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How Blockchain Can Revolutionize Trade Finance

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Trade finance is the backbone of the world economy for many years but recently because of globalization and increased use of internet, this is flourishing at a greater pace. The volume of goods and services getting exchanged across borders increased which led to increase of banks and companies lending money for the same. The whole process of this distributive trade not only requires trader and seller but also requires a large number of intermediaries.

On the flip side, the participants of the process are vulnerable to trade and business risk emerging from different set of factors which include delayed processes, different regulations across different geographical locations, less fluidity in documentation and payments, hurdles in logistics.

The banks which finance such companies also get exposed to risks and thus costs get increased which eventually lead to unfavorable contractual terms. This dark cloud of inefficiencies, risks and legal problems looms over trade finance market which is seriously affecting global commerce.

With the advent of Blockchain in the recent era, banks and companies are incorporating millions to reap the fruits of this technology. Blockchain which started as the underlying process of Bitcoins now holds the potential to streamline businesses by processing real time data, reducing hurdles of logistics and moreover almost eliminating any charges from the third party intermediaries.

Because of its security, distributed ledger technology and an open consensus system, Blockchain can almost revolutionize trade finance market.

Time being a very important asset in the finance market can be drastically reduced by the use of this technology. With real time review of the required documents, Blockchain can hugely reduce the time taken to complete the whole process of shipment and receiving of goods. The whole process of documentation by banks and other companies which takes nearly a week will be reduced to seconds when the participants would upload their documents and checking will be done in real time.

The coded security it provides helps all the trade transactions to be recorded and maintained without any fear of theft. This technology creates a tamper proof database as the data once entered could not be modified on a later date as any new record inserted will carry a hash code from the previous block and thus it gets very difficult to change any previously entered data. Private key encrypted database can also be implemented for more security which can only be accessed by specific personnel.

Blockchain will help fight fraudulent practices by keeping a check on double entry of same goods, prohibiting consumers from falsely claiming about the bad quality of goods. The consensus mechanism in this technology will deprive any single entity to have full control over the process which in turn will eliminate any kind of manipulation risks.

The transaction charges levied by bank and other merchant sites will be completely waived off and thus there will be more favorable contracts helping both the trader and the seller.

Blockchain would also play a crucial role in advancing the businesses and processes which forms a back end of trade finance like identity authentication, contractual management including financial, legal, insurance and other regulatory bodies.

In a nutshell, Blockchain would play a key role in enhancing business processes by reducing complexities and eliminating middlemen. Blockchain can have an intense impact on trade finance in the long run which could lead to a complete makeover of the whole process.

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How Blockchain can revolutionize trade finance. (2018, December 17). GradesFixer. Retrieved September 22, 2021, from https://gradesfixer.com/free-essay-examples/how-blockchain-can-revolutionize-trade-finance/
“How Blockchain can revolutionize trade finance.” GradesFixer, 17 Dec. 2018, gradesfixer.com/free-essay-examples/how-blockchain-can-revolutionize-trade-finance/
How Blockchain can revolutionize trade finance. [online]. Available at: <https://gradesfixer.com/free-essay-examples/how-blockchain-can-revolutionize-trade-finance/> [Accessed 22 Sept. 2021].
How Blockchain can revolutionize trade finance [Internet]. GradesFixer. 2018 Dec 17 [cited 2021 Sept 22]. Available from: https://gradesfixer.com/free-essay-examples/how-blockchain-can-revolutionize-trade-finance/
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