Creation of Smart Contract for the Blockchain based Trade Finance
- August 5, 2018
- Posted by: RSIS
- Category: Financial Engineering
International Journal of Research and Scientific Innovation (IJRSI) | Volume V, Issue VII, July 2018 | ISSN 2321–2705
Afsal A, Regi Kumar V.
Financial Engineering, Department of Mechanical Engineering, College of Engineering, Trivandrum, Kerala, India
Abstract—Trade finance includes the various financing activities in an international trade. Since the parties participating in a trade are from different countries, there are several risks associated with this area. Also it is still a largely paper based business and hence the time taken for various activities is too large and chances of errors are also high. Normally, there will be a buyer and seller with intermediaries like banks or financial institutions are present in trade finance and different activities are happening with these parties. Also there are various documents included in trade finance like letter of credit, bill of lading etc. and each of them having specific cost and risk.
Blockchain is a distributed ledger technology which is mainly used for cryptocurrencies and also for building smart contracts. The technology has established in the year 2008. Blockchain has the potential to solve the problems arises in trade finance like risk, time consumption and costs. Using blockchain, smart contracts can be built in the area of trade finance which makes it more transparent and risk-free. Each activities in trade finance can be stored to a block in blockchain and every party has the provision to look at the activities in real time which makes them more comfortable in business. Legal documents and contracts between parties can be stored in a blockchain and if anyone wants to make a change in a particular document, all the other parties have to approve it and this will reduce fraudulent activities. The provision to protect highly secure data from other parties is also available in blockchain. External attacker cannot make changes to a blockchain because if anyone tries to do that, he has to attack every parties in the contract to make a change and which is not possible since the hardware using will be having high power to protect it from frauds. Blockchain will provide high secure, transparent and cost-free solution to trade finance.
Keywords – Trade finance, Blockchain, Transparency