Why trade finance platforms need blockchain

Trade finance instruments have made it difficult for all parties involved in the process to collaborate effectively. The involvement of numerous parties such as banks, sellers, buyers, insurance companies, logistics companies, etc. complicates the interaction process.

There is no unified communication system for commerce, and various means of communication such as emails, paper documents, and internal company websites, etc., further complicate the process. Error corrections and waiting times take a lot of time, and it's difficult to synchronize the processes with each other.

The level of complexity can be enormous. In one Maersk case, the chain for a shipment from Kenya to the Netherlands consisted of more than 200 interactions involving over 100 people, and the shipment took 34 days, with 10 days spent on paperwork alone. According to the Boston Consulting Group, a single transaction in a trade finance instrument can involve around 5,000 interactions with data fields.

Trade finance platforms with a distributed ledger and embedded electronic workflows are replacing disparate means of communication. A blockchain network regulated by an operator is the foundation of these platforms, providing a single source of truth for all parties involved in the process. Information about a transaction cannot be hidden, altered, or falsified, and its status is instantly synchronized with all participants. These platforms provide a unified common environment with transparent and convenient tools for interaction.

The platforms provide new opportunities for rapid document management, and a process that used to take 7-10 days can now be completed within 24-48 hours. Labor costs are reduced as everyone can see online status and no one has to travel to sign documents. The depth of automation can be increased by using smart contracts, which are algorithms embedded in the system that are triggered by certain events.

While the security is good due to the nature of the technology, the legal framework for these platforms is not yet fully established, and it is a worldwide trend. The legal framework is not yet fully established, but it is necessary for elaboration of convenient mechanisms for international arbitration.

Blockchain platforms for trade finance instruments are set to become the global standard in the long term. The largest platforms will be interconnected, and whoever connects to one will have access to a vast number of counterparties from around the world. The traditional model of doing business will change completely, and business partners within blockchain platforms will be selectable from a catalog.

In conclusion, the use of blockchain technology in trade finance platforms will revolutionize the industry, providing a single source of truth for everyone involved in the process. The emergence of trade finance platforms has already reduced the complexity of the process, and smart contracts and unified legal frameworks will further enhance the effectiveness of these platforms.