How Can The Blockchain Be Used To Prevent Fraud?

Dec 24, 2021
3 min read

What is Blockchain Technology?

Blockchain is an emerging technology for storing data in a distributed ledger that allows multiple stakeholders to securely transmit credentials to the exact information. It allows transitions to be recorded and added to the block in chronological order and monitors digital currency transfers without central record capping. Currently, blockchain technology is mainly used to verify transfers within digital currencies. That way, it can be digitized, coded, and inserted into virtually any document in the blockchain.

KEY TAKEAWAYS:

  • Blockchain differs from a typical database in the manner it shares information. Blockchains store data in blocks that exist then interconnected via cryptography.
  • As new data comes it is inserted into a new block. A new block is attached to the previous block once it is filled with the data, which brings the data together in chronological order.
  • A variety of information can be stored on the blockchain, but by far the most widely used is as a ledger for transactions.
  • In the case of Bitcoin, blockchain is used with decentralization so that not a single individual or group has control but all users collectively retain control.
  • Decentralized blockchains are unchangeable, i.e.,  the data entered is irreversible. In Layman's terms, the transactions are permanently recorded and can be viewed by anyone.

Is Fraud Possible in Blockchain?

Blockchain technology helps reduce the crime rate of fraud using shared digital ledgers that can enhance the visibility and transparency of transactions between business network participants. In addition, components of the blockchain web can not only review the record but also share their investments.

According to an analysis by the Association of Certified Fraud Examiners, the average individual loses 5% of their revenue each year due to scams.

Three Ways Blockchain Can Help Prevent Fraud

Observing three methods of blockchain can help you to make enterprises less unprotected from fraud.

Blockchain is Distributed

A blockchain distributed digital record is a type of shared transaction data that is transmitted to peer-to-peer networks and frequently communicated. There is no central moderator or central version, so there is no single point of failure. Rather, management and support are spreading throughout the web, so there is no area for anyone to start a dishonest scheme.

Fraudsters use a type of technique to cover up their criminal activities, including distorting or deleting information in a company's accounting system, altering electronic or paper documents, and creating fraudulent files. Using shared digital records can help reduce fraud as it increases the visibility and transparency of transactions between members of the supply chain and the business network. Participants can view the history and transfer of assets, so it is easy to identify fraudulent transactions. In addition, to change the transaction records on the blockchain, an individual or group of individuals will have to collaborate to control the majority of the system.

Blockchain is Immutable

Transactions counted on the blockchain are unchangeable because they cannot be deleted or changed. Because a "block" of transactions can be added to the blockchain, network participants must agree on the validity of the transaction through a process called consensus.

The block is then allotted a timestamp, which is encrypted and linked to the previous block in the chain. Although you can create a new transaction to change the status of an asset, it resolves to be efficiently incorporated into a Chain, and the original record will still be accessible. Thus, utilizing Blockchain you can visit the realism of an investment, including where it reached from, where it's been, and who owns it.

Blockchain can be Permissioned

Businesses deal with a lot of confidential data. They can't let anyone in. There must be some way to ensure that outsiders do not enter the network and insiders do not break the record. This is where permissions come in handy. But unlike the previous features I have discussed, not all blockchain networks are allowed. However, permission networks can be a great deterrent to fraud because they restrict who is allowed to participate and in what capacity. Licensed network members should be invited and verified before they can cooperate.

Conclusion

Blockchain technology will play an important role and help deal with ethical issues such as fraud, theft, or counterfeiting. Blockchain technology can help solve some social and financial problems by avoiding financial losses through fraud, deception, and counterfeiting in finance, healthcare, supply chain, automobile, democracy, and many more. This blockchain technology is paving the way for building trust in the community by reducing fraud and untruth widely.