There is a new financial platform set to revolutionise the financial sector. Utilising artificial intelligence, predictive analytics and big data, Blockchain offers a network which far exceeds the current centralised model in accuracy and reliability. So, with some people claiming that Blockchain has made fraud a thing of the past and others more sceptical about its capabilities, what is this new technology and where does it leave us in relation to financial fraud prevention?
The future of financial services is on the Blockchain, that much is for certain. As of the end of 2018, 32% of legal, compliance and anti-fraud professionals have adopted the technology and perhaps it is this kind of statistic that is garnering such a big hype within the industry. It is also Blockchain’s vast improvement on the current model that is getting people talking. With the number of global transactions set to increase with the rapid growth of fintech, e-commerce, online banking, and in-app purchases, the oversight on these transactions is going to present a challenge. The current process of initiating and settling an international payment involves multiple stages, numerous currencies, and often many financial middle-men. This can take days to be authorised, is often susceptible to error, and subject to high fees. It is these dilemmas that Blockchain takes out of the equation. This innovative network is cost-effective and efficient because it eliminates duplications within the transaction and reduces the requirement for financial intermediaries to oversee these steps. This is considered the accepted information regarding this new technology.
Where Blockchain is coming into contention is to what extent it can prevent fraud. Financial processes at the moment aren’t transparent enough to prevent against private tampering, and are, therefore vulnerable to fraud. This is how Blockchain is proposed to deal with this issue:
Blockchain runs on a consensus model, meaning that there is proof that members of the platform (and their trading assets) are exactly as they seem and that no transaction can be added without implicit authorisation from all participants. Additionally, a Blockchain system is not owned by any singular entity (person or organisation) which means that it cannot be changed or altered without being permanently recorded. It is for these reasons that some people believe that this new system has put an end to fraud. One of these people is Don Tapscott, CEO of the Tapscott Group and co-author of Blockchain Revolution, who says:
“This blockchain is running across countless computers. I would have to commit fraud in the light of the most powerful computing resource in the world, not just for that ten-minute block, but for the entire history of commerce, on a distributed platform - this is not practically feasible.”
It is clear to see why financial professionals like Tapscott feel this way; Blockchain presents a revolution in financial processes with transactions being secure, authenticated, and verifiable, in theory. However, whilst this new system has a multitude of merits, it does also have practical loopholes, and unfortunately, this is due to the corruption of people rather than this system itself. As Eric Wall, leader of cryptocurrency blockchain at tech company Cinnober, states:
“The blockchain can only be aware of the inputs, not the reality. The blockchain will track [inputs] as valid data, so if you have the authority to input bad data, then the blockchain will validate the bad data. You still have a dependency on the real world, trusted sources of data and authorisation. If you corrupt that then you corrupt the process.”
With this in mind, it appears that high-performance sectors such as financial trading may still be susceptible to the corruption of blockchain data as a fast-transaction environment. It is clear that Blockchain has huge potentials, and some experts are calling on government facilitation, whereby the introduction of uniform standards and a solid infrastructure will deal with security concerns and build trust within the financial ecosystem. Perhaps this should be done in collaboration with risk managers, enforcement agencies and others tackling fraud. If this is achieved, then some argue that it is possible for Blockchain to revolutionise the world and bring a complete end to fraud.
There is almost no doubt that this new system will bring vast improvements to the financial sector. However, whilst there is still the unreliable factor of human behaviour involved, fraud is still a possibility and the Blockchain revolution will have to wait.
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