Blockchain is synonymous with cryptocurrencies. That is, after all, what Satoshi Nakamoto built the technology for, using Bitcoin as a digital currency. But blockchain is much more than just digital tokens.
Since the ICO craze of 2017-18, the technology has seen several applications in different areas. As Web3 is quickly becoming a reality, protecting data and information from bad actors is becoming ever more important. The best thing is, blockchain has all of the ingredients to help against fraud and other illegal activities.
Why is Blockchain the Perfect Tool?
Built to be resistant to manipulation, blockchain has some very interesting characteristics that make it the perfect option for fraud prevention. These are the same characteristics that Satoshi Nakamoto envisioned and implemented to safeguard Bitcoin and, therefore, data on-chain.
The basis is its decentralized nature. Blockchain is basically a distributed ledger, where every node has the complete set of all the transactions or data transfers ever done. When new data is introduced, there are different mechanisms (or consensus) that verify the transfer, such as Proof of Work (PoW) and Proof of Stake (PoS). A node or validator confirms the validity and appends it to the chain. The data is then distributed to all other nodes to update their records.
If there is any illegal activity, other nodes, and validators can see and point it out. This makes it resistant to unwanted or illegal changes.
In conjunction with decentralization, blockchain networks are immutable. This means that once data is noted, it cannot be changed. If one bad actor attempts to do it, it will not sync with others and will be quickly pointed out.
At the same time, all transactions and records are noted down with a timestamp and a hash code. Any changes attempted will alter the timestamp and the hashcode, letting other nodes know something fishy is going on. As major nodes will not agree with the invalid data, the node in question will have to either purge the transaction or risk being alienated from the network.
While blockchains are known for being public, rules can be set to allow only specific authorized personnel to access the data. With only the right people able to access and read data, sensitive information can be encoded in the ledger without fear of the public or bad actors accessing it.
What Types of Fraud Can Blockchain Prevent?
While there are several applications, blockchain is most effective in three major areas:
The world revolves around money, and money is power. Issues like complex regulations, different jurisdictional requirements, delays in reconciliation, and opacity in handling by financial institutions mean there is always a huge chance of an actor or a party taking advantage of various cracks.
Because all transactions are noted down with instant transfer, Blockchain is the perfect tool to prevent financial fraud.
Yes, there are delays in transactions, but this is due to the confirmation time, not the data recording. The transfers are locked in the chain, and all concerned parties have real-time updated access, allowing them to view the transactions and immediately identify any wrongdoing.
In fact, validators and nodes can even detect suspicious behavior and reject any illegal money movement in the first place.
With Blockchain, firms will not be able to swindle investors, governmental spending will be transparent, and banks will be more open with account holders – the possibilities are endless.
Millions of people suffer from identity theft every year. Sensitive and personal data like name, date of birth, and addresses stored in centralized servers are not only susceptible to hackers stealing the data, many firms have been known to leverage the data for their monetary benefits and even sell it.
Personal information can be used by bad actors to apply for credit cards, loans, and other activities for their benefit, with the original person suffering the consequences.
There are several methods and tools that people and organizations can employ to protect themselves, such as using VPNs to hide their activity online. There are many reliable VPNs available today, yet, these act only as a layer of protection against data logging by other parties. VPN services themselves will still have access to your browsing history since everything is routed through their server.
With blockchain, only the right person can access the data. There are several blockchain projects that allow for KYC and AML processes, where the user data is encrypted and saved on the blockchain, allowing only the right person to view the data when required – approval is given by the actual person or company behind the identity.
Forgery and Supply Chain
Fake products, both digital and physical, are a million-dollar industry, if not a billion. Every day, hundreds of thousands of fake products, from shoes to pieces of art, are sold to unsuspecting people. For products that are sold internationally, this issue is more pronounced as there are several people involved in the supply chain, or someone can simply produce fake products and sell them.
Blockchain comes in handy here, where each item’s data can be recorded, from the date of production, to where it was shipped, including the retail shop and when it was sold. Using something as simple as a QR code, buyers can access the data for a product they wish to buy and get a complete history as a certificate of authentication.
This can also extend up-chain, where even raw materials can be recorded, such as the date of procurement, which batch these were used for, and where the materials were sourced from.
Blockchain is the Ultimate Answer
By leveraging the immutable and decentralized nature of blockchain, businesses can create a tamper-proof and transparent system for recording transactions and tracking assets. This not only enhances the security of the system but also increases trust among all stakeholders involved. However, it is important to note that simply using blockchain is not a silver bullet for fraud prevention. Its effectiveness depends on proper implementation and adherence to best practices, such as penetration tests and extensive code audits.
As blockchain technology continues to evolve and mature, we can expect to see more innovative applications that leverage its unique capabilities to prevent fraud and enhance security.
BLOOCK offers blockchain-based solutions for businesses to securely and efficiently manage their data and processes. By leveraging the immutability and transparency of blockchain technology, BLOOCK provides secure digital identity verification, document certification, and supply chain traceability. Stay up-to-date with the latest developments in blockchain technology and how it can benefit your business by subscribing to BLOOCK’s newsletter today.