Reducing Risk, Mitigating Fraud: The Security Advantages of Blockchain Trade

Published in

Web3Prophet

5 min readFeb 15, 2024

Trade finance plays a crucial role in facilitating global trade, but security risks can break the operational workflow. And unfortunately, these risks come with real costs, both financial and reputational.

In 2018, the Association of Certified Fraud Examiners reported a record-breaking $7 billion in losses due to fraud. Another study by PwC found that 71% of organizations globally experienced a cyberattack in the past year, highlighting the prevalence of vulnerabilities.

To solve these longstanding hurdles, blockchain in finance trade is making waves to narrow the gaps with technological solutions. By 2030, the global blockchain supply chain market is projected to reach USD 16,667.74 million. It will grow at a CAGR of 52.3% during the forecast period from 2022 to 2028.

But what exactly makes blockchain so secure? And what are the security benefits of blockchain in trade finance? This article talks about the key advantages that make blockchain technology a game-changer in trade finance.

So, let’s begin!

Blockchain and Trade Finance: Understanding the Working

Large companies in developed nations usually take trade finance for granted but the reality for SMEs, both in developed and developing countries, is a struggle. Cumbersome paperwork, limited credit history, and restricted access to financial instruments leave them stranded on the sidelines of global trade.

However, blockchain technology is revolutionizing trade finance with great promise, especially for those currently locked out. The immutable nature of blockchain creates a trustworthy, tamper-proof record of transactions, eliminating fraud and building confidence between all parties involved.

For example, Trade Finance Global, a UK-based company leverages blockchain to connect banks, corporates, and other trade finance participants. TFG offers various services, including trade finance matchmaking, document management, and transaction tracking, all built on a secure blockchain network.

Top 5 Advantages of Blockchain in Trade Finance

The decentralized platform is changing the way trade finance operates, bringing countless benefits to supply chain management, banks, and governments alike. Here are some of the key advantages that blockchain development offers in trade finance:

Immutable Ledger

The traditional system heavily relies on paper-based documentation and centralized systems that can cause inefficiencies and sometimes delays. Fortunately, an immutable ledger offers a shared record of all transactions that cannot be altered or deleted. This eliminates the possibility of manipulation or tampering, ensuring the authenticity and integrity of every transaction.

Traceability

Many times the supply chain system struggles with the transparent mobility of the goods, raising concerns about authenticity.

By integrating blockchain into trade finance all the participants including importers and exporters can see their goods and assets in real-time. Moreover, information can be passed down to stakeholders for any required actions. This eliminates manual verification and reduces the risk of human error.

Cryptographic Security

The decentralized blockchain uses robust cryptography, making it extremely difficult to hack or forge. This advanced encryption protects sensitive information, such as financial details and trade documents, minimizing the risk of data breaches and unauthorized access.

Automated Smart Contracts

The transaction through blockchain on trade finance can be made without the need for intermediaries. Smart contracts can be programmed to automatically trigger actions when met with predefined conditions. This eliminates the need for manual verification and human intervention, reducing the risk of fraudulent activities in supply chain management.

For instance, a trade finance platform for SMEs, we.trade leverages blockchain to automate letter of credit issuance and trade finance processes. Smart contracts ensure secure and transparent transactions, improving access to trade finance for smaller businesses.

Mitigating Fraud

As we saw, fraud remains a major concern in trade finance, costing billions of dollars annually. With the help of blockchain technology and decentralized identifiers (DIDs) businesses can mitigate fraud and build trust in trade finance.

DIDs are a unique ID similar to an employee ID number assigned to a party like a manufacturer, logistics company, or distributor. Tampering with data or substituting goods becomes significantly harder due to the immutability and verifiability of DID-associated information. With the help of blockchain, the product information remains the same throughout the entire supply chain.

Now that we have looked into the benefits of blockchain and trade finance it’s evident that we can build a more secure and trustworthy global trade ecosystem. This will benefit all participants and unlock new growth opportunities.

Compliance and Regulatory Benefits

Blockchain can facilitate compliance with regulatory requirements in trade finance by providing a transparent and auditable record of transactions. This transparency helps businesses demonstrate adherence to anti-money laundering (AML) and know your customer (KYC) regulations, reducing the risk of non-compliance penalties.

Global Accessibility and Interoperability

Blockchain technology operates on a decentralized network accessible to participants worldwide. This global accessibility eliminates geographical barriers and enables seamless cross-border trade finance transactions.
Furthermore, blockchain protocols can be designed to ensure interoperability between different systems and platforms, allowing for standardized communication and data exchange across the trade finance ecosystem.

Improved Supply Chain Visibility and Collaboration

Blockchain enhances supply chain visibility by enabling real-time tracking and monitoring of goods throughout the trade finance process. This visibility allows stakeholders to identify bottlenecks, mitigate risks, and optimize supply chain operations. Moreover, blockchain fosters collaboration among supply chain partners by providing a shared platform for data sharing and communication. This collaborative approach improves coordination, transparency, and efficiency across the entire supply chain network.

Conclusion

Needless to say, the future of trade finance is undeniably intertwined with blockchain technology. The numerous benefits we outlined paint a clear picture of a revolutionary transformation waiting to happen. Businesses that embrace this innovation today stand to gain a significant competitive edge, enjoying streamlined processes, reduced costs, and increased trust with their partners.

In fact. with the blockchain market projected to reach 1,235.71 billion U.S. dollars by 2030, now is the time to take action. Reach out to a reliable blockchain development company specializing in decentralized solutions. Their expertise can help you reshape your organization’s approach to trade finance.

Seize the opportunity and be a pioneer in the future of trade finance.

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