Terence Zimwara
HARARE, While Blockchain technology, particularly the Bitcoin
Blockchain, has brought so much consternation among legacy players, there is a
chance that this software can do good, if given that chance.
The launch of the Bitcoin Blockchain in 2009 was not because
of a random event like the financial collapse of that year. Prior to that,
academics had struggled with a theory known as the Byzantine General Problem.
When generals of an ancient kingdom laid siege on city, they
needed to coordinate on how and when to breach the city’s defenses at the same
time. The only problem was that they had send trusted persons to pass through
the city and deliver messages between the generals.
There are many risks involved in that arrangement, either
the messengers themselves will get killed and the message is not delivered or
the messengers might be persuaded to pass on false information.
Either way, the generals needed a way to be sure if they
messages coming in were authentic.
This problem is not only limited to that
scenario, it is one we see in many forms today. Blockchain has many functions
that make the technology a perfect answer to this longstanding problem.
For instance, the immutability function of the Blockchain engenders
trust. So if the generals were using Blockchain, this would enable them to pass
and receive authentic messages. Bad actors or hackers will be prevented from
manipulating that communication channel.
In this article, we highlight how the problem continues to hinder
international trade even to this day. We illustrate using the case of the many small
scale miners in a developing country like Zimbabwe and big mineral processing
companies in developed or emerging markets.
Zimbabwe has vast deposits of chrome ore, a mineral presently
extracted by under-capitalized artisanal miners in addition to over a dozen
small to medium sized processing companies. The country’s nationalistic laws,
which prohibit foreign companies from owning controlling stake in mining
companies has ensured foreign capital steers clear of the country.
Nevertheless, a huge demand for this resource in countries
like China exists, where major infrastructure development projects are ongoing.
Chrome and iron are important minerals for such giant construction projects.
Now here is the problem; a few Zimbabwean miners might have
knowledge that Chinese buyers are looking for the mineral. However, unless the
Chinese buyers actually make the trip to Zimbabwe to physically inspect and
confirm the existence of a certain quantity and quality of the mineral, which
is often extracted in remote and undeveloped mining fields, this transaction
might not happen at all.
Sure enough, a number
of middlemen have emerged over the years to bridge this gap between the less
resourced chrome miners and the well financed buyers in China, who cannot even
locate Zimbabwe on the global map! So far, the only problem with this
arrangement is that these middlemen charge an inordinate facilitation fee, or they
simply feed false information to both sides just so they earn exorbitant
profits.
Chrome ore miners are forced to accept ridiculously low
prices while buyers are given a product that does not meet expectations. In many cases there are a few options for the
two transacting peers, either they grudgingly accept these conditions or there
is no contract at all. However, the emergence of smart contracts, which are
enabled by Blockchain technology, changes the game completely.
With such smart contracts, it may now be possible for cross
border business partners to trust each, even if they have not met. By simply
fulfilling their part of the conditions of an agreement, the chrome miner is
guaranteed of payment while the buyer knows that funds will be released to the
miner only after satisfying conditions. Smart contracts bring trust to
international trade.
The technology works
like an escrow except this escrow is not based on some central controlling
authority but rather on a public ledger. Additionally, since everything is
handled by the smart contract software—a layer on top of the Blockchain
technology— the transactions fees will be lower due to the elimination of
middlemen and their associated costs.
Clearly, this is use case for a public ledger
system/Blockchain and one that all relevant stakeholders need to look into. IBM’s
Hyperledger is one Blockchain to address some of the challenges as explained
above. The intention of the technology is not to challenge the position of
certain regulators but to offer an innovative solution or alternative that brings
more efficiency to international trade transactions.
As we have explained in previous posts, permissionless
cryptocurrency makes transacting across border much sweeter as they eliminate
the many middlemen in the payment system. Ultimately, the final savings are
huge something that should interest transacting parties.
