Exploring the benefits of blockchain technology in fraud detection and prevention

In today’s digital landscape, there is a significant risk of data breaches, cyber theft and other such fraud. Digital transformation has enabled fraudsters to find new lines of attack and exploit vulnerabilities. Fraud has always been a damaging factor in business, especially in the financial industry, causing fear among users when making transactions, processing insurance applications, assessing claims or performing such financial activities.

This graph showing the average cost of a data breach in the US from 2006 to 2022 is quite an eye-opener for organizations when it comes to understanding the value of keeping security measures in place.

To prevent this, businesses must have a fraud-proof solution in place that can make it easier for customers to protect their personal data and transaction history. Fortunately, there is a technology that can effectively detect and prevent such fraud: Blockchain (a decentralized digital ledger).

How Blockchain Technology Works and Why You Should Care

Blockchain has been a buzzword for several years now. It is a decentralized solution that uses a distributed ledger to produce an immutable and reliable record that can only be accessed by those with permission.

In simple words, blockchain is a digital ledger that stores transaction records in a secure and transparent manner. The ledger consists of blocks that store data, and each block is linked to the previous block, forming a chain of blocks. Once a block is added to the chain, no one can modify, alter or delete it to their advantage, providing a high level of security and transparency for users.

All transaction records and data stored with the blockchain are verifiable and tamper-proof, helping insurance companies use consistent and reliable data. Blockchain can build trust and transparency across the BFSI market and other business industries, minimizing the risk of vulnerabilities fraudsters exploit for their profits.

Here’s a helpful infographic that can further explain the process:

For example, blockchain helps detect and prevent double fraud. When someone approaches multiple insurance companies to submit a claim, the blockchain prevents the invalid submission from the same claim by providing a clear audit trail, checking the identity and verifying the origin of the insured items.

The Commonwealth Bank of Australia (CBA) and Morgan Stanley in the BSFI market, Nestle and Walmart in the supply chain and other renowned businesses across industries are already leveraging the power of blockchain applications to protect their systems and provide a secure experience to their consumers.

Blockchain use cases for businesses

Blockchain is a new technology trend that is revolutionizing businesses across industries. Here are some of the most common blockchain use cases for businesses:

Supply Chain Management

Blockchain can track and trace goods transported through the supply chain, providing transparency and accountability. It helps reduce fraud, increase efficiency and improve the customer experience. This has been implemented by Walmart to improve and secure their supply chain

Verification of digital identity

Blockchain provides a secure and decentralized digital ID that helps prevent identity theft and fraud.

BFSI market

The banking, finance and insurance (BFSI) market has been harnessing the power of blockchain technology since its introduction to the tech world. In the BFSI market, blockchain helps improve efficiency and transparency, enable faster and more secure transactions and reduce fraud.

Intellectual property rights

Blockchain helps create a secure, transparent and tamper-proof record of intellectual property rights, making it easier for companies to protect their patents, copyrights and trademarks.

Health Service

Blockchain in healthcare facilitates a transparent and secure sharing of medical records, which leads to improved patient care and reduced healthcare costs.

Now that we know how blockchain works under the hood and its various use cases, let’s explore the benefits of fraud detection and prevention.

Advantages of Blockchain in fraud detection and prevention

While the use of blockchain is often associated with supporting Bitcoin transactions, blockchain’s powerful role in the business world extends far beyond cryptocurrencies. One of the areas where blockchain technology can have a significant impact is fraud detection and prevention.

Let’s dive deeper to know the many benefits of blockchain in fraud detection and prevention.

Immutable ledger

Immutability is one of the most significant use cases of blockchain, making it a revolutionary technology for fraud detection and prevention. Once data or transactions are stored in the block, they cannot be modified, altered or removed. This means that any suspicious attempt to tamper with the transaction will be detected and prevented in real time, making it daunting for fraudsters to exploit the vulnerabilities.

Transparency

Transparency is another notable feature of blockchain, making it an effective technology for fraud detection and prevention. Since all transactions in the blockchain are visible to all members with permission, any changes to the ledger are recorded in real time and visible to everyone. So if someone tries to tamper with the data, their attempt will be detected immediately and they cannot carry out their fraudulent activities.

Decentralized nature

Blockchain is a decentralized, distributed digital ledger that records data and makes it visible to all authorized members. In a traditional centralized system, fraudsters can change the data to their advantage by hacking into a central database. However, since blockchain is a decentralized technology, there is no opportunity for fraudsters to carry out their malicious activities

In the decentralized network, only authorized people from various departments can access, share and control current and past data. It enables all authorized members to detect erroneous transactions without the need for a central authority, preventing possible human error, fraud and wasted time.

Smart contracts

Blockchain facilitates smart contracts, which are self-executing contracts with the terms of the agreement between buyer and seller written directly into lines of code. The smart contract triggers an alert when a transaction is made outside working hours or exceeds a certain amount.

As quoted by Forbes,

“The smart contract allows both buyers and sellers to create ‘if/then’ contracts, meaning that one step in a process will not be fulfilled until it is fully verified.”

It can help automate fraud detection and prevention in businesses across industries. For example, in the insurance industry, as soon as a customer provides all the necessary documentation to submit a claim, the claim will automatically be settled, reducing the risk of human error, reliance on third parties and fraudulent activities.

Authentication

Identity theft is one of the most common fraudulent activities, which has affected consumers worldwide in recent years. Blockchain-based authentication system helps verify the user’s identity, helping to prevent identity theft. It ensures tamper-proof security for a person’s digital ID.

The blockchain network is created based on a request for authentication and permission. This means that not everyone can access the system and service; only authorized parties with permission can access a single version of the real information, and a known party can verify transactions. Thus, blockchain provides secure and authorized access to data and prevents fraud.

Audit trail

Blockchain’s audit trail capability can add value by detecting and preventing fraud. The transparent record of all transactions is stored in the immutable ledger, making it quick and easy to trace the origin of a transaction. Consequently, it helps identify fraudulent activities and prevent future occurrences of fraud.

Final thoughts

In today’s digital age, fraud is an ever-present threat, causing financial loss and damage to a company’s assets and reputation. But every problem has a solution, and here the solution lies in the adoption of blockchain.

Blockchain is a revolutionary technology that helps detect and prevent fraud by providing a transparent, immutable and decentralized ledger that cannot be changed, deleted or manipulated. By leveraging the features of blockchain, such as smart contracts, authentication and audit trails, businesses can build robust fraud prevention systems that trigger real-time alerts to prevent fraudulent activities.

As blockchain use cases continue to evolve across industries and gain wider adoption, we can expect to see more innovative approaches to securing the digital landscape. Therefore, it is important for businesses to embrace blockchain infrastructure as a service to protect themselves and their customers.