In this Part 3 of the series, I would explore some details of how Blockchain prevents fraud and the various types of Blockchain, as well as the latest developments.
How Blockchain prevents fraud – 3 features
Blockchain is distributed
A blockchain is a type of distributed digital ledger containing transaction data that is shared across a peer-to-peer network and continually reconciled. There is no central administrator or centralized version, so there is no single point of failure. Instead, management and authorization are spread across the network, so there is no obvious place for someone to instigate a fraud scheme.
There are several methods fraudsters use to conceal their criminal activities, including altering or deleting information in a company’s accounting systems, changing electronic or paper documents and creating fraudulent files. Using a shared digital ledger can help reduce fraud because it increases the visibility and transparency of the transactions made throughout a supply chain and between members of a business network. Participants can see the history and transfer of assets, so fraudulent transactions are easier to identify. Plus, to tamper with the transaction records on a blockchain, an individual or group of individuals in collusion would have to control a majority of the system.
Read this in-depth guide to learn more about distributed ledger technology.
Deploy the IBM Blockchain Platform across multiple environments
Blockchain is immutable
Transactions recorded on blockchain are immutable because they cannot be deleted or changed. Before a “block” of transactions can be appended to the blockchain, network participants must agree the transaction is valid through a process called consensus. The block is then given a timestamp, secured through cryptography and linked to the previous block in the chain. Though you can create a new transaction to change the state of an asset, it will simply be added to the chain, and the original record will still be accessible. So, by using blockchain you can see the provenance of an asset, including where it came from, where it’s been, and who’s had ownership of it.
Counterfeiting is a global problem that affects a wide range of industries such as luxury goods, clothing, food products, pharmaceuticals and more. Proving or disproving the authenticity and quality of an asset can be a challenge because traditional supply chains are long, complex and lack transparency. However, if a producer or manufacturer’s goods are placed on blockchain, those goods will have provenance due to their immutable transaction history, and that will make it difficult to pass off fake products as real.
Watch this video to learn how blockchain helps reduce fraud in the diamond industry.
Blockchain can be permissioned
Businesses deal with a lot of confidential data; they can’t let just anyone have access to it. There must be some way to ensure outsiders can’t get into the network and insiders can’t corrupt the records. This is where permissions come into play. But unlike the previous features I’ve discussed, not all blockchain networks are permissioned. However, permissioned networks can be great for fraud prevention because they restrict who is allowed to participate and in what capacity. Members of a permissioned network must be invited and validated before they can contribute.
Controlling access and identity management are key in a permissioned network. With Hyperledger Fabric, a blockchain implementation framework hosted by the Linux Foundation, participants are issued cryptographic membership cards to represent their identity. That membership card grants access to see the transactions that pertain to them. However, even credentialed users can’t add to the blockchain without consensus, and no one can tamper with records on the blockchain because they are encrypted. Without a way to hide their tracks, fraudsters have a much higher chance of getting caught.
A blockchain is an organized way of structuring and storing data online. Blockchains are essentially databases that are replicated over peer-to-peer (P2P) networks. Spreadsheets that anyone can access and make use of while having the responsibility and incentive to maintain them. One should note, however, that blockchains are programmable systems which can be tweaked to suit different needs. Blockchains have many features and functions that make them distinctly unique and revolutionary. Some of the more prominent ones include: Organizing data, information, or content in a way that is verifiable, up-to-date, reliable, and accurate; Distributing information that is secure by making everyone privy to it, so that no one can make unwanted changes or single-handedly destroy information; Making data tamper-proof while also being widely accessible, on-demand and giving us the ability to continually update it; The ability to store sensitive data online e.g. financial transactions; The need for consensus between participating parties when updating or adding information; Consolidating data into a chain of events, ensuring the data is stored chronologically so that transactions are irreversible; Possibility for freedom from centralized authorities and elimination of third parties; and immutability, increased efficiency, improved security, transparency, and enhanced productivity.
Classification of Different Blockchain Types
Public — this is an open platform that anyone around the globe with internet access can participate in. A public blockchain can be fully decentralized. A good example of this is the Bitcoin protocol, which is the first functional blockchain ever created. Data found in this type of blockchain system is public and can be read, added to, and confirmed by anyone. The user costs on public networks tend to be slightly higher than on private ones due to more validations being needed to ensure data integrity. They can also be a bit more sophisticated since more security checks and verification mechanisms tend to be put in place to prevent fraudulent practices. Private — with private blockchains, network creators have control of settings and can restrict access to users. This means that the central authority has the power to change the rules, reverse transactions, and make decisions or enact principal actions. These networks tend to be much smaller than public networks but require lower maintenance costs and user fees since fraudulent checks and verifications are not performed as regularly as on public networks. Hybrid — these can be a mix of both public and private blockchains in the sense that the ability to read and write information onto the blockchain may be extended to an exclusive group or nodes.
Latest Development
Dec 24, 2019 – China Securities Regulatory Commission (CSRC), the country’s financial watchdog, has recently received an application for listing an exchange-traded fund (ETF) that will track blockchain-related stocks as underlying assets.
Dubbed Penghua 鹏华 Shenzhen Stocks Blockchain ETF, the application was filed by Shenzhen-based asset management firm Penghua Fund and was accepted by the CSRC on Dec. 24, according to the regulator’s disclosure.
Credits and Sources
| Article title: | IBM Blockchain Platform |
| Website title: | Ibm.com |
| URL: | https://www.ibm.com/blockchain/platform?cm_mmc=OSocial_Blog-_-Blockchain+and+Watson+Financial+Services_Blockchain-_-WW_WW-_-Three+features+of+blockchain+that+help+prevent+fraud+CTA+1+Platform&cm_mmca1=000026VG&cm_mmca2=10005805& |
https://www.ibm.com/blogs/blockchain/2017/09/three-features-of-blockchain-that-help-prevent-fraud/