Blockchain offers an innovative solution to the Brexit customs puzzle

Blockchain offers an innovative solution to the Brexit customs puzzle

This week the government released a new paper calling for the “freest and most frictionless trade possible” with the EU. Ideally, Britain wants no customs border, which, the paper admits, would be “unprecedented” and “could be challenging to implement”.

In just hours, the European Parliament’s Brexit negotiator Guy Verhofstadt dismissively labelled “invisible borders” a “fantasy”.

The good news is that a new technology is very well suited to having no customs border: blockchain.

Blockchain is a technology to create distributed trusted ledgers of information – it is a type of database that records blocks of information in a an efficient, verifiable manner. Blockchain is the technology sitting underneath the cryptocurrency, Bitcoin—but it has, far wider applications.

It’s become cliche in industry to say blockchain is the next big thing. The Big Four accounting firms and banks are already testing the technology. That’s because blockchain will revolutionise how systems will operate, from financial transactions and supply chain management, to asset ledgers and government records.

Blockchain would be very well suited to managing a customs system.

In order to deliver a borderless solution, Britain needs to be able to track the final destination of imported goods, and apply the appropriate EU or British tariff, if it is to pursue the “New Customs Partnership” model proposed in the paper.

Blockchain technology could be used to store information about, for instance, a new package of goods imported into Britain but destined for the EU. The data can be accessed immediately by all authorised parties, and include information such as the dimensions and weight of the package, and the origin and destination. This could all be clearly linked to the producer and transporter.

The record could then be used by the government to determine the appropriate tariff—be it the EU rate for a package destined for the EU, or the (hopefully lower) UK rate. If the destination of the goods were to change, this would be automatically updated on the blockchain, updating the payable tariff. There would be no need to require businesses to inefficiently pre-pay maximal tariffs and receive a refund, as some have mooted. The process of calculating duties could even be automated within the blockchain through what’s known as ‘smart contracts’, minimising administrative costs.

Blockchain is also highly secure. Once information is added to the blockchain it is extremely difficult to modify. In order to change some information on the new customs blockchain, such as inputting a new location for a package, all the other related blocks must be modified, allowing for efficient verification and auditing. In simple terms, you can track and trace the origin of a good’s record, and if it has been changed. This significantly reduces the risk of fraud within the system.

In practice, every ship and vehicle carrying goods across the border into the EU would register the information of the consignments they are carrying on the new blockchain. This would allow for secure cross-checking and tracing. You would know the exact location of goods, be it in the dock, on the ship, or at the destination, the contents of each consignment, and the payable tariff. The EU could even track this process on the blockchain, ensuring they are receiving the appropriate tariffs.

A blockchain could also help solve the complex issues related to Northern Ireland. A blockchain could track cars crossing the border to maintain borderless travel and peace in the region.

Brexit, most will admit, is a very complex project. Untangling decades of interconnected institutions is no easy task. But it also provides an extraordinary opportunity. In the future, all customs systems will be on a blockchain. Rather than dismissing the possibility of frictionless trade, Britain and the EU could become world-leading adopters of the new technology.