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In the last recent years, Bitcoin along with many other cryptocurrencies has grown and developed into multibillion dollar industry. Cryptocurrencies are perceived or even misunderstood by many people and experts as purely speculative assets, which have unpredictable values and extreme volatility. The public opinion is separated into two sides: the first side considers cryptocurrency, respectively, Bitcoin as one of the biggest financial bubble and the second side thinks of cryptocurrency as the future which has great potential to revolutionize the financial industry. In fact, the revolution initiated by digital currency does not lie in the transaction value or short-term earning opportunities for cryptocurrency investors, but rather in the underlying technology behind it called „Blockchain”. Since the very beginning of currency and private infor-mation, the existence of thieves and fraudster has always been problematic. Due to the complexity of fraud and the serious risks that fraud presents to business, fraud detection and fraud prevention is often conceived as cat-and-mouse game between companies and fraudsters. Admittedly, there is no completely fool-proofed system or technology, on the other hand fraudsters nowadays constantly change and develop their technique in order to bypass even the most complex security system. Block-chain is a shared distributed ledger that is immutable and resistant to tampering. Only verified contributors by blockchain are allowed to store, view and share digital infor-mation in a security-enhanced environment. The three following features of block-chain: distribution, immutability, permission which help to maintain trust, accountabil-ity and transparency in business relationships. This cutting-edged technology called blockchain has the capabilities and potentials to provide companies and organiza-tions the ultimate fraud prevention solution which they have been waiting for in a long time.
“The technology likely to have the greatest impact on the next few decades has ar-rived. And it is not social media, it’s not big data, it’s not robotic, it’s not even AI. You will be surprised to learn that it is the underlying technology of digital currencies like Bitcoin. It is called the blockchain – Blockchain.”.
Don Tapscott (Tapscott, 2016)
From the beginning of globalization, international trade plays a vital role in global economy und it is now undergoing a transformation period. The impact of economic circum-stances, the invention of new technologies and the increase of regulatory requirements on the global scale has continue to attract more attention in many major economies participating in the global trade environment. Trade finance is known as one of the oldest components of international finance which helps facilitating the transactions between suppliers, merchants and companies by providing them with sufficient working capital in order to finance their commercial transactions and reduce potential risks. Nowadays, trade process has become more interconnected and major events driven by political or macroeconomic factors like the financial crisis 2008 or the recent Brexit indicate that core of trade finance process is in need of disruption to decrease inefficiencies and improve cost factors as well as stability. Digitization in trade finance has been considered as challenging for a long time since the main process is heavily paper-based. Furthermore, cross-border trade activities usually involve a large number of different participants. During this process, exchanging trade-related information such as country of origin, product details, restrictions/prohibitions on import etc. creates large amount of documentation. The aim of this thesis is to research and explore the current state of trade finance with regard to banking industry and also to find out how blockchain technology can potentially enhance or even redesign the trade finance pro-cesses by reviewing how close is the industry to undergo major adoptions.
This thesis is structured in a way to provide readers the theoretical background to over-all trade finance process and get them familiar with the concept of letter of credit, guar-antee, bank endorsement, accounts receivable insurance etc. In the next part, the core aspects of blockchain technology and its usability will be explained, analysed and dis-cussed. Finally, to examine the feasibility of implementing blockchain in trade finance, different research methods will be conducted in the form of literature review, expert interviews, gathering of data through polls, questionnaires, and surveys.