology allows companies to use it for internal processes and financial reporting as it eliminates the need for an intermediary during transactions.
Blockchain is a distributed ledger where information about all bitcoin transactions is stored. Any interested party can check these records to verify that no bitcoin has been transferred more than once, and every transfer between parties is recorded and verified by miners. The advantages of blockchain-distributed ledgers over traditional centralized ones are trustless, data transparency and decentralized consensus.
Blockchain in supply chain management:
Bitcoin has many applications, one of which is using blockchain technology to improve supply chain management. The use of blockchain in any industry, whether it be financial or not, dramatically reduces the reliance on trusted third parties such as banks and other financial intermediaries. Blockchain allows supply chain participants to reliably record transactions, document paperwork and automate payments while reducing costs and risks associated with paper-driven processes.
Companies can streamline supply chains by using blockchain technology in several ways:
Blockchain technology facilitates supply chain management by providing a more trustworthy process for transferring sensitive information. In addition, by using blockchain, people can authenticate transactions, and contract enforcement becomes harder as peers in the network verify transactions.
The use of blockchain ensures that every party involved in a transaction is aware that the completed item is being transferred to the right person or entity, and there is no tampering with data stored on blockchains. Blockchain also allows for automated invoicing and payment settlement processes that are less time-consuming and costly than traditional options such as manual reconciliation, paper-based documents, spreadsheets and invoices. These are some of the functions that blockchain technology can bring to supply chain management shortly.
Blockchain offers a reliable, low-cost, decentralized way of managing global supply chains. It can expedite processes involving payments and verification of transactions as it allows for seamless coordination between parties involved in a trade.
The use of blockchain technology in supply chain management will decrease dependence on centralized intermediaries such as banks, increase transparency, and become a revenue stream for companies that implement it. As blockchain is still evolving, users will likely make more improvements to its underlying technology within the next few years, and we will undoubtedly see improved adoption rates moving forward.