How The Blockchain Improve Trade Finance Process In The Financial Sector: Fraud Prevention

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Hello great minds,

It is a wonderful opportunity to come before you all today to continue our discussion on this important issue in the cryptospace.

I trust you are doing perfectly fine and are enjoying your activities in the community as you join hands with us in promoting steemit across various social media platform.

Today, we shall be continuing our discussion on the impact of blockchain technology on trade finance process, please do.

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HOW THE BLOCKCHAIN IMPROVES TRADE FINANCE PROCESS

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The blockchain plays a huge role in improving several sectors of the world, of which trade finance process is of no exemption.

Today, we shall be learning how the blockchain technology Improves trade finance process.

• FRAUD PREVENTION:

There is a very important role being played by the blockchain technology in preventing fraud in trade finance process, and this role is possible through the introduction of decentralization, transparency and Immutability.

This blockchain technology has the ability to revolutionize the traditional financial system, thus building trust amongst participants and mitigating risk.

Trade finance process as we know is a complex ecosystem that involves various parties such as the sellers, the buyers, the insurers and other intermediary.

The traditional trade finance process often face challenges such as inefficiencies, fraudulent activities, delays etc

Explained below are some ways in which the blockchain helps to profer solutions to the fraudulent activities prevalent in the traditional system.

ENSURES TRANSPARENCY

One of the interesting ways in which the blockchain tackles fraudulent activities in trade finance process is by ensuring transparency, through the provision of a distributed and shared decentralized ledger, that is accessible to all participants.

All validated transactions are recorded in a block, and these blocks are linked together in a chronological chain.

This transparency of the blockchain helps to confirm that the whole transaction can be accessed and viewed by all participants, thus eliminating opacity which is a facilitator of fraudulent activities.

IMMUTABILITY OF THE BLOCKCHAIN

Another property of the blockchain technology that helps in eliminating fraud is it's Immutability characteristics.

The moment a block is added to the chain, it becomes practically impossible for that transaction to be altered or deleted, the transaction becomes foreverly stored.

The integrity of trade finance record is being guaranteed by this Immutable feature of the blockchain technology which helps in eliminating the risks of fraudulent practices, such as the falsification of invoices or the manipulation of shipment details.

SMART CONTRACT

Another critical component of the blockchain technology that plays an important role in eliminating fraudulent activities in trade finance process is smart contract.

As we know it, smart contract are self executing agreements that are directly written into code.

These smart contracts plays an important role in the automation and enforcement of contractual obligations, streamlines the process and also eliminate the need for intermediaries.

This goes a long way in eliminating fraud as the terms of the agreement are automatically executed when the predefined conditions are met, and are also transparent

PREVENTION OF DOUBLE FINANCING

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In addition to the prevention of fraud in trade finance process, the blockchain technology also help to tackle a prevailing challenge in trade finance process, and this is the challenge of double spending.

Double spending is a fraudulent activity that is said to have occurred when a borrower obtains financial gains from multiple lenders through the use of same set of receivables.

The transparent and decentralized nature of the blockchain helps to guarantee that the same version of the truth is being given to all participants, thus preventing the use of same assets as collateral for multiple loans.

THE USE OF DIGITAL IDENTITIES

Also, another way in which the blockchain technology helps to prevent fraudulent activities is by making use of digital identities.

Here, every participants involved in trade finance process has different unique identities, and information and access to certain things will be based on identity.

This helps to prevent unauthorized access, and it also ensures that transaction validation can only be done by authorized parties.

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CONCLUSION

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The blockchain technology plays an important role in the prevention of fraud in trade finance process.

A more efficient trade finance ecosystem is being created through the transparency, Immutable and decentralized feature of the blockchain.