Fraud is one of the most serious challenges to the global economy, according to a PWC survey, with 47 percent of businesses reporting fraud in the last 24 months. Any solution aimed at preventing financial transaction fraud has failed. Artificial intelligence, for example, is intended to minimize direct human intervention in transactions, thus reducing fraud; however, fraud continues to rise year after year.
Blockchain, a new financial system that is just over a decade old, is the ultimate anti-fraud solution. Blockchains are cryptocurrency exchanges, and as such, they are essential to the smooth operation of digital economies. According to a study by bitdegree.org, there are 861 blockchains in existence, all of which are distinguished by immutability, decentralization, and transparency.
Immutability
The lack of proper data storage systems that ensure each consumer is completely accountable is the first factor behind the rise of fraud in financial transactions around the world. For example, the current financial system allows accountants and other transaction parties to delete or modify data after a transaction has been completed. Dishonest people can choose to exploit this by erasing data or altering values, giving them an unfair advantage in transactions. Others can opt to shred some transaction papers and receipts, hardening up on any transactions.
The immutability and permanence of blockchain help protect financial transactions from threatening fraud. Users of blockchains are unable to alter or delete any details of previously performed transactions. First and foremost, certain groups, also known as miners in mining and staking, verify transactions. A released block can't be changed or erased.
If an accountant or another person makes a significant error that needs to be corrected, the entire transaction history cannot be erased. To alter the state of the properties, they may instead make a new transaction. The accounting officer will also be able to justify their error since both the latest and original transactions will be available in the chain.
The traceability of digital assets to their account of origin and receiver is another benefit of immutable transactions.
Transparency and Decentralization
Another feature missing in the fiat world's transactions is transparency—many company workers complete transfers behind closed doors, preventing approved employees or individuals from seeing the data. Furthermore, due to a lack of transparency in transactions, many developed countries have seen an increase in corruption cases. Dishonest government and corporate employees can take advantage of the lack of transparency and use it to their advantage. The blockchain is the most comprehensive solution for ensuring accountability in both government and business transactions.
Blockchain is also a decentralized, open network that makes all transaction data available to the public. The decentralization of blockchains means that the services offered on the blockchain are not governed by a central authority. Rather, transactions are routed across a distributed network, with each user having the ability to display all current and previous transactions.
The process of auditing the records of organizations using blockchains is made easier by transparency. Rather than receive false information from company or government insiders, auditors may choose to display the blockchain's data, resulting in more accurate results.
A clear network may also aid in the battle against counterfeiting. Any customer may access the information and compare it to other items on the market since the manufacturer can state specifics about the goods they produce. If the specifics do not fit the public in the blockchain, the products are most likely counterfeit. Furthermore, supply chains are frequently opaque, but because of blockchain's immutable transparency, suppliers would be needed to prove blockchain.
Permissionless
While financial transactions must be transparent, certain transaction information are best kept private. Any top government secrets, for example, must be kept out of the public eye. To prevent copyright disputes, some businesses might want to keep some information regarding a new product launch confidential.
Since transparent networks are ineffective in these cases, another blockchain pattern known as permissioned blockchains has emerged. These blockchains add another layer of protection to transactions, limiting unauthorized people's access to information. In permissioned blockchains, the flow of information is restricted to a small group of people who have a digital clearance card. Since information is not made public, the flow of information inside the organization would be transparent, reducing the risk of other forms of fraud.
Furthermore, in permissioned blockchains, auditors, company attorneys, and other government officials may gain access to a specific company record in the blockchain for the purpose of conducting a fraud investigation.
Final thoughts
Despite the fact that the financial world is currently rife with fraud, blockchain adoption has the potential to reduce global fraud numbers. First and foremost, blockchains have the immutability property, which ensures that transaction values cannot be changed after a block is released. The government, as well as small and large businesses, will benefit from this immutability because company information would be preserved in perpetuity.
Another feature of the blockchain is the decentralization of authority, which reduces the risk of single high authority fraud. Furthermore, the openness of the blockchain prevents corrupt workers and government officials from conducting high-profile transactions in secret. Rather, any member of the public may look at and ask questions about those information.
The permissioned blockchain trend restricts access to certain critical information to a limited group of approved individuals. Blockchain is the long-awaited ultimate solution to the global rise in corruption, despite its lack of widespread adoption.
Governments should start using blockchains when talking about money.