Beyond the Hype: A Structural Analysis of Blockchain Technology in the Transformation of Global Trade Finance—Opportunities, Institutional Barriers, and Future Convergence

Abstract

The global trade finance ecosystem, representing the circulatory system of international commerce, is currently beset by a widening dichotomy between the rapid digitization of physical logistics and the archaic stagnation of financial settlement processes. This paper offers a comprehensive, theoretically grounded critique of Distributed Ledger Technology (DLT) as a remedial paradigm for the structural inefficiencies—namely systemic information asymmetry, prohibitive transaction costs, and acute vulnerability to fraud—that define the contemporary trade finance landscape. Grounding the analysis in Transaction Cost Economics (TCE) and the Resource-Based View (RBV) of the firm, we articulate how blockchain reconfigures the ontology of trust from an intermediary-dependent model to a cryptographic consensus mechanism. The study provides a granular examination of how smart contracts and tokenization can automate the lifecycle of the Letter of Credit (L/C) and democratize access to supply chain finance (SCF) for underserved Small and Medium Enterprises (SMEs). However, contrary to techno-utopian narratives, we argue that the path to industrial-scale adoption is fraught with non-technical friction. We critically analyze the “digital island” paradox of interoperability, the profound legal ambiguities surrounding electronic transferable records, and the governance challenges inherent in banking consortiums. The paper concludes by forecasting a trajectory of convergence, where blockchain integrates with the Internet of Things (IoT) and Central Bank Digital Currencies (CBDCs) to enable atomic settlement, ultimately suggesting that the revolution of trade finance is a complex socio-technical evolution requiring the harmonization of code, law, and commercial incentives.