Fraud in any organization or company isn’t a problem that should be ignored. In addition to being costly, it can decrease employee morale and create an unstable business environment as well as undermine business and consumer relationships.
According to a study by the Association of Certified Fraud Examiners, the typical organization loses five percent of revenues to fraud each year.
Unfortunately, fraud in a business can go undetected for a long time and is often hard to uncover.
Blockchain can be used to fight and prevent fraud in a business network.
One of the major components that determines the value of blockchain is its ability to share data in a fast and very secured way without any one entity having to take responsibility for safeguarding the data.
Enhanced security is a leading benefit of blockchain technology.
The enhanced security offered by blockchain stems from how the technology actually works: Blockchain creates an unalterable record of transactions with end-to-end encryption, which shuts out fraud and unauthorized activities. Additionally, data on the blockchain is stored across a network of computers, making it nearly impossible to hack (unlike conventional computer systems that stores data together in servers). Furthermore, blockchain can address private concerns better than traditional computer systems by anonymizing data and requiring permissions to limit access.
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.
According to Casey Evans, blockchain expert and professor of finance and accounting at American University’s Kogod School of Business, blockchain technology can help fraud detection because it enables the sharing of information in real-time and all participants in a blockchain have visibility over transactions.
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.
Another beautiful attribute of blockchain technology that aid it in preventing fraud is the fact that blockchain can be permissioned.
Although, not all blockchain can be 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. This makes it extremely hard for fraudulent activities to take place.
Application of blockchain technology can help make business networks less susceptible to fraud.