Blockchain in Trade Finance: Reducing Fraud and Improving Efficiency through Digital Ledger Technology

Abstract

Blockchain technology offers significant advantages for trade finance by enhancing both efficiency and security through decentralized, automated, and robust systems. Research consistently highlights blockchain’s potential to drastically cut trade finance processing times—from the traditional span of 7–10 days down to as brief as 4 hours (Li, 2023)—and significantly reduce operational costs, exemplified by a striking 98% reduction in pilot initiatives like the World Food Programme case (Kellaf, 2024). Furthermore, recent technical demonstrations indicate that blockchain platforms can efficiently support high-volume operations, reaching throughput rates as high as 149.8 transactions per second (Zhang et al., 2024). Empirical simulation studies also reinforce these observations, estimating efficiency improvements of up to 94% compared to conventional systems (Asad et al., n.d.).

In addition to these efficiency enhancements, blockchain's features such as smart contracts, secure and immutable document storage, and encrypted transaction records significantly mitigate the risks of fraud. These mechanisms notably deter issues like double financing, forgery of trade documentation, and trade-based money laundering (Xu et al., 2022; Guerar et al., 2020; Rijanto, 2021). Specifically, rule-based detection frameworks and decentralized, transparent audit trails offer enhanced security and visibility throughout the trade lifecycle, effectively addressing historical vulnerabilities in traditional finance methods (Rantung et al., 2024).

Keywords: Blockchain, Trade Finance, Supply Chain, Fraud Detection, Operational Efficiency, Digital Ledger Technology, Smart Contracts, Preprint